Quotes(215)

"In investing, what is comfortable is rarely profitable."

"The deeper one delves, the worse things look for actively managed funds."

"Wall Street is littered with the bones of those who knew just what to do, but could not bring themselves to do it."

"No one in his right mind would walk into the cockpit of an airplane and try to fly it, or into an operating theater and open a belly.  And yet they think nothing of managing their retirement assets.  I've done all three, and I'm here to tell you that managing money is, in its most critical elements (the quota of emotional discipline and quantitative ability required) even more demanding than the first two."

"If the data do not prove that indexing wins, well, the data are wrong."

"Hint: money flows into most funds after good performance, and goes out when bad performance follows."

"We need a mutual fund industry with both vision and values; a vision of fiduciary duty and shareholder service, and values rooted in the proven principles of long-term investing and of trusteeship that demands integrity in serving our clients."

"Surprise! The returns reported by mutual funds aren't actually earned by mutual fund investors."

"Most institutional and individual investors will find the best way to own common stock is through an index fund that charges minimal fees. Those following this path are sure to beat the net results [after fees and expenses] delivered by the great majority of investment professionals."

"The American economy is going to do fine. But it won't do fine every year and every week and every month. I mean, if you don't believe that, forget about buying stocks anyway... It's a positive-sum game, long term. And the only way an investor can get killed is by high fees or by trying to outsmart the market."

"the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group – the "know-nothings" – must win."

"Investors, of course, can, by their own behavior make stock ownership highly risky. And many do. Active trading, attempts to "time" market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor's tool kit. "

When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the manager who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

"The results of this study are not good news for investors who purchase actively managed mutual funds. No investment style generates positive abnormal returns over the 1965-1998 sample period. The sample includes 4,686 funds covering 26,564 fund-years."

"The long-term data repeatedly document that investors would benefit by switching from active performance investing to low-cost indexing."

Active management is a zero-sum game before cost, and the winners have to win at the expense of the losers.

I can't figure out why anyone invests in active management, so asking me about hedge funds is just an extreme version of the same question. Since I think everything is appropriately priced, my advice would be to avoid high fees. So you can forget about hedge funds. [response to a question about where alternative investments belong in a portfolio strategy]

"The thing that I have been emphasizing in my own work for the last few years has been the group approach. To try to buy groups of stocks that meet some simple criterion for being undervalued-regardless of the industry and with very little attention to the individual company."

"The investor's chief problem, and even his worst enemy, is likely to be himself."

"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost... I'm on the side of the "efficient market" school of thought now generally accepted by the professors."

He [Burton Malkiel] should be dipped in gold an placed on a pedestal in from of the New York Stock Exchange, as a warning to investors that they can't profit from the brokerages' rigged game.

"The results of this study are not good news for investors who purchase actively managed mutual funds. No investment style generates positive abnormal returns over the 1965-1998 sample period. The sample includes 4,686 funds covering 26,564 fund-years."

"Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud."

"The S&P is up 343.8 percent for 10 years. That is a four-bagger. The general equity funds are up 283 percent. So it's getting worse, the deterioration by professionals is getting worse. The public would be better off in an index fund."

"Most investors would be better off in an index fund."

"It seemed like we needed a 12-step program to cure us of our addiction to buying beaten-up stocks..."

"Everybody has some information. The function of the markets is to aggregate that information, evaluate it and get it incorporated into prices."

"It will fluctuate." (when asked what the stock market will do)

"Even fans of actively managed funds often concede that most other investors would be better off in index funds. But buoyed by abundant self-confidence, these folks aren't about to give up on actively managed funds themselves. A tad delusional? I think so. Picking the best-performing funds is 'like trying to predict the dice before you roll them down the craps table,' says an investment adviser in Boca Raton, FL. 'I can't do it. The public can't do it.'"

"Still, I figure we shouldn't' discourage fans of actively managed funds. With all their buying and selling, active investors ensure the market is reasonably efficient. That makes it possible for the rest of us to do the sensible thing, which is to index. Want to join me in this parasitic behavior? To build a well-diversified portfolio, you might stash 70 percent of your stock portfolio into a (Dow Jones) Wilshire 5000-index fund and the remaining 30 percent in an international-index fund."

