The Three Habits of Successful Bond Investors

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” - Paul Samuelson, American economist

It is human nature to be captivated by unbelievable stories, great victories, and thrilling endings. One could argue that we have a penchant for the dramatic.

Consider the world of professional sport, where fans live for moments of high drama and climactic endings – the buzzer-beating 3-pointer to win the National Championship or the last-minute touchdown drive to win the Superbowl. These are the moments that stick with us because they make for great stories.

In the realm of investing, too, we can be drawn to these epic, world-famous plays, such as George Soros netting a $1 billion profit on a bet against the British Pound in 1992, or Michael Burry and Steve Eisen making billions from their short positions on the U.S. housing market in 2008. Or, more recently, we had hedge fund manager Bill Ackman, who purchased credit protection via credit-default swaps (CDS) right before the COVID shutdown in March 2020, pocketing a cool $2.7 billion as markets plummeted.

While the thought of pulling off this type of victory might appeal to our thrill-seeking nature, we believe a fascination with the dramatic can lead to suboptimal decision-making and inferior long-term investment outcomes.