October 20, 2017
Scott Legacy is the index fund equivalent of a high school sports coach.
Now, you might be thinking, "I'm X years old, with the exception of a few incidents in college I've lived a fruitful life, and I've done so without any knowledge at all about Scott Legacy." But on this point, you might need to reconsider.
Scott Legacy was the Bennington, Vermont Mount Anthony Union High School (my school) wrestling coach spanning 25 seasons. And he didn't just coach, he won. A lot. So much that he lodged Mount Anthony in the record books for wins, in any sport: he won 22 *consecutive* state championships, a national record.
Despite my lack of presence on his roster, which clearly helped his performance, I've always been fascinated by his career. He was a major anomaly. Using no more money or resources than average, he devised a formula for training and motivating high school teenagers that worked at a level that was orders of magnitude better than others. Even the most jaded actuary would have to agree that Coach Legacy was a statistical bombshell.
I pay attention to anomalies. More accurately, I'm actively looking for them. They often come from unusual origins, or from people who are not considered normal by society. But they can be extremely powerful. If you think about the origin of ideas, they migrate from the fringe and move to the center. Ideas don't just appear on a mass-adopted level. If you aren't looking in the bushes, you aren't going to find them (I comfort myself with this thought when I'm playing golf.)
An advantage to my job now, as our inflow of clients and portfolios increases, is that the flow serves as a type of intelligence tool for us. We can scan through what many people in the industry are doing, looking for ideas or anomalies that might hold promise, even if they are small. And because we don't have the bureaucratic encumbrances of large firms, if something is good, we can copy it quickly into our testing program.
I know the case for using a well-rebalanced, diversified collection of extremely low-cost index funds. What I am looking for are two things: 1. Facts or scenarios that disprove what I think is true and 2. Discoveries somewhere that can increase the returns of the current path we are on without adding risk, or, related, reduce risk without decreasing returns.
One final point. We can learn a lot from children here. Their ears are open, and they hear and learn things and modify their behaviors rapidly. This type of mental elasticity is important at least in the ability to hear and consider new ideas and concepts.
It's how you find upside anomalies.
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