Meeting Larry Swedroe

Thanks to an invite from Canadian Capitalist, I had the pleasure of hanging out with accomplished and respected Canadian bloggers Michael James, Larry MacDonald and Canadian Capitalist (Ram Balakrishnan) listening to Larry Swedroe speak earlier this week, discussing the numerous merits of passive investing.

For those who don’t know much about Larry, he is the Principal and Director of Research for Buckingham Asset Management.   Larry is also an accomplished author who has published 11 investment books, has appeared numerous times on CNBC and runs a popular blog called Wise Investing.   His most recent book, The Quest for Alpha is now available and I have a copy.

When it comes to passive investing or investing in general, Larry knows his stuff.  So, when I had the opportunity to hear Larry speak on Monday night, I jumped at the chance.

During Larry’s 75-minute presentation in Ottawa, hosted by the fine folks at PWL Capital Inc., I took a few notes.  Here are some of my takeaways from that event.

Larry on types of investors:

Investors fall into two basic categories: active investors or passive investors. Active investors believe in trying to time the market and pick winning stocks. Passive investors believe in capturing the returns markets provide and do so in a low-cost, tax-efficient manner.  Larry strongly believes, based on overwhelming amounts of evidence, data and his own research that most individual investors are far better off using passive investing versus active investing.  He gave an example of a Mensa investing club who underperformed the stock market by almost 13% per year for 15 years.

Could you do better than a Mensa club? No way I could.

Larry on efficient or inefficient markets:

Conventional wisdom says that markets are inefficient – you can add value (and more returns) to your portfolio through careful stock selection and market timing.   You can get “alpha”.   Modern Portfolio Theory (what Larry believes in, what Buckingham Asset Management and PWL Capital believes in) says markets are efficient.   This means you always get the best estimate of the correct price by following the market and thus, efforts to try and outperform markets are highly unlikely after trading costs or other expenses. He gave an example by saying:  “Anyone here ever buy just an average mutual fund or stock?”  Of course not, he added, “you only buy what you think is the best investment right?”

Larry on stocks, brokerage houses, active management and more:

“90% of stocks are sold by institutional not individual investors.  Think about that the next time you buy a stock.”

“The brokerage world will always tell you ‘we can do better’.”

“If you invest in actively managed funds, you have the hope of outperformance.   However, the evidence demonstrates that it is the triumph of hype, hope and marketing over wisdom and experience.”

When asked by an audience member how to plan for today’s markets, Larry said “Take virtual certainty that there will be many more crises like these.  Today’s markets are normal.  Expect uncertainty – construct your portfolio that way.  My crystal ball is always cloudy.”

No doubt I subscribe to the premise of Modern Portfolio Theory, but I have to admit I was a little taken back by Larry’s aversion to owing and holding stocks in a DIY portfolio.  He said it was a game you’re certain to lose playing.   OK, I get that markets’ process information much more rapidly than I ever could and I certainly don’t have an ounce of the brainpower large pension plans or institutional investors have or will ever have, but I find it hard to believe that avoiding some Canadian bank stocks (for an example) is not a decent long-term investment.  Some Canadian financial stocks have been paying dividends; income, for over 100 years!   Will that occur for the next 100 years?  I don’t know, but for a part of my investment portfolio, I’m willing to take that risk.

In closing, I’m a big believer in passive investing.  Almost all of our RRSP holdings are constructed with index products.   But I don’t discredit the value and place holding established dividend-paying companies have in my portfolio, building passive income as time goes on regardless if the market goes up or down.   At least not yet.

What’s your take on passive investing?  Is that the Holy Grail of investing staring us all right in the face?

Do you believe some stock selection, particularly dividend-paying stocks have their place in a portfolio?

Tell me what you think!

35 Responses to "Meeting Larry Swedroe"

  1. What I don’t understand is that there is this “overwhelming evidence” in favour of passive investing, but show me which passive portfolio to follow in order to get there. There are countless model portfolios to follow, and once you navigate your way through and select one that you think is right for you, along comes a new product or a new emerging market that you just HAVE to get a piece of.

    Between the thousands of ETF products and the various indexes and asset classes to follow, how is that any different (or better) than stock picking?

    I agree that a passive approach would likely benefit most people, but only the investors who pay close attention to their portfolio and keep their asset allocation constant with their original strategy will be the ones with the best results.

    I would bet that the majority of people who claim to be passive investors are really actively managing their passive portfolio and not following their original strategy.

    I’m reminded of the Vince Lombardi quote, “Practice does not make perfect. Only perfect practice makes perfect.”

    Passive investing is portrayed as a simpler way to invest, but to me it’s much more complex than just purchasing a dozen or so blue-chippers and holding for the long term.

    Regardless of the strategy that you choose, investors would be better off sticking with it for the long term.

    Reply
    1. Hey Echo,

      I think the “overwhelming evidence” is indexing products in favour of actively managed mutual funds and not specifically dividend-paying stocks since I don’t think, although I don’t know for sure, there is great data out there that puts indexing more superior to a basket of consistently paying, dividend-stocks over a significant time period of at least 20 years amongst individual investors.

      You’re right, there are numerous portfolio models to follow and ETFs could be considered today’s mutual fund; there are hundreds and soon to be thousands of choices to select from. I guess the purpose of my post is this: a passive portfolio is a great way for most investors to go vs. actively managed funds. Avoid the fees, follow a broad, established index and make market returns. For those, like myself, who prefer a blended approach (indexing and dividend-stocks) or just stocks, there is nothing wrong with those paths – simply know what you’re investing in. That rule of thumb goes for indexing and dividend-investing alike. 😉

      Reply
  2. When something takes on a religious fervor as the only way of doing something a red flag goes up for me. I agree with @echo that there are a myriad of constantly changing indexes with new ones invented everyday with their accompanying countless index etfs and mutual funds. As has been said by others there are more efts/mutual funds then there are stocks! And that’s why there are index etfs which invest in other index etfs! Who can understand that? It is bewildering. Those who are becoming zealots with the index investing game I’m beginning to think are likely being subsidized by the companies selling these products. I’m becoming suspicious that way.

    I know another thing: one can design a study to prove whatever. Even carefully designed random controlled trials examining whatever hypothesis can be flawed and so evidence based studies are suspect because new evidence can emerge tomorrow showing the opposite!

    Ultimately as a DIY investor I do what is working today for me — a plan which I am comfortable with and lets me sleep at night. Everyone is different.

    Reply
    1. Hey Jon,

      A fair comment: “the only way of doing something a red flag goes up for me.” The thing about data, any data is, you can conclude whatever you want from it; that goes for data in support of indexing and/or dividend investing and/or another approach. For me, I know a blended approach is working. Others wouldn’t be satisfied with such a strategy and others still, would never do it. You said it well, that ultimately a DIY investor must do what is right for them not what is right for others. I too respect differences in styles and approaches; which is what makes this personal finance and investing journey so intriguing – so many roads to choose to get to an unanimous destination: financial freedom. Thanks for your comments Jon, you have great insight and experience to share!

      Reply
  3. @My Own Advisor
    Hey Mark,

    I agree with the point of your post. What I am struggling with is the same thing as jon evan, there is this notion that passive investing is the smart way and that only a fool would try and pick individual stocks. The person on the other side of the trade is smart, and therefore you are dumb for believing that you are on the winning side. Although the irony is that the institution on the other side of the trade is likely the same active manager that they claim to be able to beat with a passive approach.

    If the evidence was presented as passive vs. actively manged mutual funds then I totally buy it. The fees are what sets the two apart and that makes complete sense to me.

    But passive investing proponents seem to preach directly at DIY individual stock pickers and not at the majority of other investors who are blindly purchasing actively managed mutual funds through their advisor.

    I like the approach you take Mark, split the difference and take the best of both worlds.

