I wasn’t always a Couch Potato investor. I became one slowly. For years I believed that I could find good stocks to buy on my own. Or I could find someone else to do it for me through a mutual fund.
We are all encouraged to believe this.
Examine the source of the encouragement, and you’ll find that every bit of it comes from people who are making a living from our encouraged, misguided and largely unexamined beliefs. Some of the people are the talking heads on TV. They make it seem that what happens in the next 15 minutes is very important. Some are the sales people and brokers who tell us how smart their fund manager is.
As often as not, their beliefs are just like ours – unexamined.
My need and opportunity to examine those beliefs came in 1977. That’s when I started work as a newspaper personal finance columnist, then business editor, in Boston. This is the city where mutual funds began. It’s a city with “old money” — and old brokerage firms to trade it.
So I had lots of exposure to all those who foster our misguided and still unexamined belief in “beating the market.”
Data, however, is destiny.
With the arrival of the first personal computers and the first “retail” mutual fund database from Morningstar, it became possible to research investments “in your spare time, at home.”
In one mutual fund screen after another the same finding repeated. Whatever you were investing in, the lower the annual expenses of the fund, the greater the probability of good performance. Similarly, pit the most expensive funds against the least expensive funds, and the least expensive funds delivered a higher average performance to the investor.
Cheap is good. Expensive is bad.
That now seems obvious to many. But an army of sales people still tell us that the higher expenses are justified by the better results claimed. And some people still want to believe.
But it just ain’t so.
The data tells us, again and again, year after year, and decade after decade, that low-cost, simple index investing is the way to grow your fortune. Not overnight. But in time for when you need it.
Here’s a link to the first column about Couch Potato investing, published in 1991, titled “On the Importance of Being a Dull Investor.”
https://scottburns.com/on-the-importance-of-being-a-dull-investor/
The basic idea was good 27 years ago. It is good today. In coming weeks I’ll post links to other columns demonstrating the same thing. You won’t have to read an academic research paper. You won’t have to read a thoroughly footnoted book. You’ll just need to scan the inevitable 700 words of a newspaper column.
If you’re a doubter, I hope to convert you to being a full Couch Potato investor. If you’re already a believer, I hope you’ll read these as “booster shots” against all the hype about “beating the market.”
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Scott Burns
(c) Scott Burns, 2018