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I’d still look for a diversified fund, but would focus on companies with long records of steady growth, a desirable stable of products or services, and in the best case, a dividend with its own positive history.
DFA Funds in my 401(k) accounts. Dividend Growth investing in my taxable accounts and IRAs.
I’d give T. Rowe Price a shot. We have modest positions in several of their funds now and their performance has been very good. Ultimately, I’m a believer in indexing, but they have an impressive track record.
I would try to invest with a legendary value managers like Nick Sleep and Qais Zakaria. I learned of these two from William Green’s excellent new book “Richer, Wiser, Happier”. (Really terrific book – I highly recommend)
If you are interested, Nick Sleep recently published all the semi-annual partnership letters they sent to investors over the 2001-2014 time period. The letters are remarkable in describing how they chose their investments. Although the letters are about 225 pages of reading, they definitely confirm that there are alternatives to index investing.
Thanks for the Nomad Letters link.
Studies show that it’s more about cost versus passive vs. active. So I’d just look for the lowest cost active funds that have a mandate to invest a certain way. I’d also be a heavier holder of factor funds (value, momentum etc). Perhaps I’d buy some individual equities and be active with tax-loss harvesting and asset location with those. In any event, I’d look to hold a portfolio that would likely produce strong real returns through business cycles while minimizing the risk of regret.
I would investigate mutual funds to see which funds gave consistent index like returns, at the lowest cost. When I helped run an investment club in the 90s, we had an investment philosophy of putting 50% of our money in blue chips – using a Buffett lite discounted cash flow analysis to pick undervalued stocks. The other 50% of our funds we investigated stocks with significant growth potential. We spread the funds over as many stocks as we could afford. Back then I searched the country fo the lowest cost broker I could find, to keep cost drag as low as possible.
Around 25 years ago I was in a civic club and a subset of the membership decided to form an unrelated investment club. Our low cost choice was to invest via a dividend reinvestment plan ( DRIP) in dozen securities. While we achieved low investment costs and had a nominal taxable and unrealized gain. As the volunteer treasurer the time I spent on investment management and tax compliance did not justify the modest positive result. It was a good financial learning exercise for me and continues to influence my investment decision to keep things simple. I am grateful for index funds. If they were not available I would likely buy Berkshire Hathaway which I view as a single stock substitute for a broad based index fund.
Just curious Rick. Did your investment club enjoy market-beating returns?
In a word, poorly. I recall many years ago I once had the WSJ stock market pages open and I closed my eyes and put my finger on my next hot stock. I even tried my hand at stock charting (long before there was thought of a PC) with disastrous results. Fact is I do own a couple of mutual funds about which I have little knowledge, but give me the index funds any time.