The 12 Brutal Truths About Investing Nobody Tells You (But Can Save Your Portfolio)

You’re probably used to hearing experts throw data at you: “Markets went up 12% last year”, “Inflation is at 6%”, “Gold prices touched a new high.”

But let’s be honest — all that information feels overwhelming after a point. And in many cases, it’s not even useful.

In fact, as Nassim Nicholas Taleb famously said:

“To bankrupt a fool, give him information.”

So, in this article, I will give you something far more valuable than information: perspective.

Because when it comes to investing your hard-earned money, perspective is what separates those who build real wealth from those who keep struggling despite decades of effort.

Let’s start this journey.

Table of Contents:

1. The Biggest Mistake Most Investors Make: Assuming the Future Will Look Like the Past
2. The Black Swan: Rare Events That Change Everything
3. Becoming Antifragile: How Some Things Actually Get Stronger Under Stress
4. Skin in the Game: Why You Should Never Take Advice from Someone Who Has Nothing to Lose
5. The Ludic Fallacy: Life Is Not a Neat Simulation
6. Lucky Idiots: Mistaking Luck for Skill
7. Mediocrity vs Extremism: Why Averages Don’t Matter in Markets
8. Nonlinearity: Small Changes That Lead to Massive Outcomes
9. Ergodicity: Why “Average Returns” Don’t Guarantee Your Survival
10. The Lindy Effect: Why Old, Boring Things Often Work Best
11. Via Negativa: Subtract, Don’t Always Add
12. Absence of Evidence Is Not Evidence of Absence
13. The Anti-Library: Why Unread Books Keep You Wise
14. So What Should You Do?

1. The Biggest Mistake Most Investors Make: Assuming the Future Will Look Like the Past

If you’ve been investing for some years, you’ve probably done this:

The market fell 10% last year, so you assume it will correct by about 10% every few years.

Your mutual fund delivered 15% returns over the last decade, so you expect 15% going forward.

You see your friend make big money in stocks, and you assume the same formula will work for you.

But here’s the uncomfortable truth: the future rarely repeats the past.

Let me tell you a simple story.

On a turkey farm, a farmer feeds his turkeys every day at 11 AM. The turkeys grow fatter and more confident that life is good.

Day after day, they assume the pattern will continue. Until Thanksgiving Day arrives. And that day, the farmer comes not with food — but with a knife.

This is the danger of assuming that past patterns will continue forever. You get lulled into a false sense of security, and when an unexpected event hits, it’s devastating.

In investing, this is called The Problem of Induction — assuming the future will behave like the past just because it has done so till now.

Mutual fund investors also fall into this trap. For example, seeing a small-cap fund deliver 20% CAGR over 5 years, many believe it will continue. But market cycles change.

Valuations may peak. Past returns are no guarantee of future returns.

The first lesson: Never get too comfortable with historical data. Stay humble.

2. The Black Swan: Rare Events That Change Everything

On July 26th, 2005, Mumbai witnessed 944 mm of rainfall — over 40 times the average daily rainfall. Streets turned into rivers. Life came to a standstill.

If you used past data to predict this, you would have never seen it coming. Statistically, such an event was almost “impossible.” But it still happened.

These rare, extreme events are called Black Swans. They’re unpredictable, but when they arrive, they rewrite all assumptions.

In investing, Black Swans can be:

• A global financial meltdown
• A pandemic like COVID-19
• A war
• A sudden market crash

Even mutual fund portfolios are not immune. The COVID-19 crash saw many equity mutual funds fall 30-40% within weeks.

Investors who were overconfident based on past data were caught off-guard.

You cannot predict Black Swans. You can only prepare for them.

3. Becoming Antifragile: How Some Things Actually Get Stronger Under Stress

Let me tell you the story of an artwork.

In 2018, Banksy’s Girl with a Balloon was auctioned for $1.4 million. The moment it was sold, a shredder hidden in its frame started cutting the artwork. People thought its value would collapse.

But guess what happened? Its shredded version was sold later for $25.4 million.

This is called Antifragility — becoming stronger after stress.

In life, some things break under pressure (fragile). Some things can handle stress without breaking (robust).

But some — like this artwork — actually benefit from stress.

As an investor, you want your portfolio to be antifragile.

You want investments that may not collapse when markets fall, and that may gain when things get volatile.

