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Invest with confidence, invest with Dilbert

August 2, 2010

I recently consulted with my financial advisor, who has about 20 years expreince in the investment business and this is what he said:

“…a low-cost market-tracking ETF, like an index mutual fund, “makes sense,” he says.”

In fact, my financial advisor, Mr. Adams, goes on to explain:

Mr. Adams says he doesn’t consider buying broad index funds and index ETFs to be “investing”—and he means that as a compliment. He doesn’t believe ordinary investors or financial pros really have any insight into what is going to work, so he equates investing—or trying to boost returns by making selections based on some intelligence or research or expert advice—with “junk science and astrology,” he says.

Such is the advice of Dilbert creator Scott Adams as doled out in the pages of the WSJ. Not that I’m cleaning up in the investment category but I have to say Adams’ investment philosophy doesn’t stray too far from my own.

At my most generous, it appears to me that markets are too complex and that increased volatility and uncertainly are here to stay thereby making it nearly impossible for a fund manager to consistently provide better-than-market returns. At my most cynical, I have to agree with the Dilbert daddy that much of the industry is a scam.

(Then, when I’m really feeling doubly cynical, I wonder if “junk science and astrology,” could also be applied to large swathes of the VC industry in the Valley… but that is another post.)

Sure, I believe there really are some gifted investors out there who are able to do a great job with their clients’ money. But I fear those professional investors are so few and far between that the chances of me (a fairly low-asset, bland, run-of-the-mill retail/401(k) investor) will connect with them are pretty low.

So diversify simply and keep expenses low is my mantra.

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From → Economy

One Comment
  1. Investment returns are 70% market, 20% sector, and just 10% individual stock. Buying broad market ETFs gives you the 70%. Buying specific sector ETFs that coincide with the appropriate phase of the business cycle would give you another 20% (e.g. consumer staples at the start of a recession). This is a good primer:
    http://www.onlineinvestingai.com/blog/2008/12/19/the-end-of-the-business-cycle/

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