Be the Barry Sanders of Investing
Humble, not flashy, but very effective. Sanders has this in common with my favorite investing strategy.
Sanders casually handing the ball back to the referee after scoring.
Some of the most heated arguments between my brother and me were caused by Barry Sanders. You could. not. tackle. him in Joe Montana ‘94. And if you had the Detroit Lions you had Barry, which meant you couldn’t lose. So, a truce was made – nobody could pick the Lions. The only allowable ‘game’ with Barry was to see who could run around the field the longest without being tackled.
But backyard football was another story. I was always Barry Sanders in my mind. I loved everything about him. He was small, shifty, fast, but most of all, when he scored (and he scored a lot) he simply handed the football to the ref. No dancing. No blowing kisses. No spiking the football. He just handed the ball back, which said, “I’ve been here before, and I’ll be back again - no big deal”. And that’s way cooler than any celebration.
That unassuming, confident, but humble mindset was what he was all about. At 5’8”, one of eleven siblings, the son of a handy-man, and from Wichita, KS, he didn’t have the pedigree. He didn’t even start on his high-school football team until the fourth game of his senior season. At Oklahoma State, he played second fiddle to Thurman Thomas until he finally got his chance in 1988. And ‘88 was his coming out party. He shattered the NCAA’s single-season rushing record (which still stands) and won the Heisman trophy.
And his legend only grew from there. Drafted by the Detroit Lions, he went on to play his entire career with them. He was a Pro-Bowler every year he played (10x), 8x All-Pro, the 4th all-time leading rusher, and top 10 in rushing touchdowns, retiring at his peak culminating in his 2004 Hall of Fame induction.
And in his 10 seasons and over 100 touchdowns scored, he never celebrated. He just casually handed the ball back to the ref.
The Barry Sanders of Investing Strategies
Unassuming, not flashy, but very effective. This describes Sanders but could also describe a passive investing strategy. You won’t see many billboards, commercials, or front-page articles about it. But it does what it does and does it well, consistently beating its flashier active counterparts.
What is passive investing? In short, it’s accepting market returns. Passive investing takes a long-term approach and focuses on controlling the controllable (diversification, taxes, investment costs, behavior, etc.).
It’s elegantly simple and effective. But don’t mistake its simplicity as being unsophisticated. As Warren Buffett is fond of saying, it’s “simple, but not easy”. Staying invested to be able to fully participate in the market’s returns during stressful events can be challenging – this election season being a great example.
The opposite of passive is active. What does active mean? Most of the stuff you hear about in the media is from “active” investors. Very serious sounding things like, “We’re going to get defensive here, because we believe it protects us at this stage in the cycle,” is an active management mindset. And there are enough flavors of active to fill the airwaves and internet for the rest of time.
Loading up on Bitcoin, unloading Bitcoin, stocking up on Gold, selling Nvidia because it’s expensive, buying Nvidia because it’s cheap, getting out of the market because of the election, etc. etc. are all ways of being “active”. Basically, it’s monkeying with your portfolio (to use a technical term).
And in the long run active hasn’t worked. Or it works until is doesn’t. How do I know?
For starters, there is an annual survey of active funds compared to their assigned benchmark. Below are the most recent results from year-end 2023.
Notice the 1-Year returns. It’s really not so bad. Only 59.68% of Large-Cap active funds underperformed their benchmark. On the Large-Cap Growth side of things, only 9.76% underperformed. This means in 2023, you likely were better off investing in an active fund in the Large-Cap Growth space (think Nvidia).
The problem is the farther along you go, the worse it gets. It works until it doesn’t. The swing in Large-Cap Growth goes from 9.76% underperforming to 94.09%!!! And 93.97% of all domestic (U.S.) active funds underperformed their benchmark over 20 years.
Historically, the odds of someone picking a fund that outperforms in the long run (which is what matters) are very, very small.
Here’s a recent example of a “it works until it doesn’t”.
Cathie Wood – ARK Investments (ARKK)
No fund was as hot as Cathie Wood’s ARKK ETF fund in 2020. ARKK had an incredible return of 152.8% in 2020 alone and it was all over the financial news. She was the next Warren Buffett, Peter Lynch, all-in-one. And she did it by investing in flashy, “world-changing”, innovative companies.
And if you were an early investor, you were well rewarded. The chart below shows the incredible performance of the fund from its inception to its peak in February 2021 – 740.9%. This blew the doors off a passive, U.S. Stock Market fund (symbol: VTI) for the same period.
And with that performance, investors flooded into the fund. The problem is, when the fund peaked in February 2021, there was no announcement that said, “this is the peak!”.
And this is how it has performed since.
DOWN 69.80%. Ouch.
In fact, most of the people that have invested in ARKK lost money even though the lifetime returns are positive (chart below). They were simply chasing performance and got in at the exact wrong time. It worked until it didn’t.
The Unassuming Alternative
This chart shows why I love passive investing. Steady, consistent, unassuming - it just gets it done. By the way, this fund (VTI) includes all the innovative companies of the sexier, active counterparts. It just holds other stuff too – it’s diversified.
Over the 10-year timeframe it has outperformed ARKK by 70% (224.9% compared to 154%). But just like we looked at previously, there were long periods (that big purple mountain) where it looked like you were missing out – BIG TIME.
It takes discipline to stick to the slow and steady approach, especially during periods when other funds are killing it.
Are there any guarantees that this approach will always outperform? Nope. There are never any guarantees in investing. But the odds of finding a fund that outperforms in the long-run has historically been very low.
So, while the media is screaming at us to do a whole bunch of stuff to our accounts (get out before the election!), I’ll take the odds and do what has consistently worked – again and again. And when I see returns like 224.9% above, I’ll simply hand the ball back to the ref because I’ve been there before, just like my man Barry.
Disclosure: The views expressed in this article are those of the author as an individual and do not necessarily reflect the views of the author’s employer Astoria Strategic Wealth, Inc. The research included and/or linked in the article is for informational and illustrative purposes. Past performance is no guarantee of future results. Performance reported gross of fees. You cannot invest in an index. The author may have money invested in funds mentioned in this article. This post is educational in nature and does not constitute investment advice. Please see an investment professional to discuss your particular circumstances