I’m going to need a shower after this week because I really whored myself out to the financial news media for the book. I continued the media parade on Fox Business yesterday where I talked with David Asman and Liz Claman about some common investment myths. These segments are always so short, but here are the key points I was trying to make:
- Most of us don’t have to “beat the market” (the stock market) in the long-run.
In fact, most of us have financial goals that don’t require us to perform with the variance of the S&P 500. Most of us are looking to beat inflation and do so without exposing us to huge amounts of permanent loss risk. The S&P 500 doesn’t perfectly achieve those goals and so building a portfolio that’s entirely stocks could actually expose you to unforeseen risks and create unnecessary turbulence in your life.
- Don’t assume you can replicate what Warren Buffett does. Buffett is an exceedingly sophisticated investor running and incredibly complex operation. Berkshire Hathaway is essentially a multi-strategy hedge fund running an insurance writing house that operates like an option writing house combined with several global macro strategies including distressed debt, derivatives, forex and private equity. Replicating this is extremely difficult so don’t assume that buying some “value” stocks in your brokerage account is the same thing Warren Buffett does.
- You don’t always get what you pay for. Wall Street wants you to believe that higher fees are worth it because of the bells and whistles that come with certain strategies. But a lot of the time we pay for a Ferrari that runs like a Pinto. Look under the hood of actively managed funds. Make sure you benchmark properly and risk adjust their returns so you can properly evaluate funds and performance.
- Lastly, don’t be dogmatic in your views. In the interview I specifically discuss fundamentals vs technicals, but this applies to so many things in finance. A dogmatic view will almost always lead you astray. Stay open-minded. There are no holy grails.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.