Some might think we’ve been unnecessarily harsh on Wall Street over the years when it comes to investing advice. We don’t think so, but sometimes feel like a lone voice in the wilderness warning investors against what seems obvious to us. The following excerpt comes from SanFranMag.com . We suggest you read the whole original article but here are some of the pertinent points.
“…Burton Malkiel, formerly dean of the Yale School of Management and now a professor of economics at Princeton and author of the classic A Random Walk Down Wall Street. The book, which you’d be unlikely to find on any broker’s bookshelf, suggests that a “blindfolded monkey” will, in the long run, have as much luck picking a winning investment portfolio as a professional money manager. Malkiel’s advice to the Google folks was in lockstep with Sharpe’s. Don’t try to beat the market, he said, and don’t believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund. Seasoned investment professionals have been hearing this anti-industry advice, and the praises of indexing, for years. But to a class of 20-something quants who’d grown up listening to stories of tech stocks going through the roof and were eager to test their own ability to outpace the averages, the discouraging message came as a surprise. Still, they listened and pondered as they waited for the following week’s lesson from John Bogle.
“Saint Jack” is the living scourge of Wall Street. Though a self-described archcapitalist and lifelong Republican, on the subject of brokers and financial advisers he sounds more like a seasoned Marxist. “The modern American financial system,” Bogle says in his book The Battle for the Soul of Capitalism, “is undermining our highest social ideals, damaging investors’ trust in the markets, and robbing them of trillions.” But most of his animus in Mountain View was reserved for mutual funds, his own field of business, which he described as an industry organized around “salesmanship rather than stewardship,” which “places the interests of managers ahead of the interests of shareholders,” and is “the consummate example of capitalism gone awry.”
Bogle’s closing advice was as simple and direct as that of his predecessors: those brokers and financial advisers hovering at the door are there for one reason and one reason only—to take your money through exorbitant fees and transaction costs, many of which will be hidden from your view. They are, as New York attorney general Eliot Spitzer described them, nothing more than “a giant fleecing machine.” Ignore them all and invest in an index fund. And it doesn’t have to be the Vanguard 500 Index, the indexed mutual fund that Bogle himself built into the largest in the world. Any passively managed index fund will do, because they’re all basically the same.”
Let’s recap Malkiel’s investing advice:
- A blindfolded monkey has the same chance as picking a winning portfolio as a professional Wall Street money manager
- Don’t try to beat the market – you can’t
- Except for index funds, mutual funds are “capitalism gone awry”
We’d go Mr. Malkiel one better and suggest that the entirety of Wall Street is capitalism gone awry. Income property allows the investor to keep those darned middlemen out of the game completely. No other investment can make that claim.
Please! Share this article with your friends who still drink the Wall Street Kool-Aid. It’s tough love of the highest order and they might resent you at first but, ultimately, you’re doing them a BIG favor.
What do YOU think of our take on the stock market?
The Creating Wealth Team
Flickr / Arenamontanus
