It is probably the only investment plan that you need and is very different from what you would expect from one of the Greatest Investors of all time. He is a cult figure and probably more famous than Sir Franklin Templeton, John Bogle and other great investors and educators.
Surprising, right? I can think of two good reasons for his unconventional advice:
1) The “Net Performance” of majority of the Active Funds/Managers lags the market/Index Funds in a long run. Many books and articles have been written regarding this topic and a lot of research has also been done. I suggest every investor must read “A Random Walk down the Wall St: Burton G. Malkiel”. It is a great book to get good perspective on the markets.
2) An average person does not have the temperament for being a successful Value Investor. It doesn’t matter how genius of a person is. Very few have the time and patience to learn the “Art of Investing” in a systematic manner. Being successful at long term investing also requires multi disciplinary approach and different mental models.
One has to be a Constant learning machine. Only if you feel ecstatic while reading annual reports or digging through numbers in the balance sheets, should you be in the business of stock picking. On the contrary, you’re not going to Be Rich if you just love watching financial/market TV channels and listening to the analysts or looking elsewhere for stock tips.
We think Being Active means Great Results; this doesn’t hold true in Investing. In stock picking, most difficult thing to do is to practice patience. It is easy to analyze and pick stocks but extremely difficult to turn this skill into profits on a consistent basis.
How to get started with Index Funds?
First target should be the retirement accounts like 401K, IRAs etc; most of them have the option of Index Funds these days. In India, we have Nifty Index and Junior Bees ETFs.
There’s a Bogleheads blog that offers free advice on building portfolios for new and experienced investors. Many ordinary folks have become millionaires following a disciplined approach of investing in Index Funds.
Following a disciplined approach of investing in Index Funds, you won’t Get Rich overnight but will over few decades and that’s what one should aim for.
What about the Itch of Doing Something?
Investing in Index Funds can be very boring and might not get you any bragging rights. So many keep an Itch (or Casino money) Portfolio..not more than 1% of their networth and keep ‘trading’ limited to this only.
I would like to end this post with Pascal’s quote: