To Dream The Impossible Dream – Beating The Stock Market
A few years ago after reviewing some portfolios for clients that tried their hand in stock market trading it was obvious to me that they were gambling as if they were at the roulette table in Vegas. As someone who has worked for a billionaire and observed the asset class relative to stock, the investments were safe blue chip stocks, bonds, Treasuries and Index funds because it is next to impossible to beat the market. I then wrote my first book The 3 Secret Pillars of Wealth that discusses the fundamentals of what is an investment and what to look for every-time you start to consider an investment. Benjamin Graham who was the mentor of Warren Buffet stated an investment was something that preserved principal and provided and adequate return.
In the book we also discuss John Bogle, the founder of Vanguard Investments, views on investing and trying to beat the market. Mr. Bogle’s academic research proved that virtually no one could consistently beat the market over long stretches (like the 35 years we have to invest for retirement). The best you could hope for was to meet the market, which gave you returns that weren’t half bad. in my book we recount the research of looking at 355 mutual funds over the 35 years and that only 3 of them did anything compelling and that was in line with what the S&P 500 did. Hence, the idea is that going forward how would the average person who works uncover those 3 funds out of the masses; you can’t is the answer.
To this end, Mr. Bogle said we need to invest in a broad swath of stocks and bonds through low-cost index funds and forget about your portfolio. Spend your time living your life instead of researching stocks and bonds. That’s much more fun than sweating over investments anyway. If you’re going to research anything it would be real estate and starting your own business as other assets.
The other pundit of the idea that almost no one beats the market is Terrance Odean, a Berkeley professor who proved Bogle’s theory from another perspective. The more you trade, the more you lose, Odean discovered by examining the real-life portfolios and trading patterns of thousands of investors. His paper, Boys Will Be Boys, is a must-read for anyone who is trying to retire in comfort and not run out of money and for those who think they’re going to outsmart the stock market. You know the guys who have a super large screen in their office and they seem to be following the market and making trades. What they are really doing is creating taxes with capital gains and many of them short term which costs more, all for what?
Steady and consistent gets to the finish line if we remember what Aesop tried to teach us in the story of the Tortoise and the Hare. The best way to invest with success is to get base hits and not try to get a home run all the time. If we look at baseball, a home run is great but really you accomplish more if you get a base hit and move it one base at a time to home plate; this is better than striking out.