“Do not try to beat the markets by speculating on commodities or high-tech stocks…When the siren song starts to waft toward you, lash yourself to the mast of broad-market investing.” —Ben Stein, “Everybody’s Business,” New York Times, Feb. 27, 2005
The message never really changes, does it? Establish a plan. Stick with it. Be a miser. Our sage advice, so well-summarized by Mr. Stein, largely boils down to a long list of “Don’ts”—don’t chase stocks, don’t time the market, don’t be a spendthrift, don’t succumb to sales pitches, etc.
Passive investing requires extraordinary self-discipline. To stay the course in the face of overwhelming headlines and hype is difficult, and rather than go it alone, many investors wisely seek guidance and regular reassurance. The distractions, after all, are enormous. In virtually every aspect of life in our capitalist economy, hard work and talent are rewarded, sometimes astronomically. In money management, however, there are no Lance Armstrongs or Michael Jordans. Stock pickers cannot be consistently right, because markets are not consistently wrong.
The table below makes this point rather succinctly. If in January 1981 you had invested in a mutual fund by picking from the best performing equity mutual funds of the previous five years, chances are you would have been outperformed by the overall market over the next 22 years, as measured by the S&P 500, which returned 12.2 percent annually. Only two of those funds outperformed the S&P, and half fell into the bottom half of all 275 equity funds when ranked by total return. Similar results occurred in subsequent 5-year periods.
Several thousand INVESTMENT GUIDE subscribers have concluded that our monthly reminder is just the thing to keep them on track, while our 200+ individual investors have come to appreciate our discipline so much that over the past two years the value of the assets we manage on their behalf has doubled (most of the new assets had previously been managed by “full service” brokers).
Also in This Issue:
Value VS. Growth Investing: A Closer Look
Gold ETFs: The Nuts and Bolts
Newly Recommended Funds
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
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