What Robin says is in reference to the now famous line from the book “A Random Walk Down Wall Street” by Burton Malkiel.
A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by expertsBurton Malkiel
Anyway, the WSJ Heard On The Street team decided to do just this. They chose a portfolio by throwing darts to compete against the picks by hedge fund titans such a Jegg Gundlach, David Einhorn among others disclosed in the Sohn Conference. Guess what? The darts won or were rather winning as of the last WSJ report.
Of course, there was also the now-retired legendary contest by the WSJ team where the staffers chose portfolios by throwing darts to compete against investment professionals. The competition ran for 14 years and ended in 2002.
The whole point of this was to debunk the fallacy of skill. There are 1000s of things that can go wrong in the markets which investors cannot control. What can you do if Trump decides to nuke India tomorrow because he hated our spicy food?
What we can however do is to control the two most important things – costs and our behavior. Costs are the single biggest enemy of investors. By keeping your costs low, you will automatically end up better than 80 to 90% of other investors. And if you control your behavior, by not doing dumb things like frequently churning your portfolio, reacting to the news, timing the markets, etc, then you are golden in life! If you can’t then hire a good advisor (RIA and not a distributor or your LIC uncle) to do it for you.
How do you keep costs low?
Buy low-cost index funds that give you exposure to the broad market and keep investing according to your asset allocation, come hell or high water.
Jack Bogle, my personal hero and the founder of Vanguard spent his entire life preaching the gospel of low-cost investing. Jack’s relentless battle against high costs has resulted in Americans saving anywhere between $100 to $250 billion in fees over the past 40 years.
If you are first time investor, or a victim of financial sodomy by a LIC agent/mutual fund distributor or an existing investor stuck with 7 close-ended funds, I’d highly recommend you watch this video. I promise it will change the way you think about investing.