Financial Education

[flintnational]

I used listen to this on my drive home every night, I think for me it was on at 6:30 pm M-F. It made me look forward to the drive home, and getting out of the office after 6pm

If you are interested, you can find it as a podcast from iheart Radio, and probably other sites. I listen to several episodes on long drives.

 

[kcowan]

I assume you have mastered LBYM but that is still where the lowest hanging fruit is.

Also look at the bogleheads forums. You might get started sooner than by reading. It will help you focus on what you need to read.

 

[OldShooter]

Ok... find us three instances in the last 5 years in Money and/or Kiplinger Personal Finance where they have stated that. Just 3... the relevant quote, name of the article, page and issue would be nice so we can verify.

With respect, @pb4uski, I don't think you understand how journalistic bias works. It is quite a bit like you or me wearing heavily tinted glasses. Red glasses make green lights invisible; green glasses make red lights invisible. The "journalists," after wearing the glasses for a while, even forget they have them on.

So with Money, I find an article called "How Do I Choose A Mutual Fund" (How Do I Choose a Mutual Fund? - MONEY). The first paragraph obviously refers to the S&P SPIVA reports, but omits S&Ps conclusion: That investing in a stock picking fund is statistically a losing strategy. This is deliberate omission; the report comes out every six month and always says the same thing. Only the percentages vary slightly.

Continuing in the article, they recommend funds with "experienced management" and "strong stewardship." Intuitively these are very attractive ideas but there is zero statistical evidence that these (or any other) attributes are predictive.

But actually, the article is not as bad as I remember from past looks at Money. The last sentence, "Most stock investors, however, will do just fine by choosing a low-cost, broadly diversified fund that holds a representative slice of all the stocks on the market."

I also tried another tack: I searched Google with "spiva site:http://time.com/money" This search produced only two hits. One, an article from 2 1/2 years ago was actually pretty good. The second, undated, was not bad but the SPIVA conclusions were left a little fuzzy. More importantly, since the SPIVA report has come out five times in the last 2 1/2 years, why didn't the search produce many more hits? Colored glasses.

Continuing the search idea, I searched Google with "best stocks site:http://time.com/money" Whew! Pages of hits. The first one, "Top Stock Picks ... " (Best Stocks 2017: Picks From Pros That Beat the Market | Money) clearly perpetuates the first part of myth, that stock picking works.

Finally, I searched ""manager persistence" site:http://time.com/money" looking for reporting on the important semiannual S&P Manager Persistence Report Card. One (1) relevant hit, from January of 2015.

So, do you get the drift? By omitting serious coverage of the myth-destroying S&P reports, Money is helping to perpetuate the myth. And they have to. Without wide belief in the myth, they are out of business.

 

[pb4uski]

Subscribe to Money magazine and Kiplinger's Personal Finance magazine. Just beware that they need to sell magazines so you'll need to separate the wheat from the chaff but their underlying themes of consistently saving and investing is no-load, low-cost index mutual funds or ETFs are valuable.

..... I do NOT recommend the popular magazines or web sites. In general they push the following two-part myth:

• It is possible for smart people to consistently make money by finding and buying "undervalued" stocks.
• The past history of a stock-picker is predictive of his/her future success.

From the article that you linked above:

Mutual fund ads, which often tout a fund’s past performance, always include this bit of fine print: “Past performance is no guarantee of future returns.” Pay attention to that disclaimer. Not only is past performance no guarantee, it’s not even a very strong indicator of a fund’s future success. A recent study by Standard & Poor’s found that of all funds in the top 25% of their category in one year, fewer than one third made it to the top 25% the next year. Only 5% managed to stay in the winner’s circle three years in a row.

So how do you pick a good fund? Each year, Money magazine puts together a list of 50 recommended funds. Performance is one of the editors’ criteria, but it’s the least important among many. Money also considers:

Low fees: If one fund charges an annual expense ratio of .4% and another charges 1.4%, the cheaper fund has a built-in 1% edge on returns every year. Remember, you can’t count on a fund manager outperforming or even making you money. But you can count on him collecting his expense ratio. For this reason, the Money 50 list is heavy on low-cost index funds.

Experienced management: A fund is nothing but a pool of money. If performance records matter at all, they belong to the manager not the fund. So if a fund switched managers last year, you truly can ignore most of its record.

