The Loser’s Game by Charles D. Ellis

The Loser's Game


  1. The active investment world has turned from a “Winner’s Game” into a “Loser’s Game” – since there are now more players in the game, it is better to avoid mistakes than to try to win.
Key Takeaways
  1. Simon Ramo identified the crucial difference between a Winner’s Game and a Loser’s Game in his excellent book on playing strategy, Extraordinary Tennis for the Ordinary Player. After extensive scientific and statistical analysis, Dr. Ramo summed it up this way: Professionals win points, amateurs lose points.
  2. As Ramo instructs us in his book, the strategy for winning in a loser’s game is to lose less. Avoid trying too hard. By keeping the ball in play, give the opponent as many opportunities as possible to make mistakes and blunder his, way to defeat. In brief, by losing less become the victor.
  3. The trouble with Winner’s Games is that they tend to self-destruct because they attract too much attention and too many players – all of whom want to win. That’s why gold rushes finish ugly. But, in the short run, the rushing in of more and more players seeking to win expands the apparent reward.
  4. For those who are determined to try to win the Loser’s Game, however, there are a few specific things they might consider:
    1. Be sure you are playing your own game. Know your policies very well and play according to them all the time.
    2. Keep it simple. Make fewer but better investment decisions
    3. Concentrate on your defenses. Most of your time should be spent on selling decisions, not buying.
    4. Don’t take it personally
What I got out of it
  1. I think Charlie Munger’s wise words sums this up nicely – “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying, `It’s the strong swimmers who drown.'”

Read Winning the Loser’s Game

  • Faced with information that contradicts what they believe, human beings tend to respond in one of two ways. Some will assimilate the information, changing it so they can ignore the new knowledge and hold on to their former beliefs; and others will accept the validity of the new information. Instead of changing the meaning of the new data to fit their old concept of reality, they adjust their perception of reality to accommodate the information and then they put it to use. Psychologists advise us that the more important the old concept of reality is to a person – the more important it is to his sense of self-esteem and sense of inner worth – the more tenaciously he will hold on to the old concept and the more insistently he will assimilate, ignore or reject new evidence that conflicts with his old and familiar concept of the world. This behavior is particularly common among very bright people because they can so easily develop and articulate self-persuasive logic to justify the conclusions they want to keep
  • Major errors in reasoning and exposition are rarely found in the logical development of this analysis, but instead lie within the premise itself. The investment management business (it should be a profession but is not) is built upon a simple and basic belief: Professional money managers can beat the market. That premise appears to be false.
  • It appears that the costs of active management are going up and that the rewards from active management are going down
  • There are many other Loser’s Games. Some, like institutional investing, used to be Winner’s Games in the past, but have changed with the passage of time into Loser’s Games
  • In plain language, the manager who intends to deliver net returns 20% better than the market must earn a gross return before fees and transactions costs (liquidity tolls) that is more than 40% better than the market. If this sounds absurd, the same equation can be solved to show that the active manager must beat the market gross by 22% just to come out even with the market net.
  • Only a sucker backs a “winner” in the Loser’s Game

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