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Step 3: Stock Pickers

This sort of data begs the question: If stock picking is such a fruitless endeavor, why do magazines keep selling this elusive dream? The answer is quite basic: Pro-index funds stories don’t sell magazines. No big brokerage house would take out a fullpage ad that says, “Don’t hire us to trade your portfolio — just index and relax.” Nonetheless, this is a poor reason to perpetuate the myth that financial journalists or “Fortune Tellers” can pick the handful of stocks to achieve wealth. In fact, by the looks of it, the best way to lose a fortune is to follow Fortune.

What About the “Bond King”?

A name that has become synonymous with active bond management is Bill Gross of PIMCO, particularly in relationship to the PIMCO Total Return fund (PTTRX), for which we now have 26 full calendar years of data. There is no denying that the overall record is impressive, with only seven years where the return fell short of the Morningstar analystassigned benchmark. However, as Mr. Gross implied in his April 2013 Investment Outlook letter, luck played a substantial role in that leverage was used during a time period when it yielded a handsome payoff. As Gross so eloquently put it: “All of us, even the old guys like Buffett, Soros, Fuss, yeah—me too, have cut our teeth during perhaps a most advantageous period of time, the most attractive epoch, than an investor could experience… An investor that took marginal risk, levered it wisely and was conveniently sheltered from periodic bouts of deleveraging or asset withdrawals could, and

Index Funds: The 12-Step Recovery Program for Active Investors  

This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...

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