Annotations (12)
“Missing 3% in annual returns meant a client had to work 6 to 7 additional years. She saved $100,000 annually for 16 years. At 5% compounded returns, she didn't have enough to retire. If she had earned 8%, she would have been ready. The shortfall wasn't her fault. I didn't pay enough attention to her investment returns early on, and later I avoided the uncomfortable conversation with her broker.”— David Fagan
Economics & Markets · Psychology & Behavior · Leadership & Management
DUR_ENDURING
3% gap cost 6 years of work
“Howard Marks tells the story of reviewing investment returns early in his career. He saw a pension fund that never ranked above the 27th percentile, and that same fund didn't rank below the 47th percentile. Yet after 14 years, they were in the 4th percentile overall. The message is simple: avoid big losses and let consistency win. For me, indexing is exactly that. Average market returns, but for a very long time.”— Howard Marks
Economics & Markets · Strategy & Decision Making
DUR_ENDURING
Consistency beats brilliance
“Bessenbinder's research shows that only 4% of stocks created all the net wealth in the market going back to 1930. A tiny number of superstar companies drive all the gains. One reliable way to ensure you own those winners is to buy index funds. In the US, roughly 90% of large-cap managers underperform the S&P 500 after fees and expenses. In Canada over the last 15 years, 98% of Canadian equity managers failed to beat the S&P/TSX index.”— David Fagan
Economics & Markets · Strategy & Decision Making · Psychology & Behavior
DUR_ENDURING
4% of stocks create all wealth
“The Rosenthal and Jacobson study from 1968 called Pygmalion in the Classroom had teachers told that certain students, chosen completely at random, had exceptional potential. Nothing about these students changed. Only the teachers' expectations changed. 8 months later, those students posted significantly larger IQ gains. The teachers changed their belief, their tone, their encouragement, and that belief changed the students' performance.”— David Fagan
Psychology & Behavior · Leadership & Management
DUR_ENDURING
Expectations shape performance
“Anne Sullivan arrived when Helen Keller was around 9 or 10, blind and deaf since 19 months old. Anne was around 20. Anne carried one unshakeable expectation: that Helen could learn. She treated Helen as capable long before Helen believed it herself. The moment Anne spelled 'water' in Helen's hand while running cold water over her other hand, everything changed. Helen made the connection, and her world opened up. She went on to graduate from Radcliffe College, publish books, and lecture globally.”— David Fagan
Psychology & Behavior · Leadership & Management
DUR_ENDURING
Belief unlocked potential
“Portfolio turnover alone can cost up to 2% of gross returns every year. A 12% pre-tax return can quickly become 9% after turnover, fees, and taxes. Studies show this tax drag compounds over decades. Indexing shields you from making decisions 20 years down the road, switching funds, getting in and out of investments, and triggering tax events.”— David Fagan
Economics & Markets · Operations & Execution
DUR_ENDURING
Turnover costs 2% annually
“John Wooden, the legendary UCLA coach, said: 'The best leaders are those who expect greatness from others and communicate that expectation with belief and not pressure.' When someone believes in us, that belief transfers. It changes behavior and ambition. Those expectations fuel effort. Effort drives results. Results reinforce belief, and it becomes a flywheel, just like compounding. Compounding starts small, then accelerates.”— John Wooden
Leadership & Management · Psychology & Behavior
DUR_ENDURING
Belief creates performance flywheel
“When Warren Buffett says in his 2013 shareholder letter, 'My advice to my trustees of my estate could not be more simple. Put 10% of cash in short-term government bonds and 90% in a very low-cost index like the S&P 500,' that really deserves our attention. What is he saying and telling the world when he says use index funds?”— Warren Buffett
Economics & Markets · Strategy & Decision Making
DUR_CONTEXTUAL
Buffett endorses indexing
“I often come back to Nassim Taleb's example of the dentist next door when it comes to indexing. Go to work, live below your means, structure your life in a way that you can save $100,000 a year for 35 years, earn an 8 to 9% rate of return, and retire extremely wealthy. As some would say, it's just that simple and just that hard.”— David Fagan
Economics & Markets · Psychology & Behavior
DUR_ENDURING
Simple formula, hard discipline
“I remember 2008 vividly. I was in my late 20s. I can remember thinking that if things got any worse in the public market, society would be busted and we'd have to reinvent how we lived. People were talking about building bunkers and food security. But the feeling that I was losing with everyone else because I was indexing was oddly reassuring. I had a sense of alignment. I rose with the market, I fell with the market, and being down with the market was oddly comforting.”— David Fagan
Psychology & Behavior · Economics & Markets
DUR_ENDURING
Losing with the crowd is comforting
“For entrepreneurs, their business is all the concentration they need, and their portfolio should give them breathing room. If you're fortunate enough to generate a 15 to 20% net return on your private business, your portfolio probably doesn't need to. As an entrepreneur, you don't have to feel pressure to beat the market. You need to understand that your portfolio has a different job: to protect wealth you've created in entrepreneurship and compound it in another asset class.”— David Fagan
Strategy & Decision Making · Business & Entrepreneurship · Economics & Markets
DUR_ENDURING
Business is the concentration
“Being the overseer doesn't mean you have to manage your own money. It just means you have a job: stay aware, ask the right questions, know your numbers. When you hire an investment advisor, trust feels good, but results are your livelihood. Review your actual results every 6 months. Ask yourself: what is my return, and how does it compare to the market given my risk profile?”— David Fagan
Leadership & Management · Economics & Markets · Psychology & Behavior
DUR_ENDURING
Trust advisors but verify results
Frameworks (1)
Investment Oversight Protocol
How to Maintain Accountability When Outsourcing Management
A systematic approach for investors who delegate portfolio management but need to maintain oversight. The framework establishes clear benchmarks, regular review cadences, and specific questions to ensure investments are performing their intended function without requiring active management expertise.
Components
- Set Clear Goals
- Establish Benchmark Metrics
- Review Results Biannually
- Ask Direct Questions
Prerequisites
- Basic understanding of asset allocation
- Access to portfolio statements
- Knowledge of appropriate benchmarks
Success Indicators
- Returns tracking within expected range of benchmark
- Clear understanding of fees paid
- Ability to articulate investment strategy
Failure Modes
- Delegating oversight completely
- Getting overwhelmed by complexity and giving up
- Confusing activity with oversight
Mental Models (11)
Concentration of Returns
Probability & StatisticsIn any distribution of outcomes, a tiny minority of events or entities drive the vast majority of results.
In Practice: David Fagan explaining Bessenbinder research as rationale for indexing
Demonstrated by Leg-df-001
Active Management Paradox
EconomicsMost professional money managers underperform passive indices despite superior knowledge and resources.
In Practice: SPIVA data showing 90-98% of managers underperforming benchmarks
Demonstrated by Leg-df-001
Tax Drag from Turnover
EconomicsPortfolio turnover creates tax events that compound into significant performance drag over time.
In Practice: How turnover erodes returns through tax friction
Demonstrated by Leg-df-001
Time Cost of Underperformance
EconomicsMissing even a few percentage points of annual return compounds into years of additional work required.
In Practice: Client who missed 3% annually and had to work 6-7 extra years
Demonstrated by Leg-df-001
Longevity Over Intensity
TimeSuperior long-term performance comes from consistency over long periods, not fro
In Practice: David Fagan explaining Howard Marks's early career observation about consistency
Demonstrated by Leg-df-001
Simple Wealth Formula
EconomicsSave consistently, invest in productive assets, minimize costs, compound over time.
In Practice: Taleb's dentist next door example
Demonstrated by Leg-df-001
Trust But Verify
Decision MakingDelegation without oversight creates principal-agent problems.
In Practice: David Fagan explaining oversight responsibility
Demonstrated by Leg-df-001
Pygmalion Effect
PsychologyPeople tend to rise or fall to the level of expectations held for them.
In Practice: Discussion of Rosenthal and Jacobson classroom study
Demonstrated by Leg-df-001
Comfort in Collective Loss
PsychologyHumans find psychological comfort in losing together with the group.
