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Friday, July 9, 2010
Larry Swedroe in "How Not to Create A Fortune" does something rarely done. He examines stock recommendations made in the past. In particular, he looks at the 8/14/2000 issue of Fortune magazine that touted "10 Stocks to Last the Decade."
The results are not pