The historical data support one conclusion with unusual force: To invest with success, you must be a long-term investor.
In Las Vegas we all know that it’s the croupiers who win. At the race track, it’s those who control the handle who win. State lotteries, does anybody think the participants in the lottery win? No. The state wins.
The greatest enemy of a good plan is the dream of a perfect plan.” Stick to the good plan. Traditional.
For finally, “you can always count on Americans to do the right thing,” as Churchill pointed out, “but only after they’ve tried everything else.
The two greatest enemies of the equity fund investor are expenses and emotions.
Pressed to identify useful financial innovations created during the past quarter-century, Paul A. Volcker, former Federal Reserve Chairman and recent chairman of President Obama’s Economic Recovery Board, could single out only one: “The ATM.
Buying funds based purely on their past performance is one of the stupidest things an investor can do.
Owning the stock market over the long term is a winner’s game, but attempting to beat the market is a loser’s game.
Gunning for average is your best shot at finishing above average.
The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has done it successfully and consistently.
Over the short run, however, the fundamentals are often overwhelmed by the deafening noise of speculation – the price at which the stock market values each dollar of earnings.
Financial markets are far too complex to isolate any single variable with ease, as if conducting a scientific experiment. The record is utterly bereft of evidence that definitive predictions of short-term fluctuations in stock prices can be made with consistent accuracy. The prices of common stocks are evanescent and illusory.
Even for taxable clients, mutual fund managers supervised the assets in very much the same way, simply ignoring the tax impact and passing the tax liability through to largely unsuspecting fund shareholders.
As a result, Keynes warned, the stock market would become “a battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of years.
The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.
But most short-term renters of stocks are not particularly interested in assuring that corporate governance is focused on placing the interests of the stockholder first.
The simple fact is that selecting a mutual fund that will outpace the stock market over the long term is, using Cervantes’ wonderful observation, like “looking for a needle in the haystack.” So I offer you Bogle’s corollary: “Don’t look for the needle in the haystack. Just buy the haystack!
Investors need to understand not only the magic of compounding long-term returns, but the tyranny of compounding costs; costs that ultimately overwhelm that magic.
It will also tell you how easy it is to do just that: simply buy the entire stock market. Then, once you have bought your stocks, get out of the casino and stay out. Just hold the market portfolio forever. And that’s what the index fund does. This investment philosophy is not only simple and elegant. The arithmetic on which it is based is irrefutable. But it is not easy to follow its discipline. So.
An investment in knowledge always pays the best interest. Learning is to the Studious, and Riches to the Careful. If a man empties his purse into his head, no man can take it away from him.
It is character, not numbers, that make the world go ’round.