Charles D. Ellis

COULD I BE WRONG about indexing?
Every investor soon learns that being wrong is a frequent malady, particularly on the day-to-day decisions of when to buy. Those minor errors are, as we also learn, part of the “game” of investing and are best ignored. But what if there’s evidence that conflicts with your longer-term thinking and expectations? What if evidence conflicts with your central beliefs?
I suspect it could happen to me.
After 60 years of experience and study of investing,

AMONG THE MANY people around the world who can impact our success as investors, two rank as the most important to know and understand. Yet many investors fail to recognize this reality.
Sure, Warren Buffett and Janet Yellen and Burt Malkiel are well worth listening to and learning from. There are also many others at home and abroad who are important. But all serious students of investing would agree that the two I have in mind are much more important.

TIME IS IMPORTANT in investing—far more important than most of us seem to appreciate when we structure our portfolio’s asset mix.
Regular readers may remember that I believe we tend to focus too much on one part of our total portfolio, the securities we own. We often ignore other important parts of our total portfolio, such as Social Security, any pension plan, our homes and—particularly for the young—the present value of our future earning power.

THE COSTS WE PAY for active investment management are important—far more important than most investors seem to realize, particularly when the stock market is going up and up.
Start with an interesting reality: Nobody ever actually pays such fees by writing a check. Graciously, money managers take care of that, deducting their fees from the assets they manage for us. Out of sight, out of mind. But wait: Perhaps, instead of being grateful, we should be careful to understand what’s going on.

EACH OF US IS UNIQUE. That’s how our friends instantly know who we are. In ways large and small, we differ from others in appearance, in the sound of our voice, in our age, stature and politics. Our life experiences differ greatly. Our fears and anxieties differ, as do our aspirations.
We are different financially, too. Our incomes vary, sometimes greatly. So do our savings. Some of us have inherited wealth; some none. Some of us feel a strong responsibility for others.

BEFORE THE FIRST World War, serious investors invested serious money in bonds, real estate and railroad shares. Other stocks were deemed “speculative” and “not investment quality.” Then came Edgar Lawrence Smith and his extensive 1924 study, Common Stocks as Long Term Investments, in which he documented the higher returns to be had by investing in stocks.
Soon, the focus of institutional and individual investors was centered on stocks, but bonds were still considered important for every investor’s portfolio.

AMONG PENSION PLANS, foundations and other institutional investors, the dream is to invest with top-quartile money managers. But, alas, that appears to be an impossible dream. Most managers end up disappointing.
Sadly, it’s the same for everyday investors who buy actively managed funds. Most funds wind up lagging behind the market averages, and that’s before factoring in the high taxes these funds often generate and the extra risks they take.
Lots of reasons for this failure have been identified: Money managers stray from their investment discipline,

TIME AND AGAIN, we’re reminded to fully understand a question—particularly when the question is complex—before acting or deciding not to act.
“Johnny pushed me” may have been the whole story, but not likely. Why did Johnny push David? What was the context? How are the two boys connected? What’s their history? Was it a big push? Did it do harm?
Ideally, we want to know the whole situation before we decide what to say or do.

ONE OF THE VERY best financial decisions is available to almost every American worker. That’s the good news. The bad news: Most workers won’t take advantage of this opportunity. Worse yet, they don’t know about it, and no one is telling them—even though they may need to make the right decision to be financially comfortable in their elder years.
What’s that best financial decision? I’ll get there in a moment.
Health care has been making wonderful progress in the past few decades.