Facts and beliefs rule the markets but produce different effects. Facts are things that are. A fact affects everyone in the same way. Beliefs are ideas about facts, and only affect some people some of the time. It’s important to differentiate between them. Despite the fact that markets have made significant gains over the past eight years, you are still required to invest on the belief they will continue to do so. It’s all too easy to mistake beliefs for facts — to take as a fact, for example, the belief that a longer-term investment horizon is always an advantage, or that costs reduce returns, or that asset valuations are mean reverting. A longer-term horizon per se is not always an advantage. The less time spent in the wrong investment the better. While there is evidence to support the view that a buy-and-hold approach is a superior strategy, it’s not enough to put it beyond doubt. How should we reconcile the "fact" that costs reduce returns with the often heard complaint that (ex...
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