Site Logo

Winning the Loser’s Game: Timeless Strategies for Successful Investing – Charles D. Ellis

16th July 2023
winning the loser's game book cover


Winning the Loser’s Game is a book that makes a case for indexing. This is my last unread recommended book from Richer, Wiser, Happier. The author wants the readers to understand the realities and know how to take appropriate action to convert the usual loser’s game into a winner’s game in which every sensible investor can and should be a long-term winner. I would like to see if there is any new thing in this book.

Author of Winning the Loser’s Game

For more information about Charles D. Ellis, you may refer here.


Winning the Loser’s Game contains a preface, an introduction, 28 chapters, and 3 appendices.

The chapters are:

1. The Loser’s Game

2. The Winner’s Game

3. Beating the Market

4. Mr. Market and Mr. Value

5. The Investor’s Dream Team

6. Investor Risk and Behavioural Economics

7. Your “Unfair” Competitive Advantage Indexing

8. The Paradox

9. Time

10. Returns

11. Investment Risks

12. Building Portfolios

13. Whole Picture Finance

14. Why Policy Matters

15. Playing to Win

16. Challenges with Performance Measurement

17. The Dark Matter of Investing

18. Predicting the Market – Roughly

19. Individual Investors

20. Selecting Mutual Funds

21. Phooey on Phees

22. Planning Your Play

23. Disaster Again & Again

24. Getting Right on 401(K) Plans

25. Endgame

26. Thoughts for the Wealthy

27. You Are Now Good to Go!

28. Parting Thoughts

Review of Winning the Loser’s Game

Winning the Loser’s Game has an introduction by David F. Swensen, ex-chief investment officer of Yale University. In this introduction, Swensen endorsed this book but he also gave some different opinions regarding asset allocation and leverage.

According to the author, the difference between a winner’s game and a loser’s game is the factor determining the outcome. In a winner’s game, the outcome is determined by the correct actions of the winner while in a loser’s game, it is determined by the mistakes made by the loser.

Active investing is a loser’s game. Trading is a zero-sum game, but the large costs of management fees and expenses plus commissions and market impact must be deducted, thus becoming a loser’s game. The only way for active management to beat the market, after adjusting for market risk, is to discover and exploit other active investors’ mistakes. The minimum hurdle for an active fund to match market return, according to the author’s calculation, is 10.25%, which is definitely not easy to achieve.

Regression to the mean is a persistently powerful phenomenon in physics, sociology and investing. Thus, occasional periods of above-average results raise expectations that are soon dashed as false hopes. The past is not prologue in investment performance except for the grim finding that those who have repetitively done badly are likely to stay in their slough of despair. The key to investment success is not found in the last few years’ performance numbers; it’s in the long-term performance culture of the organization.

He gives a lot of evidence about the futility of active investing. Even if a strategy was working, it would fail soon as the market for good investment ideas is among the best in the world; word gets around very quickly. If active investing is not working, why is the world still full of actively-managed funds?

The field of investment has 2 major parts. One is the profession, its values: doing what is best for the returns for clients, and the other is business, its economics: doing what is best for the profits of investment managers. When there is a lot to lose in stature and income, it is hard to change from old assumptions and beliefs to a new set of assumptions.

Markets always have been and always will seems surprising because every market is different in its details but their major characteristics are remarkably similar, time after time. Market history will repeat as it is hard for people as a group to learn or change. Thus, knowing history and understanding its lessons can insulate us from being surprised.

The stock market is fascinating and deceptive in the short run but become boringly reliable and predictable over the very long run. Investing is not entertainment, thus is not supposed to be fun or interesting. Good investing comes from a very good continuous process and should never be “interesting”.

Misdemeanours in investing are the result of our inadequate advance understanding of the internal realm of our own short-term emotions in response to abrupt changes in the external realm of capital markets or specific investments. The importance of writing down long-term investment policies is to protect our portfolios from ourselves as the best shields against the disruption of Mr. Market’s short-term provocations are knowledge and understanding, especially knowledge of yourself and your own goals and priorities. Our end goal is to get results that we want by following the long-term policies that match our personal long-term priorities. One way to increase success in lifelong investing is to reduce mistakes.