For example:

• Diversifying across asset classes
• Keeping some cash for opportunities
• Avoiding over-leverage
• Investing in businesses that thrive during uncertainty

Mutual funds help build antifragility through diversification across sectors, market caps, and geographies.

Having both equity and debt funds cushions your portfolio during volatility.

Antifragility is one of the most powerful ideas for wealth building — but very few investors practice it.

4. Skin in the Game: Why You Should Never Take Advice from Someone Who Has Nothing to Lose

Imagine you ask a barber if you need a haircut. What do you think he’ll say?

Obviously, he has an incentive to cut your hair — whether you need it or not.

The same happens in financial advice. Many “experts” will recommend products that they themselves don’t own. They have nothing to lose if the advice goes wrong — but you do.

This is where Skin in the Game becomes critical.

You should always prefer:

• Advisors who invest in the same funds they recommend
• Fund managers who co-invest in their own schemes
• Businesses where promoters hold significant equity stakes

In mutual funds, you can check fund manager investments in their own schemes. A fund manager with skin in the game signals confidence in the fund’s long-term strategy.

A mutual fund distributor (MFD) also has skin in the game. Their commissions are linked to your portfolio value — if your portfolio grows, their earnings grow; if your portfolio value falls, their commissions reduce proportionately.

On the other hand, fixed fee advisors or insurance agents earn their fees upfront or regardless of portfolio performance, often leaving them with little or no incentive to ensure long-term growth.

MFDs have a natural alignment with your financial success.

When someone has skin in the game, their interests align with yours. When they don’t — beware.

5. The Ludic Fallacy: Life Is Not a Neat Simulation

When I started trading, I built complex Excel models with years of historical data. My models showed impressive profits.

When I showed them to my senior, he smiled and said: “Cut your expected returns by half. That’s reality.”

Why? Because real life isn’t like a mathematical model. Life is messy. Variables change. Unknown unknowns appear.

Economists, analysts, and financial planners often build neat models that assume:

• Fixed inflation rates
• Stable returns
• Predictable risk levels

But markets don’t play by these rules. Reality often punches far above theoretical models.

Mutual fund projections often assume fixed CAGR over years.

But real returns fluctuate due to market cycles, global events, and investor behaviour.

Don’t confuse models with reality. Always leave room for surprises.

6. Lucky Idiots: Mistaking Luck for Skill

You see it all the time.

• A friend picks a stock that doubles.
• A YouTuber recommends a crypto that skyrockets.
• An investor times the market perfectly for a few years.

The natural instinct is to assume these people have extraordinary skill.

But often, it’s just luck.

The world rewards lucky idiots — for a while. But luck eventually runs out. And when it does, those who relied only on luck get wiped out.

Mutual funds, with professional fund managers, try to reduce reliance on luck by following research-backed strategies and diversification.

MFDs can help you select alpha generating active funds.

As an investor, your goal is simple: Avoid being stupid. Focus on skill. Let luck do its job.

7. Mediocristan vs Extremism: Why Averages Don’t Matter in Markets

Think of two rooms:

In Room A, there are 25 people with average net worths of $1 million each.

Suddenly, Bill Gates walks into the room. The average net worth shoots up to hundreds of millions.

Did everyone suddenly become rich? Of course not.

This is Extremism — where one extreme value skews the average heavily, creating misleading conclusions.

Now think of Room B (Mediocristan): There are 25 people, each with heights averaging 5 feet 6 inches.

Even if the tallest person in the world walks in, the average height barely changes.

This is Mediocristan — where variations remain limited, and averages are more meaningful.

Stock markets belong to Extremism.

• A few companies drive most of the gains.
• A single crisis can wipe out years of returns.
• Predicting “average returns” is often misleading.

Actively managed mutual funds try to capture this by identifying companies that disproportionately drive index performance, while diversification helps reduce concentration risk.

Don’t rely on averages. Prepare for extremes.

8. Nonlinearity: Small Changes That Lead to Massive Outcomes

Let’s compare SARS 2003 and COVID-19.

Both were respiratory viruses. But COVID had one tiny difference: asymptomatic spread. That tiny feature turned COVID into a global pandemic, while SARS 2003 was contained.

This is nonlinearity — where small differences produce outsized results.