Nobody wants to be passive; indexing is not passive — much more goes into indexing than watching a stock become the next buggy whip.

The word passive does a disservice to investors considering their options. Indexing provides an effective means of owning the market and allows investors to participate in the returns of a basket of stocks. The basket of stocks changes over time as stocks are added or removed based on its rules.

"So who still believes markets don't work? Apparently it is only the North Koreans, the Cubans and the active managers."

"Forty years later [after the establishment of the first index fund], index funds remain the best wealth management choice for all investors"

"Unless an investor has access to 'incredibly high-qualified professionals,' they should be 100 percent passive -- that includes almost all individual investors and most institutional investors."

"The sheer magnitude of the difference we discovered between the total returns earned by funds and the results captured by the average shareholder is shocking and tragic." [Funds = 5.7%, Investors = 1%]

"The neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine."

But whatever the consensus on the EMH, I know of no serious academic, professional money manager, trained security analyst, or intelligent individual investor who would disagree with the thrust of EMH:  The stock market itself is a demanding taskmaster.  It sets a high hurdle that few investors can leap. 

"Prediction is very difficult, especially if it's about the future."

"The most important thing about an investment philosophy is that you have one. "

The efficient market theory is one of the better models in the sense that it can be taken as true for every purpose I can think of. For investment purposes, there are very few investors that shouldn't behave as if markets are totally efficient.

Markets are efficient, but there are different dimensions of risk and those lead to different dimensions of expected returns. That's what people should be concerned with in their investment decisions and not with whether they can pick stocks, pick winners and losers among the various managers delivering basically the same product.

"I take the market-efficiency hypothesis to be the simple statement that security prices fully reflect all available information."

"I think it’s much more interesting to live not knowing than to have answers which might be wrong."

"Almost all of us should act as if prices are right."

"The curious task of economics is to demonstrate to men how little they know about what they imagine they can design."

"One can resist the invasion of armies, but not the invasion of ideas."

"Many of us economists who believe in efficiency do so because we view markets as amazingly successful devices for reflecting new information rapidly and, for the most part, accurately."

"We next consider the rule that the investor does [or should] consider expected return a desirable thing and variance of return an undesirable thing."

"It is remarkable that a science which began with the consideration of games of chance should have become the most important object of human knowledge."

"Most people might just as well buy a share of the whole market, which pools all the information, than delude themselves into thinking they know something the market doesn't. "

"...Any pension fund manager who doesn't have the vast majority—and I mean 70% or 80% of his or her portfolio—in passive investments is guilty of malfeasance, nonfeasance or some other kind of bad feasance!"

"This message (that attempting to beat the market is futile) can never be sold on Wall Street because it is in effect telling stock analysts to drop dead."

"Perhaps there really are managers who can outperform the market consistently - logic would suggest that they exist. But they are remarkably well-hidden"

"Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement."

"By day we write about 'Six Funds to Buy NOW!' By night we invest in sensible index funds. Unfortunately, pro-index fund stories don't sell magazines."

"The difference between luck and skill is seldom apparent at first glance."

"When it comes to fund managers and market strategists, this year's hero usually turns into next year's zero."

"It's human nature to find patterns where there are none and to find skill where luck is a more likely explanation (particularly if you're the lucky [mutual fund] manager)." Mutual fund manager performance does not persist and the return of stock picking is zero."

"99% of fund managers demonstrate no evidence of skill whatsoever."

When some individual made a fortune in the stock market, we have a tendency to assume that that was because he knew something, and of course the individual himself is happy to reinforce that belief - yes, I was a genius, or I was very clever, or I always said Microsoft was going to make me rich. But what you don't see are the thousands, hundreds of thousands, perhaps millions of people who are going, I always said that ABC company was going to make me rich, and ABC company went bust. Professor Zvi Bodie

"It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."

"Buy a cross section of American industry, and if a cross section of American industry doesn't work, certainly trying to pick the little beauties here and there isn't going to work either."

"Investors...can't pick stocks that are better than average. Stocks are a good thing to own over time. There's only two things you can do wrong: You can buy the wrong ones, and you can buy or sell them at the wrong time. And the truth is you never need to sell them."

"There are a few investment managers, of course, who are very good – though in the short run, it’s difficult to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to their siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense Investing."

"It's hard to find ideas that aren't picked over and harder to get real returns and differentiate yourself. We are entering a new environment. The days of big returns are gone."

"After a lifetime of picking stocks, I have to admit that Bogle's arguments in favor of the index fund have me thinking of joining him rather than trying to beat him. Bogle's wisdom and common sense [are] indispensable...for anyone trying to figure out how to invest in this crazy stock market."

"Mutual funds have failed to manage their realized capital gains in such a way as to permit a substantial deferral of taxes (raising) investors' tax bills considerably ....If the Vanguard 500 Index fund could have deferred all of its realized capital gains, it would have ended up in the 91.8 percentile for the high tax investor" [i.e., it outpaced 92 percent of all managed equity funds]."

"After taking risk into account, do more managers than you'd see by chance outperform with persistence? Virtually every economist who studied this question answers with a resounding "no." Mike Jensen in the Sixties and Mark Carhart in the Nineties both conducted exhaustive studies of professional investors. They each conclude that in general, a manager's fee, and not his skill, plays the biggest role in performance."

"The only way to "beat an index" is to invest in something other than the index. Why would you, when the only source of long-term risk and return data is the index?"

"Will customers keep supporting the enormous overhead required to sustain ineffectual, unproductive stock picking across an array of thousands of individual funds devoted to every investing 'style' and economic sector or regional subgroup that some marketing idiot can dream up? Not likely. A brutal shakeout is coming and one of its revelations will be that stock picking is a grossly overrated piece of the puzzle, that cost control is what distinguishes a competitive firm from an uncompetitive one."

"Very little evidence [was found] that any individual [mutual] fund was able to do significantly better than that which we expected from mere random chance."

Mutual funds are run by highly experienced and hard working professionals who buy and sell stocks to achieve the best possible results for their clients. Nevertheless, the evidence from more than fifty years of research is conclusive: for a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker.

There is general agreement among researchers that nearly all stock pickers, whether they know it or not-and few of them do-are playing a game of chance.

Unfortunately, skill in evaluating the business prospects of a firm is not sufficient for successful stock trading, where the key question is whether the information about the firm is already incorporated in the price of the stock.  Traders apparently lackthe skill to answer this crucial question, but they appear to be ignorant of their ignorance.

Finally, the illusions of validity and skill are supported by a powerful professional culture. We know that people can maintain an unshakeable faith in any proposition, however absurd, when they are sustained by a community of like-minded believers. Given the professional culture of the financial community, it is not surprising that large numbers of individuals in that world believe themselves to be among the chosen few who can do what they believe others cannot.

You should expect little or nothing from Wall Street stock pickers who hope to be more accurate than the market in predicting the future of prices. And you should not expect much from pundits making long-term forecasts.

Knowing the importance of luck, you should be particularly suspicious when highly consistent patterns emerge from the comparison of successful and less successful firms. In the presence of randomness, regular patterns can only be mirages.

The illusion of skill is not only an individual aberration: it is deeply ingrained in the culture of the industry. Facts that challenge such basic assumptions-and thereby threaten people’s livelihood and self-esteem-are simply not absorbed.

"It is like a crapshoot in Las Vegas, except in Las Vegas the odds are with the house. As for the market, the odds are with you, because on average over the long run, the market has paid off."

"If there are 10,000 people looking at the stocks and trying to pick winners, one in 10,000 is going to score, by chance alone, a great coup, and that's all that's going on. It's a game, it's a chance operation, and people think they are doing something purposeful... but they're really not."

"By 1972, at the Company's then peak operating level, a single original Graham-Newman share of $27 had grown in worth to $16,349... Graham-Newman's original 1948 investment of $712,000 was worth over $400,000,000 25 years later... The gain in GEICO would come to represent a much larger percentage of the firm's profits than its other investments combined."

"Active management is little more than a gigantic con game."

"The house [casino] takes a cut on each spin of the wheel, paying out less in winnings than it collects in bets. So roulette is a negative-sum game, and so is your non-index mutual fund [actively managed fund]."

"Practically speaking, individual investors should treat the market as unbeatable and realize that when they try to beat it because it is inefficient, they are likely to injure themselves, rather than gain at the expense of another."

"It's just not true that you can't beat the market. Every year about one-third of the fund managers do it. Of course, each year it is a different group."

"A minuscule 4 percent of funds produce market-beating after-tax results with a scant 0.6 percent (annual) margin of gain. The 96 percent of funds that fail to meet or beat the Vanguard 500 Index Fund lose by a wealth-destroying margin of 4.8 percent per annum."

"The simple index fund solution has been adopted as a cornerstone of investment strategy for many of the nation's pension plans operated by our giant corporations and state and local governments. Indexing is also the predominant strategy for the largest of them all, the retirement plan for federal government employees, the Federal Thrift Savings Plan (TSP). The plan has been a remarkable success, and now holds some $173 billion of assets for the benefit of our public servants and members of armed services."

"The simple index fund solution has been adopted as a cornerstone of investment strategy for many of the nation's pension plans operated by our giant corporations and state and local governments. Indexing is also the predominant strategy for the largest of them all, the retirement plan for federal government employees, the Federal Thrift Savings Plan (TSP). The plan has been a remarkable success, and now holds some $173 billion of assets for the benefit of our public servants and members of armed services."

"The illusions of hope are apt to close one's eyes to the painful truth."

"There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor... whose livelihood depends upon appearing to know."

I think that if you are an investor, you can definitely get a fair shake. An investor is someone who has a plan, takes a long-term perspective, is not trying to guess and not trying to time. If you are someone who believes that you are going to beat the market by timing it, by guessing, by trading on a highly frequent basis, you must be exceptional. And there are some people who are exceptional at that, but that is a very, very tiny percent

I always put it this way when someone asks me about the market. If someone tells you that they have a solid prediction as to the shortterm time frame of the market, run fast. Why? Because if they did, they ain't sharing it 18 with you.

"If you knew what was going to happen in the economy, you still wouldn't necessarily know what was going to happen in the stock market."

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."

"Inactivity strikes us as intelligent behavior."

"Our favorite holding period is forever."

"The only value of stock forecasters is to make fortune-tellers look good."

"We continue to make more money when snoring than when active."

"Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient."

"With a wonderful business, you can figure out what will happen; you can't figure out when it will happen. You don't want to focus on when, you want to focus on what. If you're right about what, you don't have to worry about when."

"If you're right about the business, you'll make a lot of money... it's far better to buy a wonderful company at a fair price."

"Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future."

"Anything can happen anytime in markets. And no advisor, economist, or TV commentator--and definitely not Charlie nor I--can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet. "

"Our system works. Over time, people will live better and better. We have a system that unleashes human potential, and now China has a system that unleashes human potential. We will have interruptions. We overshoot and undershoot sometimes, but your kids and grandkids will live better than you. Over time, we move ahead at a pretty damn rapid rate."

I don't think the Fed[eral Reserve] has any role in how high rates are right now. I don't understand why everyone is paying attention to this tapering. The Fed is using one kind of bond to buy another kind of bond. What's the big deal, and why is anyone taking the Fed seriously?

"If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market."

"Why does indexing outmaneuver the best minds on Wall Street? Paradoxically, it is because the best and brightest in the financial community have made the stock market very efficient. When information arises about individual stocks or the market as a whole, it gets reflected in stock prices without delay, making one stock as reasonably priced as another. Active managers who frequently shift from security to security actually detract from performance [compared to an index fund] by incurring transaction costs."

"But a respect for evidence compels me to incline toward the hypothesis that most portfolio decision makers should go out of business - take up plumbing, teach Greek, or help produce the annual GNP by serving as corporate executives."

"Those who have knowledge, don't predict. Those who predict, don't have knowledge. "

"Fund investors are confident that they can easily select superior fund managers. They are wrong."

"If the data do not prove that indexing wins, well, the data are wrong."

"The commission of the investment sins listed above is not limited to 'the little guy.' Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool’s game. "

"Santa Claus and the Easter Bunny should take a few pointers from the mutual-fund industry [and it's fund managers]. All three are trying to pull off elaborate hoaxes. But while Santa and the bunny suffer the derision of eight year olds everywhere, actively-managed stock funds still have an ardent following among otherwise clear-thinking adults. This continued loyalty amazes me. Reams of statistics prove that most of the fund industry's stock pickers fail to beat the market. For instance, over the 10 years through 2001, U.S. stock funds returned 12.4% a year, vs. 12.9% for the Standard & Poor's 500 stock index."

"Why didn't I just throw my money out of the window - and light it on fire?"

"Nothing highlights better the continuing gap between rhetoric and substance in British financial services than the failure of providers here to emulate Jack Bogle's index fund success in the United States. Every professional in the City knows that index funds should be core building blocks in any long-term investor's portfolio. Since 1976, the Vanguard index funds has produced a compound annual return of 12 percent, better than three-quarters of its peer group. Yet, even 30 years on, ignorance and professional omerta still stand in the way of more investors enjoying the fruits of this unsung hero of the investment world."

"Contrary to their oft articulated goal of outperforming the market averages, investment managers are not beating the market; the market is beating them."

People would be a lot more skeptical if they understood that there is an incredible amount of chance in the results that you observe for active managers. The distribution of outcomes is enormously wide--but that's exactly what you'd expect by chance with lots of active managers who hold imperfectly diversified portfolios. The really good portfolios contain a lot of really lucky picks, and the really bad portfolios contain a lot of really unlucky picks as well as some really bad ones.

"I don't try to be clever at all. The idea that I could see what no one else can is an illusion."

"All the time and effort people devote to picking the right fund, the hot hand, the great manager have, in most cases, led to no advantage." and "Most individual investors would be better off in an index mutual fund."

"Experience conclusively shows that index-fund buyers are likely to obtain results exceeding those of the typical fund manager, whose large advisory fees and substantial portfolio turnover tend to reduce investment yields. Many people will find the guarantee of playing the stock-market game at par every round a very attractive one. The index fund is a sensible, serviceable method for obtaining the market's rate of return with absolutely no effort and minimal expense."

"We conclude that hedge funds are far riskier and provide much lower returns than is commonly supposed."

"... skepticism about past returns is crucial. The truth is, much as you may wish you could know which funds will be hot, you can't -- and neither can the legions of advisers and publications that claim they can. That's why building a portfolio around index funds isn't really settling for average. It's just refusing to believe in magic." 

"The investment business is a giant scam. Most people think they can find managers who can outperform, but most people are wrong. I will say that 85 to 90 percent of managers fail to match their benchmarks. Because managers have fees and incur transaction costs, you know that in the aggregate they are deleting value."

"The number of managers with great track records in a given market depends far more on the number of people who started in the investment business (in place of going to dental school), rather than on their ability to produce profits."

"Toss a coin; heads and the manager will make $10,000 over the year, tails and he will lose $10,000. We run [the contest] for the first year [for 10,000 managers]. At the end of the year, we expect 5,000 managers to be up $10,000 each, and 5,000 to be down $10,000. Now we run the game a second year. Again, we can expect 2,500 managers to be up two years in a row; another year, 1,250; a fourth one, 625; a fifth, 313. We have now, simply in a fair game, 313 managers who made money for five years in a row. [And in 10 years, just 10 of the original 10,000 managers.] Out of pure luck... A population entirely composed of bad managers will produce a small amount of great track records.... "

"People exaggerate their own skills. They are overoptimistic about their prospects and overconfident about their guesses, including which [investment] managers to pick."

"Wall Street's favorite scam is pretending that luck is skill."

"Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said, ‘Look, those are the bankers' and brokers' yachts.' ‘Where are the customers' yachts?' asked the naive visitor."

"Getting an unsophisticated client was the golden prize. The quickest way to make money on Wall Street is to take the most sophisticated product and try to sell it to the least sophisticated client."

"A miniscule 4 percent of funds produce market-beating after-tax results with a scant 0.6 percent (annual) margin of gain. The 96 percent of funds that fail to meet or beat the Vanguard 500 Index Fund lose by a wealth-destroying margin of 4.8% per annum."

"How do you beat the S&P 500? You beat it by overweighting some groups, underweighting others, and by owning stocks that aren't in the S&P. [i.e. style drift]... Sometimes I think if people knew how risky I was acting in the portfolio [Fidelity Magellan] they'd really be surprised. Just go back a bit -- I made AOL very big; I made Yahoo very big. I'm not afraid to make any bet." [that's scary]

"Style drift is a serious problem for [investors] because it distorts asset allocation and undermines performance when styles rotate. Value managers who have drifted over the past three years [1998-2000] toward more favored growth stocks are regretting those moves, but not as much as their [investors]."

"Market-cap based indexing will never be driven from its deserved perch as core and deserved king of the investment world. It is what we should all own in theory and it has delivered low-cost equity returns to a great mass of investors...the now and forever king-of-the-hill."

"While it is probably a poor idea to own actively managed funds in general, it is truly a terrible idea to own them in taxable accounts...taxes are a drag on performance of up to 4 percentage points each year...many index funds allow your capital gains to grow largely undisturbed until you sell....For the taxable investor, indexing means never having to say you're sorry."

"The typical fund company services [401k plan] participants in the same way that Baby Face Nelson serviced banks."

"For the taxable investor, indexing means never having to say you're sorry."

"It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."

"The general systems of money management [today] require people to pretend to do something they can't do and like something they don't. [It's] a funny business because on a net basis, the whole investment management business together gives no value added to all buyers combined. That's the way it has to work. Mutual funds charge two percent per year and then brokers switch people between funds, costing another three to four percentage points. The poor guy in the general public is getting a terrible product from the professionals. I think it's disgusting. It's much better to be part of a system that delivers value to the people who buy the product."

"Managed funds are astonishingly tax-inefficient."

"The multiple failings of our flawed financial sector are jeopardizing, not only the retirement security of our nation's savers but the economy in which our entire society participates."

"The miracle of compounding returns is overwhelmed by the tyranny of compounding costs."

"For the markets in total, the amount of value added, or alpha, must sum to zero. One person's positive alpha s someone else's negative alpha. Collectively, for the institutional, mutual fund, and private banking arenas, the aggregate alpha return will be zero or negative after transaction costs. Aggregate fees for the active managers should thus be, at most, the fees associated with passive management. Yet, these fees are several times larger than fees that would be associated with passive management. This illogical conundrum will ultimately have to end."

"If you can eliminate the government as a 39.6% partner, then you will be much better off."

"The greatest Enemies of the Equity investor are Expenses and Emotions."

"It is very hard, if not impossible," he wrote in his study, "to justify active management for most individual, taxable investors, if their goal is to grow wealth." And he said that those who still insist on an actively managed fund are almost certainly "deluding themselves."

"Index funds are...tax friendly, allowing investors to defer the realization of capital gains or avoid them completely if the shares are later bequeathed. To the extent that the long-run uptrend in stock prices continues, switching from security to security involves realizing capital gains that are subject to tax. Taxes are a crucially important financial consideration because the earlier realization of capital gains will substantially reduce net returns. Index funds do not trade from security to security and, thus, they tend to avoid capital gains taxes."

"Suppose it was demonstrated that one out of twenty alcoholics could learn to become a moderate social drinker. The experienced clinician would answer, 'Even if true, act as if it were false, for you will never identify that one in twenty, and in the attempt five in twenty will be ruined.' Investors should forsake the search for such tiny needles in huge haystacks."

"It is difficult to get a man to understand something when his salary depends upon his not understanding it."

"Invest in low-turnover, passively managed index funds...and stay away from profit-driven investment management organizations... The mutual fund industry is a colossal failure... resulting from its systematic exploitation of individual investors...as funds extract enormous sums from investors in exchange for providing a shocking disservice..... Excessive management fees take their toll, and (manager) profits dominate fiduciary responsibility."

"Most active mutual funds are more interested in collecting fees than in boosting returns for investors."

"I've always viewed high-frequency trading as a tax on the rest of us."

"The probable is what usually happens."