Strong stewardship: Money looks for funds whose managers consistently put shareholders’ interests ahead of their own. That means having pay incentives aligned to performance, a strong board to represent fund shareholders, and record of avoiding regulatory issues. Morningstar, a fund research group based in Chicago, assigns funds a stewardship grade based on these and other factors. You can look up a fund’s stewardship grade at Morningstar.com.

I think we agree that low fees are important.... but beyond that do you advocate that investors seek out funds with inexperienced management and weak stewardship?

The "Picks from Pros..." article is an example of what I was warning the OP about is chaff rather than wheat... but does sell magazines and also serves Money readers who prefer individual stocks despite Money's consistent advocating no-load, low-cost index funds.

As a subscriber for 30 years who reads every issue from cover to cover, I can tell you that they are very consistent in that no-load, low-cost index fund message despite their need to sell magazines... unless you are also a long-term subscriber your view is likely based on seeing their covers... which are indeed designed to sell magazines.

My bottom line: as a long-term subscriber IMO your view that they advocate stock-picking is totally off-base.

 

[pb4uski]

This is from their "The 50 Best Mutual Funds and ETFs, Period" and is indicative the constant theme:

Markets like this (2016) are a great reminder that getting wrapped up in short-term twists and turns can be dangerous to your wealth. Sticking to a well-crafted strategy built to serve goals that are years and decades away remains a winning approach over the long run.

This has always been the focus for the MONEY 50, our handpicked list of the best mutual and exchange-traded funds (ETFs) you can use to construct an affordable and fully diversified portfolio. Our recommended funds have proved their mettle over the long term. The tradeoff: In exchange for consistency and reliability, these funds rarely top the charts in any given year.

To find our MONEY 50 stars, we focus on low-cost funds and long-term returns that match or beat their benchmarks. Given these criteria, index funds and ETFs make up the core of our list—indexing is typically the cheapest way to invest, and data show that few actively managed funds consistently outpace the market.

For those who prefer a human manager at the helm, and for less efficient markets, where smart investors may have an edge, we include actively managed funds. But we insist on veteran managers who look out for their shareholders and have a proven record of delivering strong long-term returns.

So what of the above is so objectionable?

 

[OldShooter]

... I think we agree that low fees are important.... but beyond that do you advocate that investors seek out funds with inexperienced management and weak stewardship?

That's kind of a silly suggestion, of course. The point is that those things are irrelevant to manager selection, as are any other manager attributes that you care to name. The data show this; manager performance is essentially random. Fama and French have also showed this in excruciating detail, as French explains here: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx If you can read and undertand their whole paper you are a better man than I. I can, though, read and understand the conclusions.

Money's pushing this baloney is just an element of pushing the idea that manager performance can be predicted. I suppose we could try cutting one open and study its entrails to make a prediction too, but that has its own difficulties..

My bottom line: as a long-term subscriber IMO your view that they advocate stock-picking is totally off-base.

OK. No harm, no foul. Mentioning Money specifically was really peripheral to my main warning about magazines and web sites with financial stakes in pushing the myth. If the OP wants to read Money after seeing this discussion that's no problem. He will be attuned to the fact that their glasses may be colored to some degree; I think more, you think less.

This is from their "The 50 Best Mutual Funds and ETFs, Period" and is indicative the constant theme:

[To find our MONEY 50 stars, we focus on low-cost funds and long-term returns that match or beat their benchmarks. Given these criteria, index funds and ETFs make up the core of our list—indexing is typically the cheapest way to invest, and data show that few actively managed funds consistently outpace the market.]

So what of the above is so objectionable?

Actually I was trying to make the point that they were not as biased towards the myth as they were in my memory of the past. So, no objection.

On a related note, the understanding that prior success or other intuitively attractive manager attributes are completely irrelevant is extremely hard to accept. Where else would we ignore prior performance in selecting someone for a job? Yet that's the case with stock-pickers. Success in stock-picking is statistically indistinguishable from luck.

My example is a stadium with 10,000 monkeys flipping coins. After eight flips about 40 of them will have flipped eight heads in a row. Now I want to bet you that one of those monkeys will not flip a ninth head. What odds will you offer me? 50%, of course. He's only a monkey, no matter how many heads he flipped.

Incidentally, I would love to be wrong on this. I'm just as greedy as the next guy and would love to find a way to pick winners ahead of time. But, of course, if you find one you're not going to tell anyone.