This distinction is easy to overlook. Consider indexing, which during any 10-year period beats almost every other approach after fees. Selling it requires telling a tale to interest potential investors. When I write about how emotional investors can be, how their cognitive errors lead to mistakes, I am really constructing a narrative. I can't simply say you should by an index and then do nothing else; that's incredibly dull. I can, however, create a story that makes it clear to readers why doing something else will likely lead to a worse outcome.
And so we use stories of how we should be investing our capital, turning to compelling narratives -- if only because the probabilities and statistics that inform us about future expected returns are likely to bore most of us, even if the actual outcome is better.
This article provided by Bloomberg View.