My research associate Corey Mann, who analyzes internet trends, noticed a breakout this week.
Thousands of people are Googling the phrase “best books about investing.”
That’s not surprising given the past year’s rally, the shortage of good investment choices outside of the stock market and the millions of newly minted investors since the pandemic began.
No doubt many want a book that shows them how to invest their hard-earned money safely and effectively, with as little time and fuss as possible.
Ideally, the book would be accessible to experienced investors and novices alike.
And it should offer not a bunch of hit-or-miss predictions but an actual, real-world portfolio that tells readers exactly where to put their money and in what percentages.
Does such a book exist?
It does. Although I admit to being somewhat biased, since I wrote it.
The original edition – which came out in 2008 – was an immediate New York Times bestseller.
The new revised and updated edition – with a foreword by longtime subscriber Bill O’Reilly – was backordered within hours of publication last month, and the entire first printing sold out in a week.
It has been unavailable for over a month.
However, my publisher Wiley & Sons has worked overtime to get the book into readers’ hands. And I’m happy to report that it is finally on Amazon again.
You can find it here.
My essential premise is that the foundation of your investment program should be a no-nonsense selection of low-cost, tax-efficient index funds that give you the highest probability of long-term success.
This may sound odd coming from someone who picks stocks for a living.
But your serious money should be handled in a serious way, not like chips in a poker game.
Indexing and owning individual stocks are not mutually exclusive activities, by the way. Millions of smart individuals invest in both.
But you really shouldn’t bet on this company or that one without first creating a bulletproof portfolio designed to grow your wealth during the good times and protect it during the bad.
That can’t be easily done with a handful of stocks or actively managed funds.
Let me give you an example…
Many investors did well last year with Cathie Wood’s much-ballyhooed Ark Innovation ETF (NYSE: ARKK).
The fund takes concentrated positions in fast-growing “disrupters,” companies with cutting-edge technologies – many of them unprofitable.
Assets under management in the fund went from $3.5 billion before the pandemic to more than $50 billion a year later.
But that money flow has now gone into reverse. Big-time.
While the Dow is only down a few percentage points from its recent high, shares of the Ark Innovation fund are down more than a third since mid-February.
It now has just $22.3 billion in assets.
Massive underperformance like this by a star fund manager must be the exception, not the rule, right?
Hardly. As I explain in the book, it’s widely known in the investment industry that 3 out of 4 fund managers – despite collecting billions in fees – underperform their benchmark each year.
Over a period of a decade or more, over 90% of them do. And that includes the best of the best.
Analyst Meb Faber notes that not one of the five Morningstar 2010 “fund managers of the decade” managed to beat the market for the past 10 years.
In fact, the best manager of the bunch – Bruce Berkowitz of the Fairholme Fund – became the worst.
As The Wall Street Journal recently pointed out, “Star managers can be dangerous to your wealth.”
How do all those smart men and women end up delivering mediocre performance… or worse?
There are several reasons, but here are four primary ones:
- Markets are efficient. Rational, self-interested investors quickly price all relevant information into publicly traded securities, as soon as it becomes available. That’s why beating the market is difficult under any circumstances.
- Fund fees and expenses eat into returns. Remember, these managers don’t have to just beat the market. They have to do it after covering all their costs.
- Mutual funds have to hold cash to meet redemptions. And cash is a drag on performance.
- Every hot sector turns cold eventually. When a fund invests in a narrow sector – like cryptocurrencies or natural resources or “disruptive technologies” – they will ride the wave only as long as it lasts. Most waves eventually crash on the beach.
The bottom line? When the fund industry prints its famous disclaimer, “Past performance is no guarantee of future results,” that’s not just boilerplate.
The best actively managed funds eventually merge with the also-rans… and begin a cycle of underperformance.
That’s why more than half of all institutional monies are now invested using indexing strategies.
In the April 2, 1990, issue of Barron’s, Peter Lynch – the greatest equity fund manager of all time – said, “[Most investors would] be better off in an index fund.”
In his 1996 letter to Berkshire Hathaway shareholders, Warren Buffett said, “The best way to own common stocks is through an index fund.”
The nation’s most sophisticated institutions and successful money managers advocate indexing.
It should be the foundation of your own investment program.
But which indexes should you own and in what percentages?
That’s all spelled out in The Gone Fishin’ Portfolio. (Hint: The S&P 500 is not one of them.)
The book is expected to sell out again soon.
But if you’d like to pick up copies for family and friends while it’s still available, click here.