Galanthus is the snowdrop. A small white flower that comes up through the snow at the end of winter, before anything else dares to.

People have always read the snowdrop as hope. It is the first bloom to push through frozen ground, so for centuries it has meant a new beginning, and the certainty that spring is coming even when nothing around you says so. That is what Gala is to her mother and to me. She arrived, and the season changed.

But I did not choose the flower for the hope. I chose it for how the hope is built. A snowdrop looks fragile and is not. Its cells carry a natural antifreeze, proteins that stop ice crystals from growing large enough to tear the plant apart, so it can freeze on a bad night, bend to the ground, and stand up again in the morning undamaged. The tips of its leaves are hardened into a kind of drill, so it can break through frozen soil that would snap any other stem. It gathers what little warmth there is and melts a small ring of snow around itself to make room. And it does all of this on reserves it stored underground the year before, in a bulb, while everything else was still spending.

That is a portfolio. It is the only kind of portfolio I want to leave her.

Gala, if you read this one day: everything here is for you. The way I invest, the things I refuse to do, the boredom I choose on purpose, all of it is so that what your mother and I built comes through the winter and reaches you. I started writing these because I wanted to leave you something better than a portfolio. A portfolio can be lost. A way of thinking is much harder to lose. These notes are that.

There is a second reason the flower fits, and I found it after I had already chosen it.

The plant that makes you remember

In the Odyssey, Circe drugs Odysseus’s men. The drug makes them forget home. Once they have forgotten, turning them into pigs is easy. Odysseus goes to get them back, and on the way Hermes gives him a plant called moly to eat, so the drug will not work on him. He drinks Circe’s wine, stays himself, and gets his crew back.

In 1983 two neurologists proposed that moly was the snowdrop. The bulb contains galantamine, a compound that blocks exactly the kind of poison Circe is described as using. Today galantamine is a prescription drug for Alzheimer’s. Whether or not Homer had a real flower in mind, the idea is old and the idea is right: the antidote to forgetting is a plant that helps you remember.

I find that useful, because forgetting is the main way people lose money.

A paper from 1975

Charles Ellis published “The Loser’s Game” in the Financial Analysts Journal in 1975. It is eight pages long and I reread it about once a year.

Ellis borrowed an idea from an engineer named Simon Ramo, who had studied tennis. Ramo noticed that professionals and amateurs play two different games. Professionals win points. Amateurs lose them. The pro wins by hitting shots the other pro cannot return. The amateur wins by hitting the ball back and waiting for the other amateur to hit it into the net.

Ellis’s claim was that investing had quietly become the amateur’s kind of game. By the mid-seventies the market was mostly professionals trading against other professionals. To beat the market you had to beat people as good as you, and then also beat your own costs. So the winning move was to stop trying to win points. Make fewer decisions. Pay less. Stay in the game long enough for the math to work.

Fifty years later the paper reads like it was written last week. That is the test of a classic: it does not age because the mistake it describes does not age.

The song, this year

Here is the current version of the song. It is in your pocket.

Most of us now carry our investments on our phone, next to the weather and the family group chat. The app opens on a number, green or red, that tells you how you did today. One survey found that about half of investors look at that number at least once a day. Some look several times an hour. Nobody sets out to do this. The app is built to be opened, and we open it.

The pitch is honest, which is what makes it dangerous. Know where you stand. React in time. Stay informed. Every one of those things is true. Circe’s wine was good wine. The men drank it because it tasted fine.

Ellis saw this coming. The paper became a book, Winning the Loser’s Game, and one of its plainest ideas is that a little neglect is good for an investor, not carelessness but a decision, made on purpose, not to look every day. His reasoning is simple. Every look is an invitation to react, every reaction is a decision, and decisions are where amateurs lose points. The investor who checks less makes fewer moves, pays less, and stays with the plan long enough for it to work. The one who checks every morning turns a perfectly good plan into a loser’s game, one small correction at a time.

The problem is not the phone. The problem is what the number does to your memory. You came with one question, will this get us home, and the app quietly replaces it with a smaller one, am I up today. Answer the small question three hundred times a year and you will not notice that you have stopped asking the big one. Worse, you will start acting on it, because a red number asks to be fixed. That is Ellis’s loser’s game, played every morning before coffee.

