Monday, October 09, 2006

The Dumb Money: Analysis and advice

Usually the articles that accompany the data in newspapers' quarterly reports of mutual fund results are just filler. The New York Times obviously tried to do better in yesterday's Mutual Fund Report.

Why Your Fund Beat the Average, but You Didn’t, a report by Robert D. Hershey, Jr., shows mutual fund investors pay a stiff penalty for their bad timing. Buying hot funds when they're about to cool down is extremely costly.

In A Bold Insistence on One Way to Invest, Paul Brown terms Daniel R. Solin's book, “The Smartest Investment Book You’ll Ever Read,” bombastic. Sample: “Virtually all brokerage-based financial consultants and most independent financial advisers manage money using dumb money management techniques.”

Still, says Brown, it offers solid advice. Solin, like David Swensen, advocates dodging the expenses associated with many actively-managed mutual funds by investing in index funds.

Reminds me of what Warren Buffet wrote more than a dozen years ago, in his Berkshire-Hathaway annual report for 1993:
By periodically investing in an index fund, the know-nothing investor can actually out-perform investment professionals. Paradoxically, when `dumb' money acknowledges its limitations, it ceases to be dumb.

No comments: