Here is Part IV of the Quotable Guide to Passive Investing. Part I is here. Then follow the links at the bottom of the page to access the rest of the parts.
The Great Mutual Fund TrapGreg Baer & Gary Gensler
“You cannot improve your returns by spending more time or money trying to pick funds or stocks. You can, however, significantly improve your returns by choosing vehicles that offer the lowest possible costs and the greatest tax efficiency.”
“With returns corrected for survivorship bias, the average actively managed funds trail the market by about 3 percentage points a year.”
“In October 2001, less than two months before Enron declared bankruptcy, 19 of the 22 analysts who covered the stock rated it a “buy.”
“Every study we have ever seen on the subject shows that the more frequently individual investors trade, the worse they perform.”
“The only way for an investor to earn predictably higher returns over time is by taking on more risk.”
“The basic thrust of efficient market theory, is relatively simple and extremely important: Information currently known about a company is reflected in the prices for its bonds and stock.”
“Accept the fact that you are unlikely to beat a market where prices are set by the consensus of thousands of professionals and where you have to pay a steep price for every attempt.”
“The most likely way for a fund manager to generate a high ranking is to take on additional risk.”
“If you simply buy and hold — you don’t need to read investing magazines, watch financial news networks, subscribe to newsletters, or pay a broker to execute new trades.”
“Hulbert’s data show more than 84% of newsletters underperform the market over 5-years. Over 10-years, that number rises to 90%.”
Kahneman/Tversy Study: “A loss of $1 is approximately twice as painful to investors as a gain of $1 is pleasant.”
“The financial services industry spends billions in advertising to keep investors excited about the prospect of better returns around the corner.”
Daniel Kahneman, winner of the 2001 Nobel Prize in Economic Science: “Asked how he invested his money, he said that he favors index funds.”
How a Second Grader Beats Wall StreetAllan Roth
“Investing isn’t rocket science. Wall Street experts want you to believe that it is.”
“Kevin’s magic portfolio: Vanguard Total Stock Market Index Fund; Vanguard Total International Stock Index Fund; Vanguard Total Bond Market Index Fund.”
“We strongly resist thinking of ourselves as average.”
“There is one way, and only one way, to build a stock portfolio that is guaranteed to beat the average dollar invested. For the U.S stock market, that one way is to buy the entire market in proportion to the value of each company.”
“With only three index mutual funds, we can own many thousands of securities that own the whole world.”
“Cramer is a human cartoon character who rants about buying and selling and encourages others to engage in foolishness.”
“Lehman Brothers was the most admired securities firm in 2007 according to Fortune magazine. In 2008 it filed for bankruptcy.”
“A recent study found that funds sold by advisors underperformed those that were bought directly by the consumer.”
“We all know that most mutual funds greatly underperform the appropriate index, but did you know that the average investor underperforms the average mutual fund by another 1.5% percent per year?”
“The beauty of a 3-fund portfolio is that it automatically builds the global portfolio without having to worry about standard deviations, correlatons, Sharpe ratios, and the like.”
“Never buy an instrument that has a fancy name like Enhanced collateralized debt obligation investment unit trust.”
“Investing is much more than maximizing our wealth. It also involves minimizing the chances we will run out of money.”
“Our willingness to take risk isn’t easy to quantify because it is difficult to measure and very unstable.”
“Remember that staying with your asset allocation is every bit as important as choosing the right one in the first place.”
“Make it a rule never to buy a financial investment you couldn’t describe to an average second grader.”
“If the Wall Street brokerage firms were really so good at giving investment advice and managing risk, why did it take taxpayers to bail them out?
Index Your Way to Investment SuccessWalter R. Good and Roy W. Hermansen
For most individual investors, the benefits of indexing remain a well-kept secret because brokers, mutual funds, and other familiar sources of investment information routinely focus on products that offer substantially higher commissions or fees.”
“Expenses and other deductions from returns are extremely important, but other considerations, such as services and access to other funds provided by the same fund family, may also influence your choices.”
“This time is different is a message that resurfaces in every bear market.”
“The index fund advantage consists of lower costs, deferral of capital gain taxes, and control of risk through more complete diversification.”
“Index funds save on management and marketing expenses, reduce transaction costs, defer capital gain, and control risk–and, in the process, beat the vast majority of actively managed mutual funds!”
The Informed InvestorFrank Armstrong
“Each brokerage house or investment manager wants the public to believe that somewhere in the back office is a genius who can make you rich.”
“If we don’t establish the discipline to live on less than we make — no amount of investment advice will help.”
“Market risk means that sometimes your equities will go down. It is only a function of when, and we can’t know that. — If you can’t get used to the idea, don’t go into the market.”
“Risk and returns will be driven far more by asset allocation than stock selection or market timing.”
“Investors must understand that a superior portfolio will underperform from time to time. If they are prepared for this disconcerting reality, they are less likely to find themselves abandoning their superior portfolio in favor of Wall Street’s deal of the day.”
“My view is that, properly practiced, investing should be reasonably boring.”
“Rating services such as Morningstar’s star awards or the ‘Forbes’ honor roll attest to the futility of applying past performance to tomorrow. If these two organizations can’t make useful predictions with all their resources, how can the rest of us hope to?”
“Do the right thing: In every asset class where they are available, index!”
“Mutual fund independent directors lack any discernible backbone and appear to be born with rubber stamps attached to their hands.”
“Discipline is the key to success for the long-term investor. He or she must not fall into the trap of managing holdings by newspaper headline, sound bites, mindless prediction, gut feelings, or the last time period’s results.”
“The primary cause of investor failure is the behavior of the investors themselves.”
“The ‘buy and hold’ strategy outperforms the average investor by more than three to one after ten years.”
To be continued …. here.
