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Underperforming Your Own Assets

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Summary

This article discusses how Anthony Pompliano, a crypto fan with a large following on Twitter, made a mistake in not including dividends when looking at the performance of the S&P 500. The article then explains the concept of the behavior gap - the difference between asset class returns and investor returns and how this is caused by a lack of understanding, discipline, and skill. Finally, it provides two charts that show the discrepancy between the S&P 500's returns and the average investor's returns over 10 and 20 year periods.

Q&As

What mistake did Anthony Pompliano make when looking at the performance of the S&P500?
Anthony Pompliano made the mistake of leaving out dividends when looking at the performance of the S&P500, thereby omitting most of the returns.

What is the Behavior Gap and how does it impact investor returns?
The Behavior Gap is the difference between asset class returns and investor returns due to a lack of understanding, discipline, and skill. It results in investors underperforming their own assets.

What are the three steps necessary to obtain returns that mirror your own holdings over an extended period of time?
The three steps necessary to obtain returns that mirror your own holdings over an extended period of time are to own them for the entire period, originally make your purchase during normal periods of price, and not sell prematurely, trade, or otherwise interfere with the power of compounding.

What is Tax Alpha and how does it relate to other asset classes?
Tax Alpha is the concept of reducing taxes on investments by taking advantage of tax-advantaged accounts and other strategies. It relates to other asset classes in that the same situation (or worse) exists for them as well.

What are the implications of the Behavior Gap on asset classes like crypto?
The implications of the Behavior Gap on asset classes like crypto are that investors may underperform their own holdings due to a lack of understanding, discipline, and skill.

AI Comments

👍 This article is an excellent explanation of the behavior gap in asset classes and stocks, and the power of compounding when dividends are reinvested.

👎 The article only offers a short-term look at the effects of compounding and does not provide sufficient detail on the long-term consequences of poor investing decisions.

AI Discussion

Me: It's about how people often underperform their own assets due to behavioral finance. It talks about how people may not be aware of the full extent of their returns or may not be disciplined enough to hold their investments for the long-term.

Friend: Wow, that's really interesting. It makes sense that many people don't understand the power of compounding and how it can lead to significant returns over the long-term. It also makes sense that people may not be disciplined enough to stick with their investments for the long-term.

Me: Yeah, absolutely. This article is a great reminder of the importance of having a good understanding of investing and the power of compounding. It's also a reminder to stay disciplined and not make rash decisions when it comes to investing.

Action items

Research the concept of Tax Alpha and how it can be used to maximize returns.
Learn more about the concept of the Behavior Gap and how it affects investor returns.
Consider setting up a Direct Indexing account to access losses and maximize returns.

Technical terms

Decoding: The process of converting encoded data into a readable format.
DRIP: Dividend Reinvestment Plan. A plan that allows investors to automatically reinvest their dividends into additional shares of the same stock.
Tax Alpha: A strategy that seeks to reduce the amount of taxes paid on investments by taking advantage of tax-advantaged accounts and other tax-saving strategies.
Behavioral Finance: A field of study that combines psychology and economics to better understand investor behavior and how it affects financial decisions.
Compounding: The process of earning interest on interest.
Behavior Gap: The difference between the returns of an asset class and the returns of an investor.