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tw · 05-11-2014, 09:49 AM

Warren Buffet confirmed that stock brokers (including active account managers) tend to be inferior investors. He left this recommendation for his wife. "My advice ... could not be more simple: put 10% of the cash in short term government bonds and 90% in a very low-cost S&P 500 index fund." Inventing using professional assistance has long been proven a bad investment. As PBS's Frontline so accurately demonstrates in The Retirement Gamble.

The Economist recently said same. "Each generation of investors were prepared to believe that the returns achieved by active fund managers were down to skill. Now it is clear that the skills were the result of factors that can be replicated." Those factors are found in index funds where no professional is making decisions.

In simple terms, Exchange Traded Funds or (ETFs) are superior to what any stock broker or financial expert will accomplish. The Economist says why professionals offer poor advice. "Historically, many earned commissions paid by the fund-management company whose products they sold and incorporated in the annual management charge. This system created a conflict of interest, the products that were best for advisers to sell were not necessarily the best products for clients to own. Low-cost trackers did not have the fees to reward advisers, so tended to not be recommended."

Warren Buffet's recommendations are based in similar reasoning. Of course, that should be obvious. "Since fund managers incur costs, the performance of the average fund manager is doomed to lag the index."

Peter Lynch of Fidelity (the best investor for 10 consecutive years) said same. Smarter investors learn about the product rather than spin from finance reports. He cited one example of how he made superior investments. He followed his wife and daughters into the mall. To identify products they preferred. Those were stocks that would increase in value years later. Why would anyone invest in an American shoe company? He watched what they selected. American Shoe was one of his most successful investments.

However, should one decide they are not product savvy, then 70% of the ETFs are provided by three companies: Blackrock, State Street, and Vanguard. Anyone paying 1% or 1.5% management fees wants to be financially raped. Fees should be as much as 0.2%.

Jack Bogle introduced the first index fund for retail investors in 1973. Wall Street professionals scoffed calling it a folly.

The informed investors is best advised to avoid Wall Street professionals who recommended Kodak because Kodak said they would be world leaders in paper printing - when paper was on the way out. Kodak even had no understanding of 3D printing - the future. Most Wall Street professionals knew nothing about its product; only studied the financials. Those professionals repeatedly were the source of folly.

The Economist note a problem with many if not most investors. "a belief that investors can do better than the index by picking a hot fund: money for old hope. ... It is easy to identify those funds with hindsight, but hard to do so in advance."

Only way to beat the market is it identify what makes profits years before profits are realized. That means studying products. And, of course, identifying top management that does not stifle innovation. Since 85% of problems are directly traceable to business school trained top management (ie every GM CEO since the 1960s). As Steve Balmer, a classic business school product, demonstrated by hobbling product development in Microsoft after Bill Gates left.

Smartest investors ignore bean counter types and identify innovators. Otherwise, the next best investment is an ETF. In every case, superior investing means cutting out people trained by business schools. Since bean counters (ie stock brokers) know the purpose of a company is profit - for them, not you.

05-11-2014, 09:49 AM	#53
tw Read? I only know how to write. Join Date: Jan 2001 Posts: 11,933	Warren Buffet confirmed that stock brokers (including active account managers) tend to be inferior investors. He left this recommendation for his wife. "My advice ... could not be more simple: put 10% of the cash in short term government bonds and 90% in a very low-cost S&P 500 index fund." Inventing using professional assistance has long been proven a bad investment. As PBS's Frontline so accurately demonstrates in The Retirement Gamble. The Economist recently said same. "Each generation of investors were prepared to believe that the returns achieved by active fund managers were down to skill. Now it is clear that the skills were the result of factors that can be replicated." Those factors are found in index funds where no professional is making decisions. In simple terms, Exchange Traded Funds or (ETFs) are superior to what any stock broker or financial expert will accomplish. The Economist says why professionals offer poor advice. "Historically, many earned commissions paid by the fund-management company whose products they sold and incorporated in the annual management charge. This system created a conflict of interest, the products that were best for advisers to sell were not necessarily the best products for clients to own. Low-cost trackers did not have the fees to reward advisers, so tended to not be recommended." Warren Buffet's recommendations are based in similar reasoning. Of course, that should be obvious. "Since fund managers incur costs, the performance of the average fund manager is doomed to lag the index." Peter Lynch of Fidelity (the best investor for 10 consecutive years) said same. Smarter investors learn about the product rather than spin from finance reports. He cited one example of how he made superior investments. He followed his wife and daughters into the mall. To identify products they preferred. Those were stocks that would increase in value years later. Why would anyone invest in an American shoe company? He watched what they selected. American Shoe was one of his most successful investments. However, should one decide they are not product savvy, then 70% of the ETFs are provided by three companies: Blackrock, State Street, and Vanguard. Anyone paying 1% or 1.5% management fees wants to be financially raped. Fees should be as much as 0.2%. Jack Bogle introduced the first index fund for retail investors in 1973. Wall Street professionals scoffed calling it a folly. The informed investors is best advised to avoid Wall Street professionals who recommended Kodak because Kodak said they would be world leaders in paper printing - when paper was on the way out. Kodak even had no understanding of 3D printing - the future. Most Wall Street professionals knew nothing about its product; only studied the financials. Those professionals repeatedly were the source of folly. The Economist note a problem with many if not most investors. "a belief that investors can do better than the index by picking a hot fund: money for old hope. ... It is easy to identify those funds with hindsight, but hard to do so in advance." Only way to beat the market is it identify what makes profits years before profits are realized. That means studying products. And, of course, identifying top management that does not stifle innovation. Since 85% of problems are directly traceable to business school trained top management (ie every GM CEO since the 1960s). As Steve Balmer, a classic business school product, demonstrated by hobbling product development in Microsoft after Bill Gates left. Smartest investors ignore bean counter types and identify innovators. Otherwise, the next best investment is an ETF. In every case, superior investing means cutting out people trained by business schools. Since bean counters (ie stock brokers) know the purpose of a company is profit - for them, not you.