    Reply
    1. Yes, I almost fell off my chair when Larry Swedroe implied that inferior mortals buy individual stocks! Sure, there is risk but isn’t that why you diversify? 🙂 I wonder if successful dividend-investor Susan Brunner thinks she is foolish? If my plan was to own the top 25 or 30 Canadian dividend-paying stocks (which it is…), I’d have a very hard time with somebody saying “oh no, don’t buy individual stocks Mark. If you want to own dividend-payers, buy XDV instead. That’s less risky for you.” ? I suppose the passive vs. actively managed debate will never end, which is good I think. It’s healthy to understand both sides of the coin and more importantly, choose one, another or a blend that’s tailored to your own investment maturity, risk-tolerance and financial goals. Thanks very much for your detailed perspective!

      Reply
  4. @MOA
    Great post man! And I’m sure that was a lot of fun to attend 🙂 Great comment stream btw, I see we are back to the Index Investing versus Dividend Investing debate again. I think we are going to have about 60 comments before this is over.

    As with MOA I hedge my bets on both strategies – I can’t suggest one strategy is better than the other because in reality they are fundamentally different in their approach. Nor would I try and preach one is better than the other… no one wants to be preached at. I have a dividend stock portfolio of mostly dividend paying blue-chip payers, it’s doing quite well. I also have an index portfolio that is doing quite well also. Surprisingly both portfolios are generating similar returns. If I felt one strategy was giving me superior returns, then I would obviously go 100% with that one 😉

    @Jon Evan
    Hi Jon, You could also say the same “religious fervour” applies to dividend investors as well as index investors. Unfortunately the majority of evidence does indeed suggest most people are terrible stock-pickers, and would indeed get better returns with Index Investing. That means most people underperform the market, as most mutual funds managers do. The market itself is simply too complex to be able to win every time.

    The problem is also exacerbated by the ETF market itself, which has strayed from its Index roots. The dizzying array of hedged, inverse, and swap ETFs are not suitable Index Investment products, and they should not be treated as such. I’m writing a post on this as I comment 🙂

    @Echo
    “Between the thousands of ETF products and the various indexes and asset classes to follow, how is that any different (or better) than stock picking?”
    Echo you’re right, as I mentioned to Jon above the ETF industry itself is to blame. If you are indexing , then stick with true indexing products that actually hold the stocks or bonds they are tracking – not all the hedged, inverse, and swap products. If you want to invest in the S&P TSX then you select an index investment that tracks that i.e. TD Canadian Index e-series.

    “I would bet that the majority of people who claim to be passive investors are really actively managing their passive portfolio and not following their original strategy.” What does that mean? All investors fall into that trap if they don’t stick with their plan, regardless of their investment approach.

    @ MOA
    “I suppose the passive vs. actively managed debate will never end, which is good I think.” Yup 🙂

    Reply
    1. Thanks Ninja! As you know, I too have a blended strategy and thus don’t see “one” over “the other” as superior.

      What I do know is for my RRSP, by holding low-cost, broad-market ETFs, I have a set it and forget it strategy which does very well. In my TFSA and mostly in a taxable account, I have a stock portfolio that includes all dividend-payers which is providing me steady, and growing income and is doing rather well. For my needs, both of these strategies are working but any investor, including myself, needs to be competent in what they are buying.

      I just think selecting and holding a few broad-market ETFs are a good way to invest for most investors; offerring excellent diversification and a lower fee structure in comparison to owning professionally managed mutual funds.

      Reply
  5. @The Dividend Ninja
    My point is that the average investor who sets up a passive portfolio with a Canadian Index, US/International Index and a Bond Index is likely not going to follow that model for the long term.

    As new products get introduced (weekly, it seems) they will be convinced to add emerging markets, real estate, gold, preferred shares, corporate bonds, small caps, covered calls, etc. They are chasing returns, similar to how stock pickers are chastised for trying to beat the market.

    They key with any strategy is to stick with it through thick and thin, otherwise how in the world can you measure performance against any benchmark?

    When passive investing proponents claim that the average investor will be better off indexing their portfolio, I agree. However, the probability of them sticking with their original allocation strategy is low (in my opinion, it’s just human nature to chase the next hot thing). So you end up with a performance chaser, just like they would have been if they were picking stocks.

