Willie Sutton

One day does not make a trend and neither does a week for that matter, but the Ithaca Experiment portfolio was up almost $1,000 this past week. No great shakes, but at least I caught a break. For months there has been nothing but bad economic news and yet the market continues to rally which really spanked my holdings since I am in short positions. There is no doubt the market is priced for perfection and earnings expectations have been ratcheted up so we could be in for that correction I and others have been talking about during this earnings season. As has been discussed in previous posts, I take a lot of risk in my portfolio, but according to William Bernstein in The Investor's Manifesto: "Investors cannot earn high returns without occasionally bearing great loss. If the investor desires safety, then he or she is doomed to receive low returns.". Well, I chose to do a little gambling and so far have have a sizable paper loss of about 40%, but my enthusiasm for where I believe the market is going has not been tempered by what I consider no more than a bump in the road. I know I am flirting with disaster, but nothing ventured, nothing gained.

The Investor's Manifesto is old hat to anybody who is experienced in investing. It extols the virtues of index investing and gives guidance as to how to allocate your portfolio holdings with a bond/stock mix dependent upon your age and time horizon. One thing that struck me about the book is the author's disdain for stock brokers and money managers: "It is rare to meet a hedge fund manager or mutual fund executive who has a vision of the world that extends very far beyond his or her own self-interest. It is not grossly unfair to observe that most seek employment at brokerage houses, hedge funds, and mutual funds for the same reason Willie Sutton supposedly offered for robbing banks - 'Because that's where the money is'." Bernstein goes on to say: "It turns out that stock brokers are very highly trained - just not in finance. Their employers teach them very well indeed the art of the soft sell.".

I am not going to trash the entire universe of brokers and money managers, because if you have an enormous amount of assets in your portfolio, sometimes professional shepherding is warranted. However, if you are an individual investor with a portfolio of under a million dollars, my advice is to only have an account with a discount broker and if you are not inclined to do your own homework, only invest in index funds. As Bernstein states: "The reason why 90 percent of investors and fund managers cannot pick stocks is simple: Whenever you buy or sell a stock or bond, there is someone on the other side of that trade, and that someone most likely has a name like Goldman Sachs, PIMCO, or Warren Buffett.". If you are not familiar with index funds and don't know where to begin to look for good recommendations, The Investor's Manifesto provides you with detailed charts listing index funds of both stocks and bonds, domestic and foreign which includes a sampling of both ETFs and mutual funds.

Bernstein is adamant about his preference for which firms to invest with and number one on his list is the Vanguard Group because they have: "no publicly or privately owned shares and is instead held directly by the mutual fund shareholders...Next on the list are privately run firms, the largest being Fidelity Investments, Dimensional Fund Advisers and the American Funds.". Other than those outfits, he doesn't like anything because he thinks they are a bunch of crooks. The Investor's Manifesto isn't a bad book, but like I've written about other publications featuring index funds, you are better off by reading something by John Bogle who in fact invented the index fund and was the entrepreneur who started Vanguard. If you are an investor and are already interested in index funds, but need a some guidance on which ones to select, this book would be a good purchase just for the charts which list most of the offerings available.