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Do-It-Yourself Investing June 8, 2009

Posted by shaferfinancial in Finance.
Tags: ,

One of the foundational thoughts here at Uncommon Financial Wisdom is that individuals can and should do their own investing. Now there are many blogs out there pushing the same basic premise of do-it-yourself investing. The majority and the most popular are the ones that add in the following:
1. Fees charged by folks to invest for you are usually excessive and actually lower your expected return
2. Professional investors under perform the market over time
3. The average investor doesn’t need to spend much time nor effort in their investing if they follow the advice of the DIY leaders [and associated blogs]

However, here at UFW we take great pains to point out why those three points are wrong, disastrously wrong. I would like to discuss the above points in reverse order:
The idea that any human endeavor does not require time and effort to become competent, is perhaps the silliest idea these folks possess. Name one other endeavor that people don’t improve upon with active practice? A complex activity like investing, that requires mostly emotional skill, is perhaps the pinnacle of activities needing constant and active intellectual activity.

Academics devised a theory [efficient market theory] that states the market is efficient and rational because all the information [now so readily available] is priced into the market at all times. Therefore there is no opportunity created to out-think the market and out perform the market. For proof they say they have studied all the investing ideas out there and found the market to outperform all over time. But have they? Well, it seems that their computers and high end math can’t figure out what the brains of many people can. Otherwise we wouldn’t have thousands of folks who routinely beat the market would we? [Buffett, Graham, Lynch, Greenblatt, Sykoya, Dunn, etc] Now what is truly amazing is that all these above folks invest in very different ways. And each have followers that are able to emulate their results. If all this market beating behavior happens then there is a problem with the basic theory, is there not? I mean if David Shafer can beat the market over 10 years, even making amateur mistakes, then it can’t be so difficult as to preclude many, many folks from doing it too!!!!!

Fees need to be looked at, not as a crazy evil people ripping other people off, but as connected with what you get for your fees. If Warren Buffett charged 5% to invest your money would you do it? He outperformed the market by over 10% so he might be worth that 5%, right? Now it is true that many people charge a fee in the financial industry and don’t give you anything of value in exchange. But how is should be looked at is by looking at what I have gotten in exchange for that fee.

Here at Uncommon Financial Wisdom we believe in active investing. We believe in order to do well you must make it your business to keep up with the financial world. We believe this can be done by almost anyone with a manageable amount of time put into the endeavor. Finally, we believe that if one puts in the time they can outperform the market over time. And we believe some fees are worth paying when it helps folks to do better.

We can’t imagine ever going into an endeavor thinking that average is the best we can expect to be. And finally, we believe that for many folks investing is not something they should be doing. Simply put, if one is not willing to put in the work then the endeavor should not be started.

For those who strive to be above average and are willing to put in the work,  we offer all sorts of educational activities and services at the Shafer Financial web site dedicated to helping you do-it-yourself the right way!



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