Top positive review
10 people found this helpful
on August 6, 2009
This book was highly informative and educational. I learned so much. It illustrates the following points via quantitative examples:
- For equity investing, buy an index fund that holds the entire stock market and hold it forever. You will capture most of the return generated by the market in this way. The relevant index fund should be based on the S&P 500 or DJIA. He says that, "Investors should be content with earning the market's return. Only the classic index fund can guarantee that outcome."
- Using middlemen (i.e. stock brokers, financial advisers etc.) costs you money so don't waste your time. Financial advisers and stock brokers are not good at picking funds/stocks etc.
-Mutual funds managers (of actively managed funds) can't outperform the market in the long-run. They will have periods of success but will ultimately eventually fail.
-The goal should be to minimize all costs:financial intermediation (management fees, operating expenses, sales charges, portfolio turnover), taxes, inflation,
People who manage other people's money make a fortune. Costs kill returns.
He is a proponent of long-term investment in index funds or ETFs. In fact, he suggests that you hold them forever.
He exposed morningstar ratings as being misleading. And I always trusted morningstar before this! Not anymore.
Among index mutual funds, he emphasized choosing the lowest cost ones with no sales loads or annual fees.
He discussed the corollary for investing in bonds.
Then he discussed trends which have come up and can be better than indexing: ETFs etc. The only ETF that performs as well as investing in a total stock market index fund is investing in a broad market ETF.
Both classic index funds and broad index ETFs have the following features:
-Broadest possible diversification
-Longest time horizon
-Lowest possible cost
-Greatest possible tax efficiency
-Highest possible share of market return
The classic index fund only has market risk. No risk of selecting specific securities; no risk of selecting managers; no risk of selecting investment style;
There are also quotes from various people, including warren buffet, that support his ideas.
He has such a great vocabulary. I love the way he uses language. There were 49 words that I had to look up the meaning of.
I care about his point of view because he is the pioneer of index funds. His undergraduate thesis was about index funds. Wow. Talk about smart! His undergrad was in economics.