“Twenty-Five Ironies of Investing”

— Book: “The Best of Jonathan Clements”, in the chapter titled “Your Money and the Markets”

The world of investing is full of contradictions, paradoxes, and inherent tensions. Twenty-five years ago, on October 31st, 2000, to be precise, legendary Wall Street Journal personal finance columnist Jonathan Clements issued a wonderful summary of 25 ironies of investing. Here are my Top 5, which speak to me in various ways:

#1 — “When stocks plunge, all the talk is of panicky investors dumping millions of shares. But every one of those shares is bought by somebody.”

– Right! We all know that there are always two sides to a trade, a seller and a buyer … but the funny thing is, the media’s focus when markets go down seems to be on all those investors selling their assets, and not on those buying. In down-markets, we seem to pay a large degree of attention to the motivations of those selling, and pay little attention to why others might be buying. As informed investors, we should always try to understand and appreciate both sides of the trade, i.e., why folks are selling and/or buying.

#2 — “Investors with long time horizons fret endlessly about daily performance.”

– Yes, this resonates with me very much. Although I have a very long investment horizon indeed (for example, some of my retirement goals are literally 50+ years away), I still follow – and react to – the ups and downs of the market. And whenever I observe big moves, for example, this past Friday, October 10, 2025, the S&P lost more than 2%, I start to stress a little bit. My mind will often go into a “what if it all crashes” mode, and I need to think clearly to pull myself out of that senseless fretting. “Time is on my side. Markets will grow, as long as economic wealth creation continues. I am well diversified.” – These are some of the reminders that help me stay cool and stop fretting.

#3 — “The rich are most able to bear stock-market risk, but have the least need to do so.”

– Sad, but true. It is a cruel irony that those who are well-off already can bear the most stock market risk … while those who are less well-off and need the markets to help them grow their assets can be most hurt when markets move in the wrong direction. Perhaps that at least partially explains why the rich in this country keep on getting richer, while the poor continue to struggle. What to do about it? My best guess would be fostering financial literacy and thoughtful market participation from as early on as possible for everyone, including, in particular, the less wealthy.

#4 — “By the time you are confident that a money manager is truly skillful, his career may be almost over.”

– Ha, right on! Of course, it takes time for the investment performance of a money manager to build and play out. As we all know, it is easy to be lucky in the short term and beat the market, but incredibly hard to do that consistently over time. And one should not judge by short-term, but long-term performance. So yes, I would only fully trust and be confident in a money manager’s abilities after quite some time … and then they would quickly get old and retire, leading to only a very short window of “trusted performance”!

#5 — “The more successful an actively managed stock fund is, the more difficult it is for that performance to persist, because of the influx of new cash from investors.”

– The paradox of size! Yes, young small funds may outperform … and when they do, they are incentivized to take on more funds, thus increasing their management fees. But that makes it harder for them to create investment returns, because now bigger funds chase the same limited sets of market mis-pricings that enable them to create alpha. So, as they need to deploy more funds, they are forced to accept higher risk and/or lower return opportunities. And thus their performance is almost guaranteed to drop over time. So, from an investor's point of view, in the cases where you are lucky and you invested in a good fund early on, be mindful that that performance will probably not persist over time. For many reasons, including the fund’s very own success!

Some interesting and thought-provoking observations — right? Sadly, Jonathan Clements passed away recently, on September 22, 2025. He left us with a wealth of insights and advice about personal investing – what a gift, and what a service to society.

Jonathan Clements