The hardest part of investing for most investors is not figuring out the optimal investment policy but staying committed to sound investment policy through bull and bear markets and maintaining constancy to purpose. He recommends the service of investment counsellor whose duty is to help the client identify, understand and commit consistently and continually to long-term investment objectives that are both realistic in the capital markets and appropriate to that particular investor’s true objectives. In short, investment counselling helps investors choose the right objectives and stay the course. Mixing investment policy and portfolio operations – problem definition and problem solving – and then delegating both is asking for trouble. This is his experience from serving in investment committee.

Two main areas to evaluate common stocks are consensus of investors on the probable amount and timing of future earnings and dividends, and the consensus of investors on the discount rate at which this stream of estimated future dividends and earnings should be capitalised to establish its present value. The consensus that matters for long-term investors is not today’s consensus but the consensus that will prevail when we actually get to that distant future. The importance of the discount factor decreases and the importance of corporate earnings and paid dividends increases.

The real purpose of investment management is not to beat the market. Its primary objective is managing market risk. Portfolio management is investment engineering. The key to finding the solution is to define the real problem correctly. Besides that, spending decisions should not influence investment decisions, it should be the other way around. Investment results which come from investment policies and the market’s return should govern spending decisions as the market does not give a damn what you want to spend.

The true role of investment advisors is to guide investors to investment programs that are right for their investing skills and experience, their financial situations, and their individual tolerance for risk and uncertainty. The pathway to successful investing is soundly conceived, persistently followed long-term investment policies. It depends on having clearly defined objectives and the right asset mix and staying with the program.

The most important dimension of an investment policy is the asset mix, particularly the ratio of fixed-income investments to equity investments. The author shows that the average real rate of return after adjusting for inflation for the following instrument are 4.5% for stocks, 1.5% for bonds, and 1.25% for T-bills. The average price/earnings ratio in recent decades for the US stock market is about 15.5. The author’s recommendations are as follows: funds that will be invested for at least 10 years should probably be in stocks and long-term investments in bonds are for protection against your probable reaction to the markets when they are most upsetting. Any funds that will be invested for less than 2 – 3 years should be in the money market instruments. Index funds work best in the most efficient markets, like those for large cap stocks in US, UK and Japan. But he says that in every major market, index funds still achieve better performance than most actively managed funds.

The great risk to individual investors is not that the market can and will plummet but that investors will get frightened into liquidating their investment at or near the bottom and will miss all the recovery, turning temporary market loss into a permanent capital loss. The real risk in market is the risk of real, permanent losses which are both financially and spiritually destructive. He advised against market timing as missing a few “best” days in the market would greatly hurt the return. He is also against day trading.

For the author, the 3 characteristics of a financially responsible person are:

1. A genuine interest in developing an understanding of your own true values and investment objectives.

2. A basic appreciation of the fundamental nature of capital markets and investments – including Mr. Market’s clever tricks and the market dominance of powerful institutional investors.

3. The personal discipline to work out and hold on to the basic policies that will, over time, succeed in fulfilling your investment objectives.

Some recommendations in the book are only applicable to US investors such as the tax issues. One good point that he makes is that the best investment is usually education as it increases earning power over many years and leads to richer, more enjoyably interesting lives with more freedom of choice.

One-sentence summary for Winning the Loser’s Game: The key to investment success are time and compounding, so plan well, start early, and stay with your plan.


  1. Difficulty is not always proportional to importance.
  2. The hardest work in investing is not intellectual; it’s emotional.
  3. Predicting the stock market roughly is not hard, but predicting it accurately is truly impossible.
  4. Benign neglect is, for most investors, the secret to long-term success in investing.
  5. Wealth is power – both the power to do good and the power to do harm.


3 out of 3 stars

Interested in Winning the Loser’s Game?

You may get the book from through the link below*.

Get the print book from Kinokuniya Malaysia here

*Disclosure: The above link is an affiliate link. Thus, I may earn a small commission when you purchase the book through the link.


Leave a Reply

Your email address will not be published. Required fields are marked *