Happy Friday!!
It’s Seafair in Seattle, this weekend. The Blue Angels air show will thrill the onlooking crowds with their aerobatic high-performance maneuvers. Hydroplane races will be held throughout the weekend, while hundreds of thousands of people watch from the shore or the log boom. Seafair-a time honored tradition-is now enjoying its 60th year.
Today’s blog is a reprinted article, explaining the Coffeehouse strategy, written by Coffeehouse Investor founder, Bill Schultheis. Enjoy!
Genius ain’t anything more than elegant common sense.
Josh Billings
Let’s see. It’s Thursday evening and I have two options: watch the baseball game or write this column. Flip a coin – and the column always wins.
Week after week I am challenged to come up with a new slant on three investment principles. Week after week I am spurred on by readers who write back, revealing the positive impact of these simple principles on their emotional and financial well-being.
Oh yeah, I have to admit, it is also fun to take on the Wall Street crowd, an industry that spends billions of advertising dollars each year to try to convince you to stick with its losing game of “Let’s beat the market.”
The Coffeehouse doesn’t have a billion dollar budget (I wish). It only has this weekly column-now daily blog- and most importantly, YOU, the reader, who possesses something a billion dollars can’t buy – a little common sense.
Maybe you have already integrated the Coffeehouse principles into your portfolio but want to learn more. Maybe you are a regular reader of this column but still hanging on to that 20 stock portfolio – stymied by your stockbroker who sneers at anything resembling common sense. Still, you want to learn more.
Whatever the case may be, here are three books that take you far beyond this weekly column in explaining why the Coffeehouse philosophy is the obvious choice if you hope to reach your long term financial goals.
Capital Ideas: The Improbable Origins of Modern Wall Street (Touchstone Books, 1993) Peter Bernstein’s book presents a fascinating study on the evolution of portfolio management – from academic theory formulated in ivory towers, to application of these theories in your personal portfolio.
Anybody can buy a couple of stocks and hope for the best, an antiquated approach to investing still practiced by Wall Street brokerage firms. Bernstein introduces us to the people who went beyond Wall Street’s ways to look at the broader concepts of risk and reward; first, as it relates to individual securities and asset classes, and then how these building blocks fit together to maximize returns with a minimal amount of risk. He educates the reader on the foundation of Modern Portfolio Theory, which states that risk and reward are related, and that by combining risky asset classes (diversifying), investors can significantly reduce risk without adversely affecting long term returns.
A Random Walk Down Wall Street (W.W. Norton & Company, 2003) This book, now in its 8th edition, was originally written in 1973 by Princeton economist Burton Malkiel, and still serves as the cornerstone piece of literature on indexing. In his book, Professor Malkiel explains that the random nature of stock price movement is caused by public information on companies that is instantly assimilated by thousand of investors around the world.
His thesis is backed up by an impressive array of statistics, charts and studies that prove market benchmarks cannot be bested by professional stock pickers on a consistent and predictable basis. Malkiel suggests that a blindfolded chimpanzee throwing darts at a newspaper’s financial page has a better chance at beating the market than a Wall Street pro, in large part because of the tremendous drag that costs have on portfolios that attempt to beat the market.
Bogle On Mutual Funds: New Perspectives for the Intelligent Investor (McGraw-Hill, 1993) John Bogle, retired chairman of the mutual fund giant Vanguard Group, wrote this book ten year ago, and it still serves as a brilliant introduction into the world of mutual funds. He explains in detail the many shortcomings of the mutual fund industry, and why actively managed funds are destined to come up short over time compared to low cost index funds.
Bogle covers much more than indexing. He provides a thorough analysis of stocks, bonds, and money market funds, offering asset allocation suggestions for the reader who wants to structure a portfolio that best fits their current stage in life. He provides insight into the risks of investing in the stock market, and also the risk of not investing in stocks. For do-it-yourself investors, this is the book you need to read.
Two of Bill’s recent favorites-added today(8/6/10)-include the following:
Wise Investing Made Simpler. Larry Swedroe’s recently released book is second in a series to share simple stories that convey timeless investing principles. He directly rebukes much of Wall Street’s hype by revealing the wisdom of applying a little common sense to one’s investing decisions.
The ETF Book – All You Need to Know About Exchange Traded Funds. Richard Ferri has updated his original work with a renewed vigor of bringing clarity to the crazy world that is unfolding with ETFs. In a nutshell, investors across the nation are starting to embrace the simple concept of indexing. Wall Street wants to get in on the action, and are trying to do so by holding themselves out as ETF experts on every industry, sector and style. It is nothing more than active management disquised as a Coffeehouse Investor. Don’t fall for it. Richard Ferri shows you how to protect yourself from the ETF hype of Wall Street. He reveals what is and isn’t important when building a portfolio of ETF funds.
Happy reading, and I hope you all have a great weekend!!
Lori