But it's not even a zero sum game for individual savers and investors who pay the pros to 'play' for them. Thus, the fees and charges of the so-called professionals will necessarily result in below average market returns for most individuals. In fact, the vast majority for individuals investing with the pros will be net losers compared to those who take what the market gives them and avoid the fees and charges.
If beating the pros by investing in low cost passive index funds sounds too good to be true, it's not. In fact, it makes sense for the vast majority of long term oriented savers and investors.
As an educational experience, the 81 minute video accompanying New 'Random Walk' wisdom from Burton Malkiel is well worth taking the time to watch. But first we'll read why what Malkiel has to say is very much worth listening to:
"Every year in the investing business a load of flashy new books comes out . . . .
And a few stand the test of time, getting reissued every few years. One of those is being reissued now: “A Random Walk Down Wall Street” is in its 11th edition and will come out in early January. The author of Random Walk is Burton Malkiel, the celebrated Princeton professor (and it) has been a fascinating time in the markets since Burt's groundbreaking book first appeared in 1973. Going back over his early predictions is nothing short of financial time travel.
For one, Burt was an early proponent of finding a way for ordinary people to own entire stock indexes. Index funds appeared soon after. He was a strong promoter of passive investing, an approach which has caught fire in the years since.
Burt long has been critical of active management and of the real damage it does to America's retirement investors. He has taken a lot of heat from Wall Street for his views, yet the decades ultimately have proven him right. . . .
As Burt writes in his latest edition, . . . it is possible to figure out which fund is going to give you the best possible return on a consistent, repeatable basis.
"The two variables that do the best job in predicting future performance are expense ratios and turnover," he writes. "High expenses and high turnover depress returns — especially after-tax returns if the funds are held in taxable accounts."
That's why Burt and his fellow members on the Rebalance IRA Investment Committee — his colleague of many years at Vanguard, Charley Ellis, and Jay Vivian, the former managing director of the IBM Retirement Funds — recommend index-style exchange-traded funds . . . .
In the book, Malkiel specifically recommends a portfolio approach to holding such funds, preferring low-cost funds in risk-adjusted percentages matched to each individual client's goals. . . . Along with “Elements of Investing” — a shorter money basics book Malkiel co-wrote with Ellis — Random Walk is a powerful text to read and study for anyone seeking to take concrete steps toward financial security.
You could grab a bunch of hot new finance titles each year, read through them all and, in the end, not learn anything close to the usefulness of these two books alone. If you're trying to get a handle on your financial future, I say cut to the chase: Get these two books from your local library or order the newest editions just out.
However you ultimately choose to invest, you'll be far wiser for the time spent and more certain of your own financial decisions for years to come."
To repeat, the video linked at the bottom of the article lasts 81 minutes and is well worth taking the time to watch.
It's one of the best I've seen and explains in simple language why investing in a low cost portfolio of diversified blue chip dividend paying stocks is the best way for individuals to achieve financial security and peace of mind.
Successful DIY investing is not that hard to do, but it is definitely a different way of looking at the world. And it's also an approach not endorsed or advocated by self interested commissioned sellers of actively managed mutual funds, including stock brokers.
All that said, relative to other alternatives, low cost DIY index investing is a profitable thing to do. And here's why.
Because at the end of the road, long term oriented investors are likely to have twice as much money compared to what they would have if their money had been managed by the so-called professionals --- a twofer for very little expense, trouble and toil, in other words.
Amateurism works for me, and it will work for you, too.
That's my take.