    So I guess what I’m saying is, both DIY blue-chip stock pickers and true passive index investors will do very well. It’s the ones in either camp who deviate from their strategy to start chasing performance that will lag the market.

    Reply
  6. If one is going to buy a bit of the market one can buy a stock or shares in an index. I think most would agree it is simpler & likely safer to buy the index. However, would you buy that stock if it was overvalued? I would not. Would you buy into an index similarly at an overvalued point? I don’t think that is smart. Sure I believe in asset allocation strategy but for me it is age based BUT also dynamic and not passive when it comes to the stock asset portion i.e. I believe in reducing my stock portion when the market is approaching overvaluation and increasing when there is a correction. I’m not against cheap index funds. But passive investing is the issue with me in that I think it is different and shouldn’t be confused with index investing. Passive investing seems to suggest buying an index in an overvalued market is okay! This doesn’t make sense to me be it a house, a stock, or shares in an index. You can’t obviously time the market perfectly but you can follow trends and actively try to protect your stock market portfolio I think. Passive investing suggests: no just follow blindly your asset allocation plan and stick to it. This is intuitively hard to swallow for me!

    Reply
    1. @Jon Evan,

      Thanks for your insightful comments – you make an interesting point. Would you buy a stock or an ETF product that is overvalued? I wouldn’t try too!

      Also, which I agree with you, I don’t think we should confuse passive investing and index investing. A form of passive investing can be watching those dividends roll into your mailbox. Ugh, that is, when Canada Post is working? 😉

      Reply
  7. The biggest problem with Passive Investing is the INDEX! What if you don’t like composition of the index? Here are two examples:

    1) Canada: Energy and Materials which are the most volatile sectors account for 50% of the TSX (I don’t mind underperforming the benchmark in a hot market as a result of having my portfolio tilted towards healthcare, consumer staples and utilities – I get a smoother ride).

    2) Switzerland: Nestle has a 21% weight in the index.

    I go for the DIY approach so that I can control my stock and sector weights. My all-equity portfolio has a lower beta than a balanced portfolio made up of 70% XIU and 30% XBB.

    Reply
    1. @Think Dividends,

      Excellent points, beating the index depends on what your benchmark is, although I would hope most investors would ensure their index is relevant for comparative purposes? A fair comparison would be owning the majority of stocks from XDV and comparing how you do against it. I had no idea Switzerland was that tilted towards Nestle? Geez, after looking up the SMI you could own Nestle, Roche and probably Novartis which could be proxies for the whole index by owning just 3 companies!!!

      Thanks for your contributions TD.

      Reply
  8. @Jon
    You are absolutely right, you have to do what feels right for you 🙂 Ultimately you need to stick with your plan and keep to it through thick and thin – whether you are a dividned or index investor. During this last correction I added to an equity index while the value was low, (keeping to my asset allocation) and also added onto a couple of dividend stocks. Cheers 🙂

    @Echo
    I didn’t misunderstand your point, and I’m not disagreeing with you in principle. My point was that even dividend investors stray from their strategy sometimes and buy stocks they shouldn’t, and index investors probably do the same thing with other investments as well. You can’t just say that only applies to a single group of investors – that logic would be flawed.

    “My point is that the average investor who sets up a passive portfolio with a Canadian Index, US/International Index and a Bond Index is likely not going to follow that model for the long term. ”

    Why wouldn’t they?

    “As new products get introduced (weekly, it seems) they will be convinced to add emerging markets, real estate, gold, preferred shares, corporate bonds, small caps, covered calls, etc. They are chasing returns, similar to how stock pickers are chastised for trying to beat the market.”

    Doesn’t look like index-invesitng to me. Why would they be “convinced”? Again you make a flawed assumption(s) this is how all people invest.

    I’m sorry Echo, I don’t understand your logic at all.

    Reply
  9. I don’t own any ETF’s or Mutual Fund’s or any other index funds. I buy individual stocks, because I believe the companies I invest in will be worth more in the future than they are now. It’s pretty simple, really. Last I checked, Warren Buffett didn’t get rich by investing in Mutual Funds. He was the one collecting the management fee back then.

