THE LAW OF AVERAGES FAVOURS YOU WHEN INVESTING
Consistency beats chasing last year’s winners. Here’s why you need to focus on steady investing, diversifying and a long-term strategy.
We always want the best. Best returns, make the best decisions, win races, win bets, have the best job, drive the best car, live in the best neighbourhood and house, and get the highest possible pension income. Yet when things go wrong (or normalise), we also want 100% protection because we do not want to see any investment values retract. We dump investments and fund managers that underperform their peers over short periods, and much of our decision-making is based on recent past performance. Long-term strategy goes out the window when the pressure taps open.
Sport has taught me a valuable lesson. It is not the person who strives to win all races or competitions at all costs who is the most accomplished sportsman or woman, it is the person who performs the most consistently over a long period.
The “all or nothing” person often experiences failures and a shortened career due to injury and burnout, while the consistent performer receives more long-term recognition and reward. The “all or nothing” person wins races, but the “consistent Jo” wins championships.
The regular winner also does not compete in each and every competition. He is selective in which competitions he enters, allowing himself to recover and reset.
I was by no means a professional sportsman, but I did achieve respectable results in various sports, particularly in triathlons. People who know me know that I love adventure, and I just had to give motor racing a go. In my second season, I won the respective championship. You may ask what this has to do with investing. Well, everything!
Playing the long game – consistency beats mastery
I realised early that I was probably not a top-10 athlete in each of the respective triathlon disciplines (canoeing, cycling, and running). I was probably a good top 5%-10% finisher in each respective discipline, but I was never going to win races. There were specialists who spent many hours training (more than what I was prepared to do because I’m lazy), who were just too good.
However, I figured out that if I could be among the top 10% in each of the legs of a triathlon, the chances are that I will finish the overall race in the top 5%. That became my goal, not to win, but to be in the top 5% of races I compete in. There were always exceptional athletes competing, but many of them were specialists in a single discipline. While they excelled in their favoured leg, they were often mediocre in the other two, which meant they always had to either defend their position or play catch-up, and both were challenging. Those who excelled in all three disciplines (top-10 finishers in each discipline) became champions and moved on to compete internationally.
Steady wins championships
The same applied in my short-lived motor racing stint. (Short-lived because motor racing chews through money faster than a politician chews through a budget and I don’t like wasting money!). My championship was won on the same principle that I applied in triathlons: if I consistently finished in the top three, chances are I will end the season on top, and that is exactly what happened.
Although I did win races, most of my results were 2nd and 3rd, but I never crashed or blew an engine (unfortunately, I cannot say the same about my debut season which was more like a demolition derby than a motor racing season). While my competitors were better drivers than I and had faster racing cars, they either won, crashed or blew up. I did not win the championship; they lost it. This trend is evident throughout the international racing fraternity, where some win championships without winning a single race during the season.
Everyone knows multiple world tennis champion Rodger Federer. In his famous 2024 speech to a group of college students, he revealed a surprising career statistic. In the 1 526 single matches he played at the time, he won 80%. What percentage of points did he win during these matches? Only 54%. What is the lesson here? (As per Rodger’s speech):
A point, good or bad, is just one point, and focusing on the next one with intensity and clarity is key.
Perfection is unattainable, even the best players don’t win every point but learn to handle losses and move forward.
Overcoming adversity and letting go of negativity is a mark of a champion.
Even top-ranked tennis players win barely more than 50% of the points they play.
All the above can be directly related to investing.
Greed distorts perspective: a marathon mindset beats hype
As investors, we are a strange, greedy bunch. When markets rally, we are disappointed that we did not participate in the full run. Are you happy with your 15%-25% return in rand over the last year? Given that the SA market returned almost 40% in 2025, don’t you think you could have done better? Think about it, if you were a USD investor in the JSE, you would have achieved a return of almost 70%!
Some investors are disappointed with their 2025 returns and point to the almost 150% return achieved by silver and the approximately 70% return that gold achieved. Surely their returns should have been higher. This can be true only if you invested in silver and gold just before the rally started and if you had a significant overexposure to either commodity. To my knowledge, very few (no one?) got that right.
On the flip side, when markets retract, we want perfect protection. Achieving a negative return of (-)10% in a year when the markets retracted (-)25% is unacceptable, even though you outperformed the market by 15%.
Investing is a marathon, not a sprint. Short-term returns should be ignored, and focus should be on a long-term strategy. The price at which you buy an asset is much more important than what the return of that asset was over the short term.
Focus on the odds: avoid chasing last year’s winners
Hindsight is a perfect science. Forget the “what if” scenario. Think about today and keep Rodger Federer’s quote in mind that even the best only beat the odds just slightly more than 50% of the time. Investment management does not have to be a 100% winning game. If you consistently get it right more than 50% of the time you will be a successful investor. Patience and persistence reward investors.
Consider what the right strategy is to deliver an acceptable outcome over the next five to ten years. Not the best outcome (that is speculation, not investing), but an acceptable one. If your return expectations are measured against the recent past performance of a single asset, you must also be prepared to accept negative returns exceeding those during your investment journey. Are you prepared to accept a 50% loss? If not, a more subdued portfolio with proper diversification should be your choice.
It is interesting how assets that experience unusual returns are punted and suddenly become on investors’ radars during periods of exuberance. Gold, silver, Bitcoin, offshore, SA, and whatever may be the next fad, are all on investors’ radars because of exceptional returns or currency depreciation.
The problem with this is that investors tend to invest at exactly the wrong time, after the exceptional returns have been achieved. Before investing in assets that have shown above-average returns over the last year, ask yourself the question: “What is the chance that these returns are sustainable and that they will continue to grow, and what is the downside that can be expected if they do retract to fair value?” Also ask: “Why didn’t I invest in this 12 months ago?”
Diversify to maximise returns
In my simple mind, playing the game of averages not only provides a safety net but also increases the chance of achieving acceptable and above-average returns. One does not have to bet the house to win the game. Take calculated risks.
Don’t bet all your money on a single horse. Diversify across asset classes, assets, asset managers, currencies, emerging markets (not only SA) and developed markets. Trust fund managers who know how to value assets and apply proper diversification strategies.
In my humble opinion, a selective suite of SA and global multi-asset funds will deliver an acceptable risk-adjusted return over the next five to 10 years. There is no need to increase the volatility of your portfolio by including single assets such as gold or silver.
You can always increase the risk and potential return in your portfolio by adding pure equity funds rather than single commodities. At the end of the day, fund managers can include any commodity or shares of companies that mine those commodities in their funds, and I trust their research more than my gut feel. You should too.
Aim to invest in the top 50% best funds. Chances are that your returns will be in the top 10%-20% of investors over five years or more if you invest in six to eight globally diversified funds with low correlation. The challenge is: which funds are the best? Short-term returns don’t always indicate true fund rankings, and just as gold and silver do not guarantee future returns.
Good luck with your marathon. Ignore the sprinters who come racing past you. The chances are good that you will meet them again at the water tables or on the hill.
May 2026 provide us with similar returns to those of 2025.
