Yesterday, there was an article on Money.com by Jason Zweig, editor of the revised book, The Intelligent Investor, that I think is an excellent reading. The article, Are You a Better Investor?, has some good advises on what it means to be a better investor.Mr. Zweig started the article with some examples of what an investor will do 35 years ago in 1972: buy stocks/funds from a broker he/she actually knows, pay a 8.5% front load charge, and wait to read tomorrow’s newspaper to check the performance of the investments.
An investor’s life back then was indeed very simple because there weren’t many choices anyway, and it wasn’t very convenient either.
Then what about now?
Almost every investor has access to real time quote and can trade stocks at any time during the trading day at a fraction of the cost 35 years ago. There are more than 8,000 mutual funds available and creative ETFs that slice and dice the market come out at a speed we have never experienced before. Information is overwhelming and life is no longer as simple as it used to be. But are we better off as investors now than 35 years ago?
Not necessarily. As Mr. Zweig pointed out
One thing, however, hasn’t changed over the past 35 years: human nature. In 1972, Benjamin Graham was finishing the revise of his seminal work, “The Intelligent Investor,” in which he reminded readers that “the investor’s chief obstacle – indeed, his worst enemy – is likely to be himself.”
Then, as now, investors got in trouble by acting on impulse: either getting carried away by greed or being paralyzed by fear. And solutions like indexing have always seemed a little unsatisfying. You want investing to be more complex so you can feel special when you figure it out. And Wall Street wants it to be more complex so it can make more money off your attempts to figure it out.
Yes, we give up simplicity to favor complicity in an attempt to stay above the average. Not just ourselves as individual investors, but fund managers as well. However, the cold reality is, as Mr. Zweig noted in the article, “year in and year out, indexing has beaten roughly three-quarters of all funds.” The changes in the investment industry in the past 35 years have presented us more convenient investment choices at low cost. However, we can only benefit when we use them wisely .
Lower cost is great if you trade rarely and wisely, but not if it tempts you into buying and selling constantly. More choice is great if you add a few selected good things to your portfolio in moderation, but not if you end up with an unplanned jumble of investments. More convenience is great if you use it to make your life easier, but not if you take time away from family and friends to update your stock portfolio.
So what would be the winning strategy in this complex investment world?
Combine the two strategies of indexing and dollar-cost averaging and you can hold the entire planet in a single portfolio on permanent autopilot. Nothing could be simpler.
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