Most people treat investing as a game of intelligence. In reality, it’s a game of self-control. Accepting this was a major step for me towards higher returns. Leaving the I’m-smarter-than-others attitude was in the same category.
I was still a teenager when I bought my first stocks. Now I’m in my 40s, having recently left my 9-to-5 job thanks to investing with a certain mindset. But the road between those two moments was far from linear.
In this post, I will explain the lessons and the change of mindset that paved the way for this transition. These are the lessons I will teach my kids about investing once they’re ready to hear them.
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The biggest misconception
There will be people who disagree with my points in this article. But in my experience, the biggest misconception among retail investors is the way we’re taught to perceive investing:
Find stocks you believe in. Go for quality. Understand their business, their financial metrics, and their valuation. Buy when they’re cheap and sell when they’re expensive.
It sounds so simple. And most of us believe it because it’s the common narrative of finance, and it’s what we’ve always been told. If we’re just smart enough, we can simply pick the right stocks and beat the market. Right?
Numbers reveal a different story.
Profits of $10,000 invested for 20 years:
🟩 Stock market (S&P 500): $51,416
🟧 Average investor: $10,286
These calculations are from another article I wrote, based on data from 2002-2021. They show just how significantly the average investor underperforms the market as a result of overconfidence and regular human behavior.
I fully acknowledge that a few select people have managed to outperform the market for multiple years, but very few are able to do it consistently over a full investment career.
There are a good number of reasons why it’s almost impossible to consistently outperform a market-wide index through classic stock picking.
The median stock is a loser
This comes as a surprise to most people the first time they hear it:
While market-cap-weighted indices like the S&P 500 have seen strong and steady growth over centuries, the median stock had negative returns.
In other words: more than half of all stocks have lost money since they were listed, according to research. Headlines, media attention, and survivorship bias all make us believe something else.
Stock returns are said to be heavily positively skewed. This means a few select winners provide astronomical returns, while most of the remaining stocks are mediocre.
That’s why randomly picking a number of stocks just doesn’t work. You have to know which stocks will be the future winners.
David vs. Goliath
Say hello to overconfidence. When we start to play the game of analyzing businesses in order to predict the future winners, we’re up against the corporate Wall Street analyst teams dedicating their lives and 90 hours a week to find the next winners.
How are we supposed to have a chance in this game? And why do we think it’s possible to beat them?
I’ve always been fascinated by The Dunning-Kruger Effect: The cognitive bias where people with limited knowledge or competence in a specific domain greatly overestimate their own skills.
For many years, I was a victim of this myself. To some extent I probably still am. The ironic truth is that most people believe they’re smarter than most people.
This goes for timing the market as well. Looking at a chart in hindsight and spotting where you should have bought or sold seems so obvious. Of course we can do that. Overconfidence again (otherwise we would all be rich by now).
Humble realizations that formed me
On top of all this, we are all just human beings with human instincts and human psychology. While fear and greed were useful for us in our earlier history, they were not designed for navigating financial markets. Actually, they often have a negative effect and tend to drag us in the wrong direction.
Over more than two decades in the markets, these are the realizations that formed my humble investing mindset:
THE HUMBLE INVESTING MINDSET 📌
I am not smarter than everyone else
I can’t time the market
I can’t pick the right stocks
I can’t predict the future of anything
The mindset goes against a lot of common understanding of how an investor should think. Nevertheless, it works, and I will explain just how in a minute.
Why I switched to ETFs
After many years of trial and error in my attempts to pick the right stocks and crack the code, I read Burton G. Malkiel’s famous bestseller A Random Walk Down Wall Street.
This is a highly recommended read, and it kickstarted the development of the mindset I’m describing. Ultimately, around 2019, I realized I was playing a loser’s game, like most other active stock pickers.
That’s when I switched to indexing and ETFs. Since the Great Financial Crisis in 2008, the indexing trend has become stronger and stronger, largely driven by the so-called Bogleheads community.
Buy-and-hold index investing makes so much sense. Instead of playing the stock picking game, where the odds are stacked against you, you simply buy the market and ride whatever trends and successes it brings. It’s a simple way to outperform the vast majority of investors in the long run — even professional Wall Street traders.