"If your broker is not familiar with the concept of standard deviation of returns, get a new one."

"Index funds eliminate the risks of individual stocks, market sectors, and manager selection. Only stock market risk remains."

"You've already paid for the risk, so it might be good to stick around for the expected return."

"Probability is the very guide of life."

"Most of the fundamental ideas of science are essentially simple and may, as a rule, be expressed in a language comprehensible to everyone."

"As far as the laws of mathematics refer to reality, they are not certain. As far as they are certain, they do not refer to reality."

"The average long-term experience in investing is never surprising, but the short term experience is always surprising. We now know to focus not on rate of return, but on the informed management of risk."

"Odds are you don't know what the odds are."

"The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored."

"Return generation is the responsibility of the market, which sets prices to compensate investors for the risks they bear. "

"Nobody Told Me There'd Be Days Like These."

"The most important questions of life are, for the most part, really only problems of probability."

"The record of a month's roulette playing at Monte Carlo can afford us material for discussing the foundations of knowledge."

"Some investments do have higher expected returns than others. Which ones? Well, by and large they're the ones that will do the worst in bad times."

"Some investments do have higher expected returns than others. Which ones? Well, by and large they're the ones that will do the worst in bad times."

"When you look at the results on an after-fee, after-tax basis over reasonably long periods of time, there's almost no chance that you end up beating the index fund."

"Do you know what investing for the long run but listening to market news every day is like? It’s like a man walking up a big hill with a yo-yo and keeping his eyes fixed on the yo-yo instead of the hill."

"Investing is a strange business. It's the only one we know of where the more expensive the products get, the more customers want to buy them."

"It takes between 20 and 800 years [of monitoring performance] to statistically prove that a money manager is skillful rather than lucky. .... which is a lot more than most people have in mind when they say 'long-term'."

"I think the most important factor in getting out of the recession actually is just the regenerative capacity of American capitalism. And we had many recessions in the history of this country when nobody even heard of fiscal policy or monetary policy. The country always comes back."

"...it's important to have the right monetary policy. It's important for, to have the right fiscal policy. But it's nowhere near as important as just the normal regenerative capacity of American capitalism."

"Let's Change Our Verb Tenses When Speaking of Investment Markets."

"The bets laid down by predictin' that news will surely bring on the Speculation Blues."

"I know of no way of judging the future but by the past."

"Assuming that the future is like the past, you can outperform 80 percent of your fellow investors over the next several decades by investing in an index fund—and doing nothing else. [But] acquire the discipline to do something even better: become a long-term index fund investor."

"Historically, the stock market is like a gambling casino with the odds in your favor. Over the long pull, stocks are given something like nine and a half to ten percent compounded per year. The banks have probably given you something in the order of four to five."

"Let other people overreact to the market...if you can stay cool while those around you are panicking, you can surely prevail."

"If a man dwells on the past, then he robs the present; but if a man ignores the past, he may rob the future. The seeds of our destiny are nurtured by the roots of our past."

"The four most dangerous words in investing are, It's different this time."

"The only thing new in this world is the history you don't know."

"Design a portfolio you are not likely to trade... akin to premarital counseling advice; try to build a portfolio that you can live with for a long, long time."

"Our favorite holding period is forever."

"An investment in knowledge pays the most interest."

"To reduce risk it is necessary to avoid a portfolio whose securities are all highly correlated with each other. One hundred securities whose returns rise and fall in near unison afford little protection than the uncertain return of a single security."

"What if your advisor talks only about returns, not risk? ...It's his job to take risk into account by telling you the range of possible outcomes you face. If he won't, go to a new planner, someone who will get real."

"The essence of effective portfolio construction is the use of a large number of poorly correlated assets."

[On the proliferation of ETFs], I think it's gone much too far. Most of them are not worth the powder to blow them to hell.

It's 1450 out of 1500 ETF funds that I just wouldn't touch because they're not diversified enough. Or they have some huge speculative twist to them that if you can guess the markets right you will do very well for a day or two but who can do that? Nobody.

"Now you can trade the S&P 500 Index in real time" was the slogan in the newspapers for the first ETF. What kind of nut would do that?

