The strategies that increase the odds of achieving investment success too often get a bum rap. Drowned out by the advice du jour, financial prudence is forever getting trampled in the latest news cycle as more enticing notions grab the crowd’s attention. Buy this, sell that. Oh, look, XYZ Corp. posted an unexpected rise in earnings last quarter. But, wait, look over there: same store sales are down and Uncle Billy’s Medical Supply Inc.
So it goes in the 21st century, which is awash in investment advice, analysis and outright guessing. Some of its ok, most of it isn’t, and only a small minority of it’s worthy of being enshrined as enduring principles. Only today your editor stumbled across a column of questionable value published by one of the major outlets in the so-called new media. The basic message: mutual funds are for those who don’t know any better. Far better, the column recommended, that investors pick a handful of stocks and forget about it. Not just any stocks, of course, but those that have durable brands and businesses that will stand the test of time and that are selling on the cheap. In short, you don’t need a mutual fund.
The rationale given is that Warren Buffett doesn’t use mutual funds and so neither should you. In fact, the author quoted Buffett directly, lest there be any doubt of the true road to investment success: “Diversification is a protection against ignorance.”
Of course, investing isn’t quite so simple. For starters, Buffett has also gone on the record as saying that index funds are a pretty good investment after all. As the Oracle of Omaha advised earlier this year, “A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money.”
The strategies that increase the odds of achieving investment success too often get a bum rap. Drowned out by the advice du jour, financial prudence is forever getting trampled in the latest news cycle as more enticing notions grab the crowd’s attention. Buy this, sell that. Oh, look, ABC Corp. posted an unexpected rise in earnings last quarter. But, wait, look over there: same store sales are down.
So it goes in the 21st century, which is awash in investment advice, analysis and outright guessing. Some of its ok, most of it isn’t, and only a small minority of it’s worthy of being enshrined as enduring principles. Only today your editor stumbled across a column of questionable value published by one of the major outlets in the so-called new media. The basic message: mutual funds are for those who don’t know any better. Far better, the column recommended, that investors pick a handful of stocks and forget about it. Not just any stocks, of course, but those that have durable brands and businesses that will stand the test of time and that are selling on the cheap. In short, you don’t need a mutual fund.
The rationale given is that Warren Buffett doesn’t use mutual funds and so neither should you. In fact, the author quoted Buffett directly, lest there be any doubt of the true road to investment success: “Diversification is a protection against ignorance.”
Of course, investing isn’t quite so simple. For starters, Buffett has also gone on the record as saying that index funds are a pretty good investment after all. As the Oracle of Omaha advised earlier this year, “A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money.”