    I don’t understand why I would pay a “management fee” to someone so they can go buy shares in Coca-Cola, Johnson & Johnson, Netflix, Apple or the next “you-can’t-lose” stock when I’m just as capable to click the BUY button myself?

    If passive investing in this context is the holy grail, then consider me no Indiana Jones.

    Reply
    1. Hey Mantra,

      I know, you’re stock-focused which can be a GREAT thing! I know many folks who feel the same way you do; they held mutual funds for years, sold them, and have never looked back to indexed products or ETF-indexed products. I liked your comment about Buffett. Mind you, he is also on record for saying the majority of investors would be better off owning indexed products instead of stocks. No doubt, any management fees bite. I applaud your capability and confidence to go it alone and click that “BUY” button yourself. Understand some folks just aren’t wired to do that 🙂

      Reply
  10. Think Dividends, you bring up a good point 😉

    Dividend Mantra you are confusing Mutual Funds with Index Funds and Index ETFs – very different investment products., especially in fee structure and purpose. No one is suggesting you alter your strategy, and your dividend strategy works for you.

    DMantra, FYI Warren Buffett actually recommends index funds to investors – he suggests that the majority of investors are better off making monthly contributions to index funds and not paying advisors. He recommended this in 2007, 2009 and again in 2010. And he also advocates people not buying mutual funds.

    MOA I won’t take up your blog-space anymore – I promise 🙂

    Reply
  11. You guys (esp that guy Echo) are confusing investment products with an investing style.

    Passive investing involves using investment products which are low-cost and based on broad-based indexes. They can be either ETFs or index funds.

    The fact that there are all kinds of crazy ETFs out there is irrelevant.

    @Echo – you are absolutely right that the main thing is to pick a plan, believe in it and stick with it! That is the key.

    Passive investing isn’t necessarily easy – there are times when it’s tempting to drop it and try something else. Same thing with dividend investing or any type of investment style – none of them work all the time which is why patience is the key.

    As for the “average investor” – it probably doesn’t matter what style they pick – they probably won’t stick with it.

    Great discussion in these comments.

    Reply
    1. @Mike Holman,

      Thanks for stopping by.

      You bring up a good point that passive investing is not identical to indexing. Also, just like there are all kinds of crazy ETFs out there, there are also a bunch of “crazy” companies out there. All of us can likely agree that any investment style will not work be successful long-term unless patience and “sticking to the plan” is applied. Sounds like so many things in life, really 🙂

      Reply
  12. @The Dividend Ninja
    I guess this is something better discussed in person over a beer or two.

    I’m not sure where I’ve lost you. Check out the list of available indexes for Canadian investors on the Canadian Couch Potato blog – http://canadiancouchpotato.com/canadian-index-funds/

    Do you agree that those are all index funds? And that’s just the tip of the iceberg, there are many more choices available.

    So, do you pick the Japan index or the Asia-Pacific index? Emerging markets, or just China or Europe? Canadian bonds, Global bonds, or US bonds? Can you see how this would be very confusing for the average investor?

    But the experts suggest that the average investor should simply index their portfolio. What I’m suggesting is that it’s not that simple due to the overwhelming number of choices, so the average investor may end up making the same mistakes that the experts caution individual stock pickers might make.

    Reply
  13. @Mike Holman
    I’m definitely not confused, just having a hard time explaining my point I guess (maybe I don’t really have one?).

    “As for the “average investor” – it probably doesn’t matter what style they pick – they probably won’t stick with it.”

    That probably best sums up what I’m trying to say, so thanks for saying in 20 words what I couldn’t explain in 500 😉

    Reply
  14. @The Dividend Ninja

    Ninja

    I’m aware they are all different products with different fee structures and they offer different investment objectives. I never said they were related in any way. I was simply stating that I don’t believe in paying a fee, whether that fee goes toward investing in a broad-based index, a basket of funds, a concentration of emerging market equities or anything else. I was simply saying I’d rather “pay myself” a management fee.

    Warren Buffett has advocated individual investors purchase index funds many times. You are correct. I was simply inferring as to how he came into his fortune. He didn’t make billions on index funds or ETF’s. When he started, if I remember correctly, he managed others’ money and collected a fee. Again, I’d rather “pay myself”, however if I had a time machine I’d give Warren Buffett every penny I had! Also…Buffett is a little “do as I say, not as I do” with index funds and derivatives and other products. But, that’s another subject.

    If I was to go totally passive, I would buy a low-cost index fund and buy monthly. If an individual does not have the time or inclination to follow individual companies, I can see how this would work for others. It’s just not for me.

    Thanks for responding!

    Reply
  15. I got to your post via Dividend Ninja. I haven’t heard of Larry Swedroe, but it sounds like you appreciated his talk. I thought I would add my two cents since you mentioned me in one of your moderating posts.

    I do not know how he might classify me as an investor. I do not time the market as it is rather a useless thing to do. I do invest to capture the returns markets provide and do so in a low-cost, tax-efficient manner by buying stocks for the long term.

    It does not surprise me a Mensa club underperformed when investing. You need a certain amount of intelligence to be successful, but after than other things are much more important. I would think that common sense would be very helpful. (By the way, have you ever met a Mensa member?)

    There has been much criticism Modern Portfolio Theory, especially of late. Problem is the stock market, like all markets are run by people. People are not efficient; they in fact run things in very messy ways. If you want to read something interesting about finance, look at “This Time is Different -Eight Centuries of Financial Folly by Reinhart and Rogoff”.

    And, so what if an institution is on the other end of my trade. I think you overrate their brain power. In fact there has been a lot of criticism of institutional managers acting like a herd in their investing. No one wants to stand out and they are under pressure to perform as other institutional managers do. And, wasn’t it institutional managers investing in things they did not understand that caused our most recent crisis?

    Personally, I like to invest in things I understand. I also wonder about a theory that says ordinary investor should buy ETF not stocks because they are not smart enough to pick great stocks for the long term. Is this not just saying that if you do not understand stocks and the stock market you should buy a derivative of the stock market. So, if you do not understand something you should go for something you understand even less. Did I miss something?

    Reply
    1. “I got to your post via Dividend Ninja.” – no worries! I get some good stuff from The Ninja as well! I thought you subscribed to my blog? 🙂

      I did appreciate Larry’s talk, but like I said in my blogpost, “I didn’t get” some of his comments. For example, if you held some Canadian bank stocks over the last 30+ years, I have had a VERY HARD TIME understanding how this was risky behaviour and to quote Larry “only a fool who do so”. I think those that try to time the market will get beat more often than not. Personally, for this reason, I don’t even bother with it. I don’t try to time the market with my ETFs either. I figure I’m much better off being invested in the market than sitting around waiting for something to happen. I liked your comment about the markets and people: “People are not efficient; they in fact run things in very messy ways.”

      I too, like to invest in things I understand, simple stuff. Maybe that makes me a very simple (and boring) investor. I have an upcoming post about that. I hope you read it and check it out 🙂

      Anyhow, your last comment, what the theory says about ordinary investors buying ETFs and not stocks because they are not smart enough to pick them and hold them long term – I think Larry was oversimplifying things. It’s not that people can’t identify good stocks, that’s not THAT difficult to do, they just have to work at it a bit but with human nature being messy as you say, emotionally most folks aren’t stable enough to handle the ebbs and flows of their holdings very well. Larry said “his crystal ball is always cloudy.” Larry doesn’t know where things will go and most investors fret about that. He feels investing in the market and not playing it (per se) is the easiest way to get around that via low-cost, tax-efficient ETFs. I believe there is some truth to that.

      Am I going to re-organize my entire portfolio to become indexed because of Larry Swedroe’s presentation? No. But his talk did reinforce some things with me about indexing and dividend-investing, both strategies that I will not change anytime soon 🙂

      Thanks for your detailed comment Susan. Stay in touch!

