“For most investors, the hardest part is not figuring out the optimal investment policy; it is staying committed to sound investment policy

“After adjusting the comparison of index funds to actively managed funds for survivorship bias, taxes, and loads, the dominance of index funds reaches insurmountable proportions. Once”

“An active manager must overcome the drag of about 3.25 percent in annual operating costs. If the fund manager is only to match the market’s historical 9 percent return, he or she must return 12.25 percent before all those costs. In other words, to do merely as well as the market, an active fund manager must be able to outperform the market return by over one-third or 34.1 percent!5”

“For most investors, the hardest part is not figuring out the optimal investment policy; it is staying committed to sound investment policy through bull and bear markets and maintaining what Disraeli called “constancy to purpose.” Sustaining a long-term focus at market highs or market lows is notoriously difficult. At either kind of market extreme, emotions are strongest when current market action appears most demanding of change and the apparent “facts” seem most compelling. Being”

“Markets, on the other hand, do recover, so the great risk to individual investors, as it has been so often before and will be again and again, is not that the market can and will plummet, but that investors will get frightened into liquidating their investments at or near the bottom and will miss all the recovery, thus turning the temporary market loss into a permanent capital loss.”

“If you’re not confident that the market is low or fairly low, you’ll be wise to use dollar-cost averaging by investing a fixed dollar amount at regular intervals to get gradually invested over time.”

“As the period over which returns are measured is lengthened, the short-term volatility in returns caused by fluctuating changes in the discount rate becomes less and less important and the expected dividend stream or interest payments, which are much more stable, become more and more important.”

“Even though most investors see their work as active, assertive, and on the offensive, the reality is and should be that stock and bond investing alike are primarily a defensive process. The great secret for success in long-term investing is to avoid serious losses.”

“Like the weather, the average long-term experience in investing is never surprising, but the short-term experience is always surprising.”

“TIME IS ARCHIMEDES’ LEVER in investing.    Archimedes is often quoted as saying, “Give me a lever long enough and a place to stand, and I can move the earth.” In investing, that lever is time. (And the place to stand, of course, is a firm and realistic investment policy.)”

“As market expert Jason Zweig puts it, “If we shopped for stocks the way we shop for socks, we’d be better off.” We are wrong when we feel good about stocks having gone up, and we are wrong when we feel bad about stocks having gone down.”

“THE PRINCIPAL REASON WE SHOULD ALL ARTICULATE OUR LONG-TERM investment policies explicitly and in writing is to protect our portfolios from ourselves.”

“The great advantage of indexing investment operations is that we can avoid the vain search for superior performance and concentrate our time and energy on investment policy and asset-mix decisions. Instead, it focuses your attention on the most important decision in investing: defining the long-term “policy” portfolio that will both minimize the risk of avoidable mistakes and maximize the chances of achieving your true investment objectives.”

“The “money game” we still call investment management evolved in recent decades from a winner’s game to a loser’s game because a basic change occurred in the investment environment: The market came to be overwhelmingly dominated by investment professionals—all knowing the same superb information, having huge computer power, and striving to win by outperforming the market they collectively completely dominate.”

“For all its amazing complexity, the field of investment management really has only two major parts. One is the profession—doing what is best for investment clients—and the other is the business—doing what is best for investment managers. As in other professions, such as law, medicine, architecture, and management consulting, there is a continuing struggle between the values of the profession and the economics of the business. Investment firms must be successful at both to retain the trust of clients and to maintain a viable business, and in the long run, the latter depends on the former. Investment management differs from many other professions in one most unfortunate way: it is losing the struggle to put professional values and responsibilities first and business objectives second. To”

“Holding onto a sound policy through thick and thin is both extraordinarily difficult and extraordinarily important work. This is why investors can benefit from developing and sticking with sound investment policies and practices. The cost of infidelity to your own commitments can be very high. An”

“A dearth of fiduciaries willing to place client interests foremost forces individuals to take responsibility for their investment portfolios. In the profit-motivated world of Wall Street, fiduciary responsibility takes a backseat to self-interest. What benefits the stockbroker (commissions), the mutual fund manager (large pools of assets), and the financial advisor (high fees) injures the investor. When profit motive meets fiduciary responsibility, profits win and investors lose. Understand”

“Since most investment managers will not beat the market, investors should at least consider investing in “index funds” that replicate the market and so never get beaten by the market. Indexing may not be fun or exciting, but it works. The data from the performance measurement firms show that index funds have outperformed most investment managers over long periods of time. For”

“(Regression to the mean, the tendency for behavior to move toward “normal” or average, is a persistently powerful phenomenon in physics and sociology and investing.) Yes, several funds beat the market in any particular year and some in any decade, but scrutiny of the long-term records reveals that very few funds beat the market averages over the long haul—and nobody has yet figured out how to tell in advance which funds will do it. The”

“Before examining the many powerful changes in the investment climate, let’s remind ourselves that active investing is, at the margin, always a negative-sum game. Trading investments among investors would by itself be a zero-sum game, except that the large costs of management fees and expenses plus commissions and market impact must be deducted. These costs total in the billions every year. Net result: Active investing is a seriously negative-sum game. To”

“Unhappily, the basic assumption that most institutional investors can outperform the market is false. Today, the institutions are the market. Institutions do over 95 percent of all exchange trades and an even higher percentage of off-board and derivatives trades. It is precisely because investing institutions are so numerous and capable and determined to do well for their clients that investment has become a loser’s game. Talented and hardworking as they are, professional investors cannot, as a group, outperform themselves. In fact, given the cost of active management—fees, commissions, market impact of big transactions, and so forth—investment managers have and will continue to underperform the overall market. Individual”

“Investment management, as traditionally practiced, is based on a single core belief: Investors can beat the market and superior managers will beat the market.”

“Faced with information that contradicts what they believe, people tend to respond in one of two ways. Some ignore the new knowledge and hold to their former beliefs. Others accept the validity of the new information, factor it into their perception of reality, and put it to use.”

“The core principles of successful investing never change—and never will. In fact, when short-term data appear to be most challenging to core principles is exactly when those principles are most important and most needed. Sure the companies, markets, and economies come and go, but the core principles remain the same.”

“Tax-efficient index funds garner a substantial edge over tax-inefficient actively managed mutual funds.”

“The overwhelmingly large number of investors should seek membership in the passive management club. This group, instead of scratching for a small edge in today’s extraordinarily efficient markets, wisely accepts what the markets deliver. Charley makes a compelling case for the market-matching strategy of investing in index funds, touting their simplicity, transparency, low cost, tax efficiency, and superior returns. Winning”