The advice I got from my father, received from folks who published some of the most popular investment information services of the day, was
The stock market is a game created by the pros to be played by the pros. As with poker, if you don’t see the sucker at the table, he’s sitting in your seat. To beat the market on an extended basis, if it’s possible, you’d have to spend pro-level resources… and unlike them, you aren’t being paid to do so, so you’d probably wind up spending more than your additional winnings. If you have something approaching inside information, maybe you can do better on a single trade… otherwise, your best choice is to diversify widely and just take market-rate-of-return. Anything beyond those two options or on a shorter timescale is gambling, not investing.
Index funds didn’t come along until much later, but they have the advantage of letting you maintain that diversification with minimal management cost. And every study I’ve seen suggests that they do as well as, if not better than, human-managed funds over the long run.
Of course, the current mania for short-term gambling is distorting the hell out of the market, by demanding that companies manage for stock price increase rather than for the combination of company growth and profit (dividends). But widely diversifying, and counting on the long term and compounding, still seems to be the best bet for protecting yourself from the fallout.
Remember: If there was a simple, obvious way to beat the market, the market would already have adjusted to adopt it or forbid it. What are the odds that you, or your guru, really know something that a few million others don’t?
Nope. Not unless it runs different than any other large pension fund that I’ve ever heard of.
The only possible thing that might be advantageous to an owner is if they had a way to force the company into bankruptcy, or some other crazy legal shenanigans that would allow them to shed some of the pension benefits (future, since existing ones are built in sans bankruptcy court), which could potentially increase equity in a company.
Generally one does not buy a big-three newspaper to do this. Journalists have quite a podium to speak with, if irritated.
The big difference is between actively traded positions (where stocks are bought and sold with some regularity) and hold positions, where the investment is a bet on the long-term health of the market, rather that either a) what good or bad PR will come out tomorrow or more often b) what everyone else will do tomorrow when reading the PR in the papers. There is a gray zone, but Buffet is trying to distinguish investing based on the long term value of a company, versus trusting someone to be smart/lucky enough that they will consistently beat the market + make up for their expensive fees.
If a financial adviser were that good at picking winners, he/she would not be working for others but rather for him/her self only. Fact is, “fees” is the “sure thing” that makes the advisers money.
This is exactly what the Fools at Fool.com say, and they’re followers of Buffett. Not a shill, I promise, just a happy customer. They go on to say that while you shouldn’t invest in multi-billion dollar companies because everyone’s following them and there’s nothing new going on there, and you shouldn’t invest in penny stocks because they’re either completely speculative or pump-and-dump schemes, there is a sweet spot in between where you get honestly good companies that are hardly being followed by the analysts (because they’re too small) and can’t be played with by pension funds (likewise, since they’d only be able to spend a fraction of a fraction of a percent of their holdings, and anything more and they’d have to buy the actual company).
And there you can concentrate on the fundamentals of the business and invest for the long term. I’ve been in the market as an individual investor for 20 years, and I can say that if you’re at all interested in saving for retirement, you must either put your money in an index fund and forget about it, or subscribe to (not a shill, I promise) a Fool portfolio and follow that in a self-directed retirement account (where I’ve been able to get slightly above index returns). Playing with money not in a retirement account (at least in the U.S.) is riskier, since you have to pay taxes whenever you sell, as opposed to a retirement account where taxes are deferred.
You could also just put everything in Berkshire class-B shares, I suppose. That’s done better than the index over the long term. In fact, it’s done better than my portfolio average pretty consistently.
Finally, you have to have a strong stomach. If you started investing at the height of the market in late 2007/early 2008, you would have to have a seriously strong tolerance for pain for what happened in 2008. It happens, but if you gave up, you’d have missed the constant increase for new investments afterwards. You must think long-term, and not be scared of a loss.
Anyway, there are a lot of nice starter articles at fool.com for you to learn from. It’s a hell of a lot better than constantly seeing “the market is a sucker’s game!” or “you can make millions day-trading!”
Granted, Motley Fool is better-than-usual advice. Last I looked, though, they were still pushing the “dogs of the Dow” approach, which I personally am less than convinced by. De gustibus…
“Diversify” and “buy and hold” have been sound strategies for over a century. Doing that and being cautious let me retire two years early with a retirement income approximating what I earned working. (Mid-level technician civil servant).
If I had felt like working another five years, I could probably have managed to get up to the “well-off” level (defined by me as making more money retired than working) but “comfortable” does nicely.
If I had been smarter forty years ago, I could have probably have managed “modestly wealthy”, it’s just not that hard to do if you have self-discipline and patience, which I didn’t back then.
The whole bankers’ bonuses thing is simple to explain. You work for a brewery? You get to take beer home from work. You work for a bank? You get to take money home instea. Source: have a friend who used to work for the brewery. Now works for the bank.
Capitalism abhors a commercial vacuum. Heck, greed abhors a commercial vacuum and will try to leverage it no matter what the nominal system.
You get what you incent. Which is why setting limits and disincentives – and incentives for desired behaviors – is so critical. And which is why wide deregulation has led to problems every blinkety time.