Blogs & Comment
Quotable guide to passive investing (IV)
By Larry MacDonald
Here is Part IV of the Quotable Guide to Passive Investing. Part I is here. Then follow the links at the bottom of the page to access the rest of the parts.
The Great Mutual Fund TrapGreg Baer & Gary Gensler
“You cannot improve your returns by spending more time or money trying to pick funds or stocks. You can, however, significantly improve your returns by choosing vehicles that offer the lowest possible costs and the greatest tax efficiency.”
“With returns corrected for survivorship bias, the average actively managed funds trail the market by about 3 percentage points a year.”
“In October 2001, less than two months before Enron declared bankruptcy, 19 of the 22 analysts who covered the stock rated it a “buy.”
“Every study we have ever seen on the subject shows that the more frequently individual investors trade, the worse they perform.”
“The only way for an investor to earn predictably higher returns over time is by taking on more risk.”
“The basic thrust of efficient market theory, is relatively simple and extremely important: Information currently known about a company is reflected in the prices for its bonds and stock.”
“Accept the fact that you are unlikely to beat a market where prices are set by the consensus of thousands of professionals and where you have to pay a steep price for every attempt.”
“The most likely way for a fund manager to generate a high ranking is to take on additional risk.”
“If you simply buy and hold — you don’t need to read investing magazines, watch financial news networks, subscribe to newsletters, or pay a broker to execute new trades.”
“Hulbert’s data show more than 84% of newsletters underperform the market over 5-years. Over 10-years, that number rises to 90%.”
Kahneman/Tversy Study: “A loss of $1 is approximately twice as painful to investors as a gain of $1 is pleasant.”
“The financial services industry spends billions in advertising to keep investors excited about the prospect of better returns around the corner.”
Daniel Kahneman, winner of the 2001 Nobel Prize in Economic Science: “Asked how he invested his money, he said that he favors index funds.”
How a Second Grader Beats Wall StreetAllan Roth
“Investing isn’t rocket science. Wall Street experts want you to believe that it is.”
“Kevin’s magic portfolio: Vanguard Total Stock Market Index Fund; Vanguard Total International Stock Index Fund; Vanguard Total Bond Market Index Fund.”
“We strongly resist thinking of ourselves as average.”
“There is one way, and only one way, to build a stock portfolio that is guaranteed to beat the average dollar invested. For the U.S stock market, that one way is to buy the entire market in proportion to the value of each company.”
“With only three index mutual funds, we can own many thousands of securities that own the whole world.”
“Cramer is a human cartoon character who rants about buying and selling and encourages others to engage in foolishness.”
“Lehman Brothers was the most admired securities firm in 2007 according to Fortune magazine. In 2008 it filed for bankruptcy.”
“A recent study found that funds sold by advisors underperformed those that were bought directly by the consumer.”
“We all know that most mutual funds greatly underperform the appropriate index, but did you know that the average investor underperforms the average mutual fund by another 1.5% percent per year?”
“The beauty of a 3-fund portfolio is that it automatically builds the global portfolio without having to worry about standard deviations, correlatons, Sharpe ratios, and the like.”
“Never buy an instrument that has a fancy name like Enhanced collateralized debt obligation investment unit trust.”
“Investing is much more than maximizing our wealth. It also involves minimizing the chances we will run out of money.”
“Our willingness to take risk isn’t easy to quantify because it is difficult to measure and very unstable.”
“Remember that staying with your asset allocation is every bit as important as choosing the right one in the first place.”
“Make it a rule never to buy a financial investment you couldn’t describe to an average second grader.”
“If the Wall Street brokerage firms were really so good at giving investment advice and managing risk, why did it take taxpayers to bail them out?
Index Your Way to Investment SuccessWalter R. Good and Roy W. Hermansen
For most individual investors, the benefits of indexing remain a well-kept secret because brokers, mutual funds, and other familiar sources of investment information routinely focus on products that offer substantially higher commissions or fees.”
“Expenses and other deductions from returns are extremely important, but other considerations, such as services and access to other funds provided by the same fund family, may also influence your choices.”
“This time is different is a message that resurfaces in every bear market.”
“The index fund advantage consists of lower costs, deferral of capital gain taxes, and control of risk through more complete diversification.”
“Index funds save on management and marketing expenses, reduce transaction costs, defer capital gain, and control risk–and, in the process, beat the vast majority of actively managed mutual funds!”
The Informed InvestorFrank Armstrong
“Each brokerage house or investment manager wants the public to believe that somewhere in the back office is a genius who can make you rich.”
“If we don’t establish the discipline to live on less than we make — no amount of investment advice will help.”
“Market risk means that sometimes your equities will go down. It is only a function of when, and we can’t know that. — If you can’t get used to the idea, don’t go into the market.”
“Risk and returns will be driven far more by asset allocation than stock selection or market timing.”
“Investors must understand that a superior portfolio will underperform from time to time. If they are prepared for this disconcerting reality, they are less likely to find themselves abandoning their superior portfolio in favor of Wall Street’s deal of the day.”
“My view is that, properly practiced, investing should be reasonably boring.”
“Rating services such as Morningstar’s star awards or the ‘Forbes’ honor roll attest to the futility of applying past performance to tomorrow. If these two organizations can’t make useful predictions with all their resources, how can the rest of us hope to?”
“Do the right thing: In every asset class where they are available, index!”
“Mutual fund independent directors lack any discernible backbone and appear to be born with rubber stamps attached to their hands.”
“Discipline is the key to success for the long-term investor. He or she must not fall into the trap of managing holdings by newspaper headline, sound bites, mindless prediction, gut feelings, or the last time period’s results.”
“The primary cause of investor failure is the behavior of the investors themselves.”
“The ‘buy and hold’ strategy outperforms the average investor by more than three to one after ten years.”
To be continued …. here.