In investing, nonlinearity means:

• A tiny miscalculation in leverage can wipe you out.
• A small allocation to a multibagger stock can create huge wealth.
• A minor bad habit can erode returns over decades.

Through SIPs and asset allocation, mutual fund investing helps harness nonlinearity over long periods, compounding small, regular investments into substantial wealth.

Focus on investments with limited downside but large upside potential — this is how you harness nonlinearity.

9. Ergodicity: Why “Average Returns” Don’t Guarantee Your Survival

Imagine 50 people walking on a tightrope. If one person falls, the others keep going. The average survival rate remains high.

Now imagine you’re walking alone on that tightrope. If you fall, you’re done. Game over.

Markets are like that.

The Nifty index may have delivered 13% returns over 25 years. But many individual investors lost everything because they took on too much risk at the wrong time.

This is ergodicity — where individual outcomes differ wildly from group averages.

Systematic investing through mutual funds helps individual investors reduce personal risk while participating in long-term market growth.

For you, only one thing matters: Avoid ruin. Focus on survival.

10. The Lindy Effect: Why Old, Boring Things Often Work Best

A toothbrush has existed in some form for over 5,000 years. Many innovations have tried to replace it, but failed.

Why? Because things that survive for long periods often have something inherently robust.

In investing:

• Blue-chip companies
• Time-tested funds
• Diversified strategies

… tend to survive longer than the latest hot trends or complex strategies.

Mutual funds with long track records, consistent management, and proven strategies usually outlast hot new schemes or fads.

Chasing fads may be exciting, but sticking to robust, simple, proven approaches often works better over time.

11. Via Negativa: Subtract, Don’t Always Add

Many people try to lose weight by adding — new diets, new gym equipment, new supplements.

Often, the better strategy is subtraction: stop smoking, stop eating sugar, stop drinking excessively.

The same applies to investing.

• Avoid fixed fees.
• Avoid excessive trading.
• Avoid leverage.
• Avoid chasing hot tips.

Avoid chasing recent performers or market trends.

Instead, follow time-tested asset allocation and periodic rebalancing strategies.

Avoid one-time wonders and focus on selecting consistent performers that can deliver over full market cycles.

The more mistakes you avoid; the more wealth you preserve.

12. Absence of Evidence Is Not Evidence of Absence

Just because you haven’t seen a 60% market crash in your investing life doesn’t mean it can’t happen.

Many young investors have never experienced a true bear market.

Their models, back-tests, and confidence often ignore possibilities simply because those events aren’t in their data set.

But remember:

“The worst of the past is not automatically the worst of the future.”

Investing across different asset classes — equity, debt, and gold — helps you manage such extreme market falls better.

During sharp declines, periodic rebalancing allows you to withdraw from assets that have not fallen as much and reinvest into the fallen asset class.

This strategy helps you average your cost better, buy low, and potentially recover faster when markets rebound.

Stay humble. Be prepared.

13. The Anti-Library: Why Unread Books Keep You Wise

Umberto Eco, a famous author, owned over 30,000 books. Most of them were unread.

The unread books represented all that he didn’t know — a reminder of his own ignorance, which kept him humble and curious.

As investors, we should adopt the same mindset:

• Keep learning.
• Acknowledge what we don’t know.
• Stay open to new ideas while respecting timeless principles.

Even experienced mutual fund investors should continuously learn about market cycles, fund manager strategies, and macro risks.

This humility can be your greatest advantage.

14. So What Should You Do?

If you’ve read this far, you may feel overwhelmed. But here’s a simple roadmap:

• Respect uncertainty. Stop assuming the future will behave like the past.
• Build antifragility. Diversify. Stay flexible. Prepare for shocks.
• Only take advice from people with skin in the game.
• Avoid lucky idiots. Focus on skill, not short-term luck.
• Don’t rely on averages. Prepare for extremes.
• Avoid mistakes. Subtraction often works better than addition.
• Stay humble. You don’t know everything, and you never will.

One final call to action:

You work hard for your money. Respect it enough to manage it wisely.

Don’t fall for shortcuts, hot tips, or false confidence. Build your portfolio like you build your career: with patience, humility, and preparation for surprises.

Because in the end, wealth isn’t built in spreadsheets or back-tests. It’s built in real life — where randomness, luck, and risk rule.

Stay safe. Stay smart. And keep learning.