Barron's Picks Up A Random Roger Theme?

by: Roger Nusbaum

The Striking Price column in this week's Barron's had an interesting opening passage:

One of the great riddles of our time is why so many people are such bad investors. After all, good investing isn't terribly difficult. All you really need to do to be successful is pick a reasonably well-run company like IBM (NYSE:IBM), or Johnson & Johnson (NYSE:JNJ), or even a low-cost mutual fund or exchange-traded fund that tracks the Standard & Poor's 500, and forget about it. Dividends and inflation account for about half of investment returns, and the rest is largely attributed to time, perhaps a little luck, and an ability to remain graceful under pressure.

I made a similar observation a few weeks ago. The context here is accumulating enough money for whatever the goal is, usually retirement. This is not about relative performance because how important is relative performance for someone who is 85, healthy and has just run out of money? It would be easy to envision someone who generally did beat the market over time (plenty of people do even if they are the minority of participants) but who failed to save adequately.

The above passage seems to be saying a couple of stocks OR a fund of some sort. In this context I prefer the word AND such as a couple of stocks and a few funds but just as important is a high savings rate and not panicking.

My preference is far and away a diversified portfolio of individual stocks and specialty funds but the reality is that most people do not have the interest level to maintain such a portfolio and are unlikely to hire someone to manage any kind of portfolio.

Someone willing/able to make at least some effort could put most of their portfolio into a broad domestic fund and some sort of broad foreign fund (an emerging market fund might be a better choice for a while) and then one or two stocks like the ones mentioned in the Barron's excerpt (we own JNJ, we don't own IBM) can get the job done if they are good savers.

Large weightings in a couple of broad funds and small weightings in a couple of blue chip stocks (still need to pay some attention to them) is not reasonably going to blow anyone up regardless of whether the combo beats or lags the market. The biggest reasonable risk is panicking at the wrong time.