http://www.stuff.co.nz/47…

The Case For Index Funds

For a lot of people that really have no understanding of mutual funds, managers, fees, etc., DCA into an index fund is better than nothing and most certainly better than taking a bath from the goofs on Wall Street. If you are totally clueless and you can’t find a good money manager — either a good fund, if doing it on your own, or a good advisor, if you are hiring one — you should consider splitting your money between index funds and CDs.

The Case Against Index Funds

In 2007, there were 8,752 mutual funds registered in the United States. Most can not beat the markets for whatever reason. But just because most can’t beat the markets does not mean that we should draw the conclusion that all can’t beat the markets. Many advisors don’t understand this because their world of mutual funds is limited to what their firms allow them to sell.

Joe and Jane American that aren’t going to buy pieces of individual businesses on their own can still do very well in mutual funds — just not in most mutual funds. To find great funds, though, requires about as much research as finding great companies. If you have the time and desire to do that kind of research, you should at least consider managing your own portfolio of equities.

In his book, Swensen lays out numerous techniques Da Boyz use to separate an investor from his money.

My favorite was a Morgan Stanley Index Fund, set up to track the S&P 500. Once established, no active management is required in the portfolio unless S&P adds/removes stocks which make up the index, right? Yet Morgan charged investors a 5.25% load in addition to 12-b and other fees. Compare this to Vanguard’s S&P500 tracker, which charges a paltry 0.09% in fees. Somehow, Morgan managed to sell this fund to the fish/sheep. Lots more amazing examples.

After reading Swensen, a sane person would either manage his own portfolio, invest in an Index Fund or three, or hide his money under the mattress. Swensen tells what to look for in an investment manager, but only mentions one name (Southeastern/Longleaf), although I can think of others (like Pabrai) who would qualify.

Some workouts go bad, but I’m not moving out of LNY until it goes bad…regardless of the price action right now.

http://tinyurl.com/3hj69r…

cory: I’m just happy to have found my calling, whether it was in investing, medicine, teaching… I never ask for gifts; but, some people have insisted and been very generous with books. I’d love to read the book. You can find my office address here. Thanks!

Matt: I haven’t looked too closely at the BAC/MER deal yet. Because Merrill is so toxic right now, I don’t know if I’ll ever jump on that one.

Miguel: It was great finally meeting you. (All: If you are looking for a great blog on investor psychology, coupled with about a billion and a half links to other investing blogs, check out Miguel’s Simoleon Sense.)

Bill: I like GE, but I don’t feel like it’s at a big enough Margin of Safety to offer the kinds of returns I want.

Mark: I mentioned in this comment that I have increased the F Wall Street position back up to 20%. I had also said (in that comment):

The price action means nothing without a SEC filing or news release. We went through this with RTSX — and will see it a ton on these small deals. In RTSX, the price dropped from $30 to $25, or nearly 17%, in the weeks leading up to the shareholder meeting.

Unless and until I get real news that is or has to be filed with the SEC, I don’t see any change in the deal outside of the widening of the premium.

Joe, you are a very good teacher! I really appreciate your work towards educating fellow investors like me.

Gopi