How to minimize investment returns?

Long ago, Sir Isaac Newton gave mankind three laws of motion, which were the work of genius. But his talents did not extend to investing - having lost a fortune in the South Sea Bubble. Reflecting later, he said, "I can calculate the movement of the stars, but not the madness of men." Had he not be traumatized by this event, he may well has gone on to discover the fourth law of motion - In the investment field, returns decrease as motion increases.

In investing, as a whole, the more movements there are, the less the returns will be. You may mentally argue your returns can be higher than another person. Yes, it is true but if measured as a whole for all investors combined, it will be otherwise. By buying and selling in a clever way or perhaps attributed to luck, investor A may take more than his share of the pie at the expense of investor B. Surely, all investors feel richer when stocks soar. But an owner can only exit by having someone take his place. If someone sells high, another must buy high. For investor as a whole, there will not be any magic that will enable them to extract wealth from their companies beyond that created by the companies themselves. The most that owners can earn in aggregate between now and Judgement Day is what their businesses in aggregate can earn. For those who can earn a return more than what the business in aggregate produces, they are in fact gaining at the expense of those who underperform this aggregate. There is no way the value of a subset of a product can exceeds the value of the product, we will run into a big math problem which is unsolvable if it happens. An analogy will be something that someone told Mr Buffett: "There're more lawyers than people in New York."

With this simple logic where no one can extract any cent more than what the total a business can earns during its lifespan, it pays to value a business at the very most in aggregate what a business can churns out during the life span. But this "very most" value strategy will only works if you stay inactive throughout the life span of the business. When you trade - that is by always buying and selling - frictional cost will be incurred. So when you pay commission to the intermediaries, you will have reduced the profit received from the aggregate profit that the business produces because the commission will have to be paid and it comes from this aggregate that is churned out. In reality, a smart investor will value the business to be the aggregate value churn out by the business by substracting the frictional cost from this aggregate.

Having said the above, owners who buys through an intermediary can only expect to earn less than what their businesses earn because of "frictional" costs. In other words, in stock investing, it is wrong to assume that all the profits a business produces will go to the investors' pocket, part of it (a pretty substantial ratio) goes into the pocket of those who facilitate the trade. Often, such costs are ignored or neglected by the investors. The most atrocious idea is for investors is to think that return can be more than what a business can actually produce.