Enterprising Investor Forum

Excessive Expectations Wednesday, November 21, 2007

Following the recent rise in commodity prices and emerging market, we have a feeling that some investors are starting to forget that investing is not a game and it is far from being easy. Investors in ETFs and funds exposed to these sectors are starting to brag about 25+% gains at dinner parties and find it hard to believe how some money managers are struggling in recent times.

At Enterprising Investor Forum, we believe that investment returns should be measures on long-term performance and that private investors should understand that 25+% gains are not ‘the norm’ and that are rarely sustained in the long-term; a real return of over 5% after inflation would be a great achievement! This return would mean that you are doubling your money every 15 years.

We recently came across a story about Winston Churchill that made us smile:

… In the 1930s, out of power and financially strapped, Churchill taught a lecture course at Cambridge on human sociology. One afternoon standing at the lectern and, always prone to the dramatic, he turned to the large class and demanded, “What part of the human body expands to 12 times the normal size when subjected to external stimulation?”

The class gasped. Churchill, obviously relishing the moment, pointed at a young woman in the tenth row. “What’s the answer?” he demanded.

The woman flushed and replied, “Well, obviously it’s the male sexual organ.”

“Wrong!” Said Churchill. ” Who knows the correct answer?

“Another woman raised he hand. “The right answer is that it’s the pupil of the human eye, which expands to twelve times its normal size when exposed to darkness.”

“Of course!” exclaimed Churchill, and he turned to the unfortunate first woman. “Young lady,” he said, “I have three things to say to you. First, you didn’t do the homework. Second, you have a dirty mind, and third, you are doomed to a life of excessive expectations.”