Pipe Dreams
Samuel Lee is an ETF strategist and editor of "Morningstar ETF Investor". His message is very similar to beliefs of many well known and respected individuals such as Jack Bogle, Warren E. Buffett, Larry E. Swedroe and Carl Richards. Researches by firms such as Morningstar, Vanguard and Dalbar have come to the same conclusions.
Investing is a zero-sum activity. If the seller is wrong the buyer is right. If you prefer, if the buyer is wrong, the seller is right. Each believes their decision to buy or sell is correct. Mr. Lee believes that close to 99% who try to beat the market will fail.
Costs are a significant factor in determining who will make money and who will lose money on any transaction. Trading increases cost and reduces the returns.
Mr. Buffett recently indicated his survivors should put their money in index funds and move on. His annual letter to Berkshire shareholders included the following: … "Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting friction costs can be huge and, for investors in aggregate, devoid of benefits. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm."
Warren Buffet is the exception to the rule. He has exceptional skills and access to information and resources not available to most people. Most active mutual funds also do not outperform the market.
John Bogle compares investing to farming. Mr. Bogle compares investing to gardening in his book "Common Sense on Mutual funds. The book references "Chauncey Gardiner" (played by Peter Sellers in the movie) Jerzy Kosinki’s book "Being There". "The seasons of the garden find a parallel in the cycles of the economy and the financial markets, and we can emulate his faith that their patterns …will define their course in the future."
Investing should be based on a plan to achieve your financial goals. It is a long-term process that requires research and patience. Passive investing will improve the returns for most people. Almost everyone believes they are better than most people. The Dalbar studies for the past 25 years are based on real investor returns. Most people think they did better than their actual results.
