A few weeks ago I received a letter from IBM.
It was addressed to me, at my address, so like most people who receive mail in that fashion, I opened it. After all, who gets letters these days?
It turns out that the letter, while addressed to me, wasn’t meant for me. It was for my dad, who is also named William Mann. It also turns out that IBM* had been looking for him for a long time.
In 1986 he had bought three shares of IBM for my sister in a custodial account. The exact information is long-ago lost, but the Wayback Machine tells me that in the summer of 1986 each share of IBM traded for about $32 per share. And to save money on brokerage fees at the time, my dad had bought the shares directly from the company. Let’s not get too caught up in minutiae and just guesstimate that the entire investment was about $110.
If you’ve been investing for any length of time, you’ve most likely seen someone reference a Fidelity study that showed that the best performing investors were those who had either forgotten about their accounts or were, perhaps more colorfully, dead. A dirty little secret: I don’t think that study actually exists, which is too bad because like a lot of people I tend to find stories about dead investors much more interesting than formulae that look like this:
Still, this formula comes from a study by University of California, Davis finance professor Terence Odean entitled “Do Investors Trade Too Much?” with the answer being “pretty much, yes.”1
My dad had forgotten he’d bought the shares for my sister. My sister had forgotten that he’d bought the shares for her. This was, to the extent that such a thing exists, found money. Not only that, but absent any other guidance from the account owner, IBM had simply been reinvesting dividends this whole time.
So where my sister invested $110-ish for 3 shares in 1986, on the date of this letter (December 31, 2024), she owned 22.553 shares at $231.72 apiece, or $5,225.98. And since shares have risen about $27 apiece higher in 2025, and she’s received another $1.67 per share dividend, the current value well exceeds $5,800. A highly satisfactory return.
I want to emphasize one thing here: this is IBM we’re talking about. This is no world-beater; it’s a company that has, as far as the world would understand it, declined in relevance since 1986. We aren’t cherry picking some “haha I bought a share of Megacap in 1999 and totally forgot about it, isn’t that crazy?!” story. It’s a delightful combination of complete neglect (the Mann family) and alternating bouts of incompetence and endless restructure (IBM). And it’s a 50-bagger.
One might ask why. Professor Odean’s research suggests that there’s a direct link between overconfidence and underperformance, to the extent that overconfidence can be best measured by overtrading. And certainly, even in an age of low-cost brokerage, spreads and other costs of trading do serve as friction (Duke University’s Cam Harvey recently estimated that front-running costs pension funds $16 billion per year as they rebalance).2
Ultimately what a low-friction investor is doing—even if it is inadvertent—is swapping intelligence, which seems like it should have a big impact on investing, with rationality, which actually does have a big impact.
After all, every time an investor buys or sells shares of a company, she might be saying that the market price is wrong. But it turns out that historically the market’s overall track record of figuring that sort of thing out has been pretty good.
Rationality, on the other hand, is the gift of superior emotional intelligence, and is not all that highly correlated with intelligence. It is, at its core, a learned behavior of critical thinking, self-assessment, and developing resistance to logical fallacies. Berkshire Hathaway’s Vice Chairman Charlie Munger used to describe this process using the advice of German mathematician Carl Gustav Jacobi: man muß immer umkehren, or translated roughly “Invert. Always invert.”
The chart above, from Morningstar’s widely quoted “Mind The Gap” report from 2024, shows a persistent and broadly consistent underperformance by investors of the very investments that they hold. It seems almost incredible—a fund goes up by X%, therefore its investors in aggregate should also go up by that same amount. But that’s not what happened!
By buying and selling at the wrong time, we have managed, fairly reliably, to have left what amounts to hundreds of billions of dollars on the table—and that underperformance is compounded over time—a $10,000 investment generating 6.3% per year for a decade yields $18,421, while a 7.3% return generates $20,230. There’s an old Tanzanian proverb: “little by little, a little becomes a lot.”
By inverting we can point to what we believe are two smarter ways to try to time the market: first, to keep it simple: Dollar-cost averaging and rebalancing like clockwork, even if the headlines at the time describe The Current Thing as being the surefire path to big gains.
The second smart way to try to time the market, to us, is to practice contrarianism, by paying attention to the CAPE ratio or other competent valuation measures and cycle your exposures so that you invest in market sectors or categories that are cheap. While this may seem to be describing a value investing bent, I’d describe it differently: an awareness that both market euphorias and recessions happen from time to time and a contrarian approach calls for the investor to strive to lean hard against being too deeply impacted by either.
Ultimately we believe the stock market is one of the most proven wealth generators ever created. Long term success and even financially impactful wealth doesn’t necessarily require that an investor win all the time. But on a long-enough glide path, an investor committed to rational decision making (or in the case of my sister, benign neglect) should expect to benefit from that commitment.