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Sunday, October 21, 2012

Words to Live By (Well At Least Your Investing Life)

Hat's off to Barry Ritholtz for his rules of investing
Here's some wisdom from his list:


Are you an active or passive investor: For the equity portion of your allocation, you must answer a crucial question: Do you buy indexes and garner market-level returns, or do you pick stocks (or sectors) and time the market in an attempt to beat the indices?
Those who try to beat the market have a tough road ahead: Each year, 80 percent of professional managers fail to beat their benchmark. Of the few who do, once you take fees and costs into consideration, less than 2 percent actually hit that bogey.
If you want to beat the market, understand the long odds that are working against you. That is why for most investors, indexing is a much better bet.
In conclusion, investors need to fully understand the challenges that face them: Capital markets are about making the best probabilistic decisions using imperfect information about an unknowable future.
Sometimes you have an embarrassment of riches to select from; other times you are choosing the “least-worst“ option. Either way, you will never have perfect information that allows you to bet on a sure thing. There is no magic elixir.

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