      Reply
  16. Wow! It’s hard to make a decent comment after all that was written above. An excellent post and great comments and discusion- Mark, your blog is awesome. If I personally had to pick one of the two strategies, I would go with the dividend portfolio, comprised of companies with “competative durable advantages” acquired at prices that make business sense. I’d rather own 10 great companies than an index fund. It’s not that indexing is a bad strategy, it’s just that it’s no silver bullet either and there have been times when index funds have not been conservative investments ( TD gave great examples with Switzerland and the Canadian Energy sector). I guess only time will tell what’s right or wrong, but most times the simplest strategies work best and both cases here fall into this category.

    Reply
    1. @Elemag,

      I was wondering where you were? 🙂 Yes, I’m fortunate to have so many bright poeple following my blog. The more comments, the more we all learn I think.

      I think my dividend-paying stocks give me some great comfort knowing some passive income should be coming my way, in good markets and in bad. The passive dividend-income is also growing with every month. In that regard, like you, I enjoy owning 10 great companies. The only thing that could be better, is owning 20 great companies. Hopefully I’m well on my way to DRIPping all of them, letting those compounding machines work for me so I don’t have to someday. I think I’m on my way 🙂

      Indexing, I can almost set and forget my RRSP investments. That is a pretty good feeling as well.

      I guess the best part of leveraging both strategies is that I never have to choose just one. Thanks for checking in!

      Reply
  17. What a great post Mark…and a superb bunch of comments!

    Investing is more about common sense and aptitude..Susan is definitely right about that. And Mark, you would likely out-invest the average Mensa member with ease. Don’t short-change yourself.

    Success, as so many of you have alluded to, is more about finding a strategy, sticking to it, and not trying to time the markets or jump around with your investments. The Mensa categorization doesn’t measure emotional/social ability, as far as I know.

    Most people can’t sit tight with a strategy. Most index investors can’t because they jump around, getting excited about new ETF offerings. And most stock pickers can’t do that because they also look, perpetually, to where the grass is greener.

    Larry Swedroe is probably suggesting that once you venture down the slippery slope of stock picking, you lose your footing. And I would agree. The average person does just that.

    Some people, like Susan (who commented above) have a more disciplined approach.

    In fact (and don’t take this for arrogance) I think I could buy actively managed mutual funds through Investors Group (I chose them as an example because they aren’t cheap!) and I could beat the vast majority of Canadian investors who “index”. I’m quite certain about that.

    I’m not suggesting that actively managed funds are better investment vehicles (they aren’t!) But I am suggesting that (and studies prove this) few investors (whether indexers or otherwise) achieve the same long term investment results as the products they hold. They do, as Jon has inferred, look for new products, new strategies, and dance around like fools….following the economy, interest rates etc. I think that’s all a big waste of time. A person forced to buy and hold a balanced array of Investors Group mutual funds would likely beat most indexers…because few investors have the emotional fortitude to sit tight.

    I think that if people are going to dance around with their investments (whether with ETFs or dividend paying stocks) then the vast majority will lose very very badly to broad, diversified accounts of indexes.

    But if they buy (and hold) dozens of solid companies and don’t try to be “smart”, they’ll likely earn returns that are very similar to the broad indexes over their lifetime.

    Reply
    1. @Andrew,

      Thanks for the kind words!!

      I definitely agree with you – investing is very much about common sense and lack of emotion as you wrote about. Have a plan and execute the plan for the long-run. I’ve heard it from you and from many others. Whether your strategy is like Think Dividends or Susan Brunner, buy and hold lots of excellent dividend-paying stocks or pick a handful of broad-indexed ETFs and ride the market like you’re doing now, Michael James, Canadian Capitalist and many others; I think both strategies work. Heck, even a blend of these strategies will work 😉

      I’m learning and now convinced, the more investors look around and read “the noise” the more bad things can happen. Larry Swedroe is right on that, for sure.
      Maybe it’s not what successful folks are invested in that really matters, but what should be emulated is their discipline in executing any plan they have?

      I just hope I can avoid dancing around with my investments long-term, and maybe I’ll be rewarded like other investors. I guess that’s what this blog is all about: documenting and learning what’s working and what’s not. Thanks for your comments, and your continued interest in my financial independence journey Andrew. Again, I’m looking forward to reading that book of yours! 🙂

      Reply

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