In Practice: David Fagan's reflection on emotional comfort of indexing during 2008 crisis
Demonstrated by Leg-df-001
Belief-Performance Flywheel
Systems ThinkingBelief drives effort, effort drives results, results reinforce belief, creating
In Practice: John Wooden quote about expectations and belief creating performance flywheel
Demonstrated by Leg-df-001
Portfolio-Business Diversification
Strategic ThinkingFor entrepreneurs, their private business provides all the concentration and upside they need; their
In Practice: David Fagan explaining why entrepreneurs should index their public portfolios
Demonstrated by Leg-df-001
Connective Tissue (3)
Pygmalion effect from educational psychology
The Pygmalion effect, discovered by Rosenthal and Jacobson in 1968, demonstrates that teacher expectations directly influence student performance. When teachers were told certain randomly selected students had exceptional potential, those students showed significantly larger IQ gains 8 months later. The teachers unconsciously changed their tone, encouragement, and belief, which changed the students' performance. This connects to leadership and investing: expectations create self-fulfilling prophecies. In business, if you expect greatness from team members, they often rise to meet those expectations. In investing, if you expect consistency and discipline from yourself, you're more likely to achieve it. The mechanism is the same: expectations shape behavior, behavior drives results, results reinforce expectations, creating a flywheel effect.
David Fagan discussing how expectations compound behavior in leadership, drawing parallel to how discipline compounds returns in investing
Nassim Taleb's Dentist Next Door example
Nassim Taleb's example of the dentist next door illustrates the power of simplicity and consistency in wealth building. The dentist goes to work, lives below their means, saves systematically (e.g., $100,000 per year), invests in a diversified portfolio earning market returns (8-9%), and retires extremely wealthy after 35 years. The lesson: wealth creation doesn't require brilliance or complexity. It requires discipline, consistency, and time. This connects to indexing strategy: you don't need to outsmart the market or find the next Amazon. You need to save consistently, invest in broad market exposure, minimize fees, and let compounding work. The dentist's success comes from avoiding unforced errors, not from spectacular wins. The same principle applies to business and life: simple systems executed consistently often outperform complex strategies executed inconsistently.
David Fagan explaining why indexing works through Taleb's example of systematic wealth building
Michelangelo's David sculpture metaphor
When asked about his famous David sculpture in Florence, Michelangelo said that David was always there in the marble; he simply took away everything that was not David. This connects to leadership and talent development: great leaders see the potential masterpiece inside their team members and help remove obstacles that prevent that potential from emerging. The leader's job isn't to create talent from nothing; it's to reveal what's already there by removing impediments, providing resources, and setting the right expectations. In investing, this applies to portfolio construction: your job isn't to add complexity but to remove what doesn't belong, creating a clean, focused allocation that reveals the underlying value creation of capitalism. The sculptor's art is subtraction, not addition. The same applies to leadership and investing.
Stig Brodersen discussing his approach to developing team members, using Michelangelo's David as metaphor for revealing potential
Key Figures (6)
Warren Buffett
2 mentionsChairman and CEO of Berkshire Hathaway
Anne Sullivan
1 mentionsTeacher and lifelong companion of Helen Keller
Helen Keller
1 mentionsAuthor, lecturer, and activist
John Wooden
1 mentionsLegendary UCLA basketball coach
Nassim Taleb
1 mentionsAuthor, scholar, and former options trader
Howard Marks
1 mentionsCo-founder and co-chairman of Oaktree Capital Management
Key People (6)
Hendrik Bessenbinder
Finance professor whose research showed only 4% of stocks created all net market wealth
Robert Rosenthal
(1933–)Psychologist who conducted the 1968 Pygmalion classroom study
Lenore Jacobson
Psychologist who co-authored the Pygmalion classroom study
Anne Sullivan
(1866–1936)Teacher who taught Helen Keller
Helen Keller
(1880–1968)Became blind and deaf at 19 months
John Wooden
(1910–2010)Legendary UCLA basketball coach who won 10 national championships
Concepts (2)
Portfolio turnover
CL_FINANCIALThe rate at which holdings in a fund are bought and sold; high turnover creates tax events
Pygmalion effect
CL_PSYCHOLOGYPsychological phenomenon where higher expectations lead to improved performance
Synthesis
Synthesis
Migrated from Scholia