Wise Investing Made Simpler by Larry Swedroe

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Wise Investing Made Simpler by Larry Swedroe

Postby Mel Lindauer » Wed Aug 04, 2010 2:21 pm

Hi Everyone:

I just wrote the first review on Amazon.com for Larry's new book, Wise Investing Made Simpler.

You can read my thoughts here: http://www.amazon.com/Wise-Investing-Ma ... 0976657457
Best Regards - Mel

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Wise Investing Made Simpler--A Gem

Postby Taylor Larimore » Wed Aug 04, 2010 4:23 pm

Hi Mel:

I agree with your Review of Larry's book now for sale at Amazon.

The book is full of valuable suggestions like these:

"Wise investing doesn't take rocket science. It takes good old-fashioned common sense, and a willingness to look past the marketing machine of Wall Street."

"Wall Street wants you to think that investing is hard. Financial advisors dazzle us with two-bit words like 'Sharpe ratio.'"

"We are taught to lust after mysterious Greek letters--alpha, beta, delta--and are seduced by what Jane Bryant Quinn calls the 'Investment pornography' of Wall Street.

"Investors find it hard to believe that ignoring the vast majority of the investment noise might actually improve investment performance."

"Efforts to outperform the market by either security selection or timing are highly unlikely to prove productive after taking into account the costs, including taxes, of the efforts."

"Develop a portfolio that reflects your unique ability, willingness and need to take risk."

"Only about one-third of actively managed funds outperform their appropriate benchmark in any given year. Over 10-year periods, the evidence is that about 90% of actively managed funds underperform their appropriate benchmark on an after-tax basis."

"Importantly, there is no evidence of (mutual fund) persistence, beyond the randomly expected, at least among the top performers."

"Unfortunately, a Morningstar rating is a poor predictor of future ratings."

"The winning strategy is to stop trying to beat the market. The historical evidence is clear. If you simply accept market returns over the long term, you are likely to outperform approximately 90% of investors."

"Those who judge strategies solely by outcomes are likely to confuse skill with random good luck."

"If you want to see the greatest threat to your financial future, go home and take a look in the mirror--Jonathan Clements quote"

"All too often investors continue to work with advisers solely because it is difficult to fire an adviser who is also a friend, and even more difficult to fire one that is a relative."

"Phychologists have long known that individuals allow themselves to be influenced by the herd mentality, or the "madness of crowds."

"There are more money managers than there are stocks listed on all the U.S. exchanges."

"It seems to be a common human failing to fall prey to recency--the tendency to give too much weight to recent experience."

"The advertising machines of Wall Street's investment firms are great at developing product to meet demand."

"If investors adopt the winner's game of passive investing, the will not long have to spend time searching for that hot fund. They can spend time on far more important issues."

"The chances of selecting the top funds of the future are about as high as the odds that Bigfoot and the Abominable Snowman will both show up in pink ballet slippers at your next cockail party.--Jason Zweig quote"

"Hedge funds do offer the hope of outstanding returns. So do lottery tickets."

"It is the collective wisdom of the crowd that sets market prices, and the collective wisdom is a very tough competitor."

"The combination of market efficiency and the costs of playing make it difficult to 'beat the market.'"

"Every time somone buys a stock, because he is confident it will outperform the market, there is a seller who is equally confident it will underperform."

"A study by Barber and Odean found that the stocks individual investors buy underperform the market after they buy them, and the stocks they sell outperform after they sell them."

"There are many illusions in the world of investing. The process know as data mining--torturing the data until it confesses--creates many of them."

"Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.--Peter Lynch quote"

"One study on the performance of 100 pension plans engaged in tactical asset allocation found not one single plan benefited from their efforts."

"Morningstar fund that investors in mutual funds, on average, significantly underperform the very funds in which they invest. The reason for this seemingly strange outcome is investors tend to buy after periods of strong performance and sell after periods of weak performance."

"The bottom line: If you don't have a plan, develop one. If you do have one, stick to it."

"While it certainly seems tempting to try to time the market, the evidence suggest it is a mug's game."

"After nearly fifty years in this business, I do not know of anybody who has done it (market timing) successfully and consistently.--Bogle quote"

"In finance, a 'black swan' refers to a large-impact, hard-to-predict rare event beyond the realm of normal expectations."

"Prudent investors know the one free lunch in investing is diversification because, done effectively, it reduces risk without lowering the expected return of a portfolio."

"While in most endeavors past performance is a reliable predictor of future performance, when it comes to investing, it's just another bit of conventional wisdom that doesn't hold true."

"While pension plans failed to outperform market benchmarks on a risk-adjusted basis, mutual funds underperformed pension plans by about 2% per year."

"The financial media also want and need you to play so that you 'tune in.' That is how they (not you) make money."

"While it is easy to identify after the fact those (funds) with great performance, there is no evidence of the ability to do this before the fact."

"There is also a practical reason for the lack of persistence--successful active management sows the seeds of its own destruction."

"The EMH explains why investors cannot use publicly available information to beat the market--it is already embedded in prices."

"Trading costs for mutual funds are on average even greater in magnitude than the expense ratio."

"There really isn't a normal year. We can also say there are very few years even close to the average return."

"Good advice does not have to be expensive, bad advice almost always cost you dearly."

"Never have more than a small percentage of your assets in the stock of any one company, especially your employer."

"When the cost of a negative outcome is greater than one can bear, the risk should not be taken, no matter how great appear to be the odds of a favorable outcome."

"We live in a world of cloudy crystal balls."

"Never make the mistake of treating even the highly likely as if it were certain."