"It is a truth very certain that when it is not in our power to determine what is true we ought to follow what is most probable."

"There is safety in numbers."

"Ninety-seven percent of performance variation is due to asset class structure -- Study of 31 institutional pension funds during a range of six- to 12-year periods."

"Participants who didn't seek help often made mistakes in risk with their portfolios — either too much or too little."

"It's Not Easy Bein' Green"

"Remember when you buy a commodity, you're not buying something that generates earnings and profit. You're buying a hard asset and hoping another buyer will be willing to pay more for that asset in the future."

"A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies."

"Perhaps the most important job of a financial advisor is to get their clients in the right place on the efficient frontier in their portfolios. But their No. 2 job, a very close second, is to create portfolios that their clients are comfortable with. Advisors can create the best portfolios in the world, but they won’t really matter if the clients don’t stay in them."

"'Tis the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket."

"Diversification is your buddy."

"It can be shown that maximum diversification is achieved by holding each stock in proportion to its value to the entire market (italics added).... Hindsight plays tricks on our minds....often distorts the past and encourages us to play hunches and outguess other investors, who in turn are playing the same game. For most of us, trying to beat the market leads to disastrous results...our actions lead to much lower returns than can be achieved by just staying in the market."

"If you would be wealthy, think of Saving as well as Getting.....Remember that time is money....Beware of little Expenses; a small Leak will sink a great Ship..... There are no Gains, without Pains....He that would catch Fish, must venture his Bait...Great Estates may venture more, but little Boasts should keep near the shore....Tis easy to see, hard to forsee....Industry, Perseverance, and Fruglity make Fortune yield."

"A decade ago, I really did believe that the average investor could do it himself. I was wrong. I've come to the sad conclusion that only a tiny minority, at most one percent, are capable of pulling it off. Heck, if Helen Young Hayes, Robert Sanborn, Julian Robertson, and the nation's largest pension funds can't get it right, what chance does John Q. Investor have?"

"You will want to ensure that your adviser is choosing your investments purely on their investment merit and not on the basis of how the vehicles reward him. The warning signs here are recommendations of load funds, insurance products, limited partnerships, or separate accounts. ...Your adviser should use index/passive stock funds wherever possible. If he tells you that he is able to find managers who can beat the indexes, he is fooling both you and himself. I refer to a commitment to passive indexing as 'asset-class religion.' Don't hire anyone without it."

... in financial services, maybe more so than any other industry, if you will simply do the right thing by your clients, I think you win.

The major service providers in the 401(k) world are principally asset managers who specialize in managing actively managed funds. That means that they charge anywhere between 0.75% and 2.0% per year to try to beat the market. Now we all know that study after study shows that only a tiny percentage of asset managers can actually beat the market, and an even tinier percent can do it year after year.

This idea of beating the market does not need to be part of 401(k) plans. The goal in a 401(k) shouldn’t be beating the market. The goal should be offering a secure retirement with consistent performance.

Many of them [plan consultants] make their fees by telling employers that they are wise enough to select, monitor, and suggest replacements among these active managers that they somehow know which are the funds that are going to beat the market. Why do they hate what I am talking about today? Because no consultant is needed to monitor index funds—they simply perform at the index. The idea is simple—it is called self-preservation.

"You only find out who is swimming naked when the tide goes out."

 "If we could choose only one family of funds for the ideal 401(k) plan, it would be Dimensional Fund Advisors. We believe DFA's institutional index funds are the best, and employees whose plans include them are fortunate...In 2001, a portfolio of DFA funds weighted equally among the asset classes we listed above would have appreciated by 1 percent. Doesn't seem like much but it's much better than the 12 percent loss in the Standard & Poor's 500 Index and the 23 percent decline by the average large-company growth fund."

"Many receive advice, few profit by it."

"The case highlights the wide gap and opposing roles of a broker who is permitted in law to further his and his firm's interests at the expense of customers, and a fiduciary who is required in law to put his clients' interests first. This is at the core of why the fiduciary standard is important."

"What if your advisor talks only about returns, not risk? ...It's his job to take risk into account by telling you the range of possible outcomes you face. If he won't, go to a new planner, someone who will get real."