But there’s an important part that 90% of index investors miss: Buying the index is easy. Holding it across a full cycle and a market crash is not. But the only way to ensure you get the market returns is to never sell, no matter what! There’s no jumping in and out of the market. No trying to time the crashes.
Suppressing external influences
Settling on the humble mindset is not as easy as it sounds. First, you have to acknowledge that regardless how intelligent you are and how highly you rate your ability to read the market, you should not even try.
If you win this battle, the next one awaits: The external factors.
Imagine we’re in the middle of a market crash. Your friends are laughing at you for not selling. Your colleagues are shorting the market. And your neighbor now feels quite sure that we are entering an economic depression. All the headlines in the news are negative, and it feels like it’s the end of the world.
Do you have the patience and the discipline it takes to stay in the market through the darkest days? The truth is, we don’t know until we’ve tried it.
Sticking to a strategy
For a while I resolved to plain index investing for a simple reason: The expected average long-term outcome of buy-and-hold index investing is around 7-10% annually. For stock picking it’s around 3-5% according to research.
I’m a software engineer with a rational and mathematical mindset. Why did it take me so long to reach the conclusion above? Because I was suffering from overconfidence bias. I thought I was smarter than the rest.
People who make serious money in the stock market all have one thing in common: They have a well-defined strategy and they stick to it.
When people ask for my number one stock tip, it’s very simple: Stick to your strategy. If you don’t have a well-defined strategy, you’re playing with fire. Having a real strategy you trust and can stick to, that fits your personality, is often more important than what the actual strategy is.
It’s all about expected outcome
The more I thought about it, and the more I researched, the more it dawned on me: This idea of evaluating an investment strategy based on its expected returns was the best possible way for me to gain enough confidence to be able to actually stick to it.
Over time, I gradually moved my mindset from this perspective:
THE LEGACY MINDSET ❌
How can I combine the information I read with my intellect to analyze a market or a business, in order to predict its future?
…to this:
THE RATIONAL MINDSET ✅
What is the expected average return of this strategy, assuming I can stick to it and don’t try to be smart?
Whenever I feel the doubt creeping in on whether I should deviate from my strategy, I think about the data. I think about the long-term expected outcome.
If I make an exception from the strategy (like simply buying and holding an index), I lose out on the expected returns of that strategy. My expected return falls down to the level of the average discretionary investor at 3-5%.
Optimizing further
Once I had established this mindset, a lot of things became more clear to me. The classic index investing became a necessary stepping stone towards something even better. I started investigating ETF-based strategies with higher expected returns than the standard market-wide index ETFs.
This led to a lot of research on factor investing. Factors like value, size, quality and momentum have been historical predictors of higher returns.
Certain countries and certain sectors have delivered higher historical returns as well. I was able to achieve a theoretical 2-3% higher expected average return with this information.
At some point I realized the only way to significantly improve my expected returns would be to develop an entirely mechanical system, that would allow for trading (to optimize for the best returns) but at the same time eliminate my emotions and biases.
Ultimately, I started trading this system back in March 2021 and haven’t looked back since. It has now beaten the MSCI World Index in 25 of the last 26 years, returning an average of 10% higher than the index every year.
It doesn’t do this by predicting the next winner, but by systematically tracking the sectors and factors with the highest expected returns.
In April 2026, it ultimately allowed me to quit my 9-to-5 job.
➡️ Read the breakdown of my strategy here:
My Investment Approach that Beat the Stock Market in 25 of 26 Years
After trading it for five years, where the results kept materializing, I decided to publish the strategy and share it through this newsletter.
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Disclaimer: The MarketFighter Strategy is for educational and informational purposes only. It is not financial advice, and the author is not a licensed investment advisor. Investing in ETFs involves significant risk, and past performance is never a guarantee of future results. You are solely responsible for your own trades and financial outcomes. Read the full Disclaimer here.
I like your framing of THE LEGACY MINDSET vs THE RATIONAL MINDSET. Hopefully that will be easy for most people to absorb.
Thanks for the post, reminds me of what Buffett says, market is more about temperament than intellect.
Also the line, "Most people believe that they are smarter than most people" about timing the market is extremely accurate - at least in my experience.
Great work!