This was measured a long time ago. In 1997 Thaler, Tversky, Kahneman and Schwartz ran an experiment where some people saw their results often and others saw them rarely. The ones who looked less held more of the riskier, better-paying asset and ended up with more money. Looking less made them braver. Nothing about the phone has changed that result; it has only made the looking easier.

What I actually do

In practice this comes down to three habits, and none of them need equations with Greek letters. What they do need is discipline, and the thing Charlie Munger, Warren Buffett’s lifelong business partner, kept coming back to for half a century: a temperament that can take a loss, or a windfall, without going crazy, especially while everyone around you is.

Write one page that says what the money is for, what home looks like, and why you own each thing you own. Keep it somewhere you can find it. Before you buy or sell anything, read the page again. If the reason for the move is not already on that page, you are not following your plan, you are following the noise.

Count your decisions. Not your returns, your decisions. Ellis’s whole point is that the count matters more than the quality, because every decision is a chance to hit the ball into the net. Most years my number should be small, and it is.

When something new sounds obviously good, go find the paper about it. There is almost always a paper, and it is almost always older than you. Someone already drank the wine and wrote down what happened.

That is the antidote. It was never about being smarter than the song, only about remembering where you were going.

Gala: home is the point. Everything else is weather.

Federico de Narváez

Bachelier, 1900

Louis Bachelier was a doctoral student in Paris who wanted to describe how prices on the bourse moved. What he wrote down was the mathematics of a particle being pushed around at random, five years before Einstein used the same mathematics for pollen in water, and he applied it to government bonds and options. His conclusion fits in one line: the expectation of the speculator is zero. The price already contains what buyers and sellers think, so the next move is as likely to go one way as the other.

His examiners graded the thesis “honorable,” which was a polite way of saying nobody cared. It sat in a drawer for fifty years until a few economists in Chicago and Boston dug it out and realized it was the foundation of everything they were trying to build.

Here is what I take from it in practice. Every trading idea you will ever be shown, from a bank, from a friend, from your own gut at two in the morning, starts with an expected return of zero. That does not mean the market has it right. It means that thousands of people with more information than you have already looked at the same thing, and the price is where they landed. The burden of proof is on whoever claims otherwise, and that includes you. I have learned to ask one question before anything else: what exactly is the reason this idea is not worth zero after costs? If the answer takes more than two sentences, it is usually zero.

Cowles, 1933

Alfred Cowles was a rich man who lost a lot of money in 1929 following the advice of professionals. Instead of getting angry he got organized. He funded a research institute and a journal, and he asked a question so simple it is a wonder nobody had asked it before: can stock market forecasters forecast?

He collected the recommendations of sixteen financial services, twenty-four publications and twenty insurance companies over four years, plus the famous Dow Theory editorials in the Wall Street Journal, and scored every one of them against the market. The forecasters as a group did worse than doing nothing. The best of them did no better than the best of thousands of portfolios picked at random. The Dow Theory, the most respected system of its day, lagged a simple buy-and-hold.

Cowles was careful about what he claimed, and I admire him for it. He did not say forecasting was impossible. He said that the forecasters who actually existed, when you measured them, showed no skill. Ninety years later that result has been repeated in every decade and every market where anyone has bothered to check, and I have never seen it fail.

The practical version is a small exercise I recommend to anyone who still reads bank outlooks. Every December the large banks publish their index targets for the year ahead. Collect ten years of them and score them against what actually happened. Then score them against the dumbest rule you can think of, last year’s price plus seven percent. Keep the sheet somewhere you can find it. You will not need to read another outlook.

Two habits

That is the whole chapter, and it leaves you with two habits, both old.

Treat price with respect. It is the summary of everyone else’s opinion, and it is usually better than yours.

Treat forecasts with suspicion, especially the confident ones, and especially your own. Skill is a claim, and claims can be measured. When they are measured, they usually fail.

The rest of this history is the sixty-year attempt to explain why these two things are true, and what an investor should do given that they are.

Gala, if you remember only one thing from this chapter: when someone tells you they know where the market is going, they are telling you something about themselves, not about the market.