Ben Stein and Phil DeMuth have written a book that is not all Boglehead philosophy, but the book is easy to read, not dogmatic and the authors offer some interesting alternatives. We can learn from these excerpts:
"A popular online discussion group hosted by Morningstar called the "Vanguard Diehards" frequently hashes out portfolio-related issues."
"The financial service industry is forever engineering and promoting products to sell to investors."
"People are forever bragging about their investment returns. Never mind all the cases where they're conveniently forgetting to mention all their losses, are just plane wrong, or are outright lying."
"The bitter truth is that simple index funds outperform most of their actively managed peers."
"As John Bogle pointed out in the Financial Analysts Journal, after expenses, taxes, and inflation, the average actively managed mutual fund delivered only 34% of the profit of an S&P 500 Index fund from 1983 to 2003."
"When we buy and sell stocks -- We don't get to see who's on the other side of the table. -- Would you feel differently if you knew that a team of gunslingers from Goldman Sachs was betting against you?"
"Most people don't invest all at once, informed by the latest research in financial theory. They wander through the Wall Street supermarket, picking up; whatever scraps are dangled in front of them at the
"Knowing returns without understanding risks is like knowing only one team's score in a football game."
"The time to decide you've taken on too much risk isn't the day after the market is down 20 percent."
"To the extent that we want to dampen the volatility of our stock portfolios, we just add bonds."
"An all-stock or an all-bond portfolio isn't usually as efficient as one that contains both asset classes."
"As with stocks, we recommend a simple low-expense index fund, in this case using short-term, high-quality bonds."
"The risks of your portfolio can't be boiled down to its standard deviation. The real risk is that your portfolio fails to meet your investment goals."
"Mean-variance optimization is a nifty teaching tool with little practical application."
"Monte Carlo simulation is the best tool available today to analyze a portfolio's prospective performance, but like any tool, it can be dangerous if used ineptly."
"Rookie mistakes will do you far more damage than having a superchaged portfolio will do you good."
"John Bogle, founder of the Vanguard Group and the patron saint of investors everywhere, very sensibly maintains that a broad index fund such as a total stock market index is the ideal equity holding."
"A market-wide level of diversification is an extremely diversified portfolio."
"If you were unfamiliar with the power of Modern Portfolio Theory up until now, we hope you'll stop and thank the Almighty for this great gift."
"Investors pursue their dreams of beating the market through such futile means as individual stock picking, short-term market timing, and momentum investing--."
"Assets moving in opposite directions for years can change on a dime and start moving in tandem."
"Unfortunately, stocks that diverge a lot on the upside are precisely the same ones that do so on the downside."
"When people say that hedge funds are 'lightly regulated,' they're not kidding."
"We urge you to use extreme caution when adding junk bonds. They're called 'junk' for a reason: What you gain in yield can quickly evaporate in principal."
"Most Americans are woefully undersaving for retirement. A sizzling asset allocation isn't going to help them if they're not putting enough away."
"Our goal should be to build a well-constructed portfolio that can suffer the slings and arrows of market forces in a variety of situations and emerge intact from the ordeal."
"The diversified investor is always in the position of wishing he owned more of the big winners and fewer of the big losers."
"Most investors radically overestimate their competence in this area (stock picking)."
"The goal of portfolio planning is to use diversification to secure the maximum expected returns for the minimum expected risk in meeting portfolio objectives."
Thank you Mr. Stein and Mr. DeMuth.
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