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"Common Sense on Mutual Funds" --a "gem"
Taylor Larimore 12-02-2003, 11:21 PM | Post #98401 | 
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Hi Diehards:
Secretary of the Treasury, Wm. Simon, wrote: "This book (Common Sense) is a must read for everyone interested in the world of investments." Here are excerpts--Enjoy!

"I believe that a widely diversified portfolio of stocks and bonds is essential to long-term investing."

"For nearly all investors, the most sensible and efficient way to diversify is through mutual funds."

"Intelligent investing turns out to be little more than common sense and sound reason."

"More than ever in these days of complexity, simplicity underlies the best investment strategies."

"The historical record contains lessons that form the basis of successful investment strategy."

""There is little certainty in investing."

"To invest with success, you must be a long term investor."

"The powerful link between time and reward is often described as the 'magic of compounding'."

"Of the 12 stocks originally listed in the Dow Jones Industrial Average, General Electric alone has survived."

"Focusing on the long term is far superior to focusing on the short term. It is a lesson too few investors have learned."

"Reversion toward the market mean is the dominant factor in long-term mutual fund returns."

"For the full 60-year period (1937-1997), the compound total returns were: Growth, 11.7%; Value, 11.5%--a tiny difference."

"Surpress the temptation to add redundant layers of diversification."

"In the serious game of accumulating financial assets, simplicity trumps complexity."

"After nearly 50 years in this business, I do not know of anybody who as done it (market timing) successfully and consistently."

"The record provides no evidence that rapid turnover enhances the returns earned by fund investors or by fund managers."

"When stock prices are high, investors want to jump on the bandwagon; when stocks are on the bargain counter, it is difficult to give them away."

"The key to fund selection is to focus, not on future return--which the investor cannot control--but on risk, cost, and time--which the investor can control."

"Don't let short-run fluctuations, market psychology, false hope, fear, and greed get in the way of good investment judgement."

"I've said 'Stay the course' a thousand times, and I meant it very time."

"Backtesting, of course, should always be viewed with skepticism."

"Researchers have found no way to evaluate fund past returns and predict future winners with confidence."

"Hulbert Financial Digest reports that, of 59 advisory newsletter that it has tracked for a full decade, the average adviser's portfolio has provided a return of 7.9%. (Meanwhile the market's return was 13.7%.)"

"Don't think you know more than the market."

"The initial interest rate remains the critical variable in forecasting the subsequent 10-year returns on bonds."

"Nothing is as futile as expecting past returns to be slavishly translated into future returns on a linear basis."

"Never forget that anything can happen in the stock market."

"Be skeptical about every prognostication you are given, including mine."

"Choose a balance of stocks and bonds according to your unique circumstances--your investment objectives, your time horizon, your level of comfort with risk, and your financial resources."

"Cautious tactical allocation may have a lure for the bold. Full blown tactical allocation lures only the fool."

"Asset allocation is critically important; but cost is critically important, too. -- All other factors pale into insignificance."

"Don't forget that taxes are costs too."

"Consider carefully the added costs of advice."

"The inderect cost of turnover often rivals the direct fund costs that are disclosed."

"Tens of millions of investors need personal guidence; other tens of millions do not."

"Most of all, beware of wrap accounts--packages of mutual funds assembled within a 'wrapper' for which an additional fee is paid."

"The 'Equity Risk Premium' is the extra return required by investors to compensate them for taking the extra risk of owning common stocks rather than risk-free U.S. Treasury bonds. The average since 1802 has been 3.5%"

"It is a mathematical impossibility for all investos as a group to outpace the returns that are earned in the total stock market. -- It is a mathematical certainty that, over a lifetime of investing, only a handful of fund investors will succeed in doing so by any significant margin."

"The simplest of all approaches is to invest solely in a single balanced market index fund--just one fund. And it works."

"Indexing is an extremely powerful strategy for the intelligent long-term investor."

"Assume a S&P 500 Index return of 12.5% and a 10.8% return for the average mutual fund (the actual rates of return over the past 30 years. A $10,000 initial investment would grow to $342,4000 in the Index and $216,900 in the managed funds (before taxes)."

"Over the past decade, a Wilshire 5000 Index fund was 18% less risky (than the average mutual fund)."

"Equity indexing should work better in i

Originally posted in thread: 31393
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