"There are three kinds of lies: Lies, damned lies, and statistics.--Mark Twain quote"

"Wall Street wants and needs you to believe active management is the winning strategy. However, the evidence, once the biases in the data are removed and proper benchmarks are used, is overwhelming that active management is a loser's game."

"I would urge you to never work with any advisor that receives compensation in the form of commissions."

"The investor must periodically rebalance the portfolio to avoid allowing the markets to cause their portfolio to style drift (alter their asset allocation)."

"In 1900, the Egyptian stock market was the fifth largest in the world. Those investors are still waiting for the return of their capital, let alone the return on their capital."

"In 1990, the Nikkei index crossed $40,000. In 2009 it was still down about 75%."

"If the market is up 10%, investors in Vanguard's Total Stock Market Fund must earn 10% before any expenses. And there is only one gross rate of return active investors as a group can earn, and that is 10%. However, since active investors have higher costs than do passive investors, active investors must have lower net returns."

"Academic research has determined the most tax-efficient strategy is to have a preference to hold equities in taxable accounts and fixed-income assets in tax-advantaged accounts."

"If your retirement plan does not have low-cost, passively managed investment choices, you should run straight to the HR department and explain why they should be offered."

"Investors shouldn't delude themselves about beating the market. They're just not going to do it.--Daniel Kehneman, Nobel Laureate in Economics, quote"

"The investment plan should be intergrated into an overall estate, tax and risk managment (insurance) plan that also includes wills and both financial and health care durable powers of attorney."

"There is much wisdom in the adage: Failing to plan is planning to fail."

"While at birth males have a life expectancy of 74, if they reach the age of 65 their life expectancy is now 81, an increase of seven years. For females the comparable figures are 79 and 83."

"Half the people will live longer than expected, creating the potential for outliving their savings; and it's not a good thing to be alive with no assets."

"For the period 1926-2009 a portfolio with 100% allocation to long-term Treasury bonds provided a return of 5.4% and experienced a standard deviation of 9.6%. A portfolio with 20% allocated to the S&P 500 Index and an 80% allocation to long-term Treasury bonds provided a return of of 6.7%, and yet it experienced a standard deviation of just 8.8%. Higher return with less volatility."

"If the first to die is the spouse managing the finances, the surviving spouse is often left without the skills needed to carry out the plan."

"It is estimated there is nearly a 50% chance a person will eventually require 24-hour skilled nursing care in a long-term care facility."

"Children who are designated as beneficiaries are permitted to stretch their required distributions from the inherited IRA over their life expectancies."

"If the individual has not reached the age when the required minimum distributions (RMD) must begin, the most efficient order is to withdraw funds first from the taxable account. In the case of the Roth, because the assets are never taxed, they should be last asssets to be withdrawn."

"Those in the lowest tax bracket should take distributions even before the RMD age is reached."

"Because the cost of being wrong can be great, it is important to be conservative in the estimates used. That applies to estimate on life expectancy, rates of return, withdrawal rates, ability to work in retirement, need for LTC and so on."

"If I have accomplished the objectives I set for this book, you will have learned these simple truths:
* Wall Street and most of the financial media are not your friends.
* Much of what Wall Street and the financial media and press put out is rightly called investment propaganda.
* Active management is the loser's game.
* Passive investing is the winner's game."

Thank you Larry Swedroe
"Simplicity is the master key to financial success." -- Jack Bogle
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Wise Investing Made Simpler

Postby larryswedroe » Thu Aug 05, 2010 3:19 pm

Thanks Mel and Taylor, glad you both enjoyed the book.

Just as my blog this week focusing on The Only Guide You'll Ever Need to the Right Financial Plan (The first draft I wrote about ten years ago as a booked called at the time Investment Policy--the Art of Investing. That book was something like 500 pages and combined The Three Only Guides-stocks, bonds and equities-and many other topics). But the publishers all thought it was way too long. So I eventually split it into three books, first the Only Guide to a Winning Bond Strategy, then the Only Guide to Alternative Investments, and finally the new book), next week's blog will focus on Wise Investment Made Simpler---which I wanted to call Wise Investing Made Simple II, But the publisher did not like that, so we came up with this title. So you can get a preview of a couple of the tales next week.

As always happy to answer emails or PMs from Bogleheads or other readers of the books.

Finally, the third installment of Wise Investing is already finished--just need to have enough sales of the second to get the publisher interested.

I am also finalizing negotiations with Wiley on my next book--The Quest for Alpha, which I would hope would be out early next year. That book is completed. And then I have also finished writing another book co-authored with RC Balaban (my editor at Buckingham who does a great job on the blog) which is an update of Rational Investing. That book covered 52 mistakes investors make, the new one will cover 76--our preferred title is 76 Investment Mistakes Even Smart People Make and how to Avoid Them (but hard to find a publisher willing to come out with another book when author will basically already have 3 news out at the same time)


Best wishes
Larry
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Postby Beagler » Thu Aug 05, 2010 5:45 pm

The very first book I downloaded onto my new iPad was Larry's current book, and I can tell you that reading it while on the treadmill has made my cardiologist-enforced exercise routine a lot more palatable. Larry, please keep writing books, I need a lot more exercise.
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Sounds like my cup of Tea

Postby caaaad » Thu Aug 05, 2010 6:55 pm

Over the years I have been a somewhat slow study when it comes to investing. I finally am starting to get an approach that makes sense for me. Thank you Taylor for all the posts.I think I am headed in the right direction and this just confirms all my doubts about wall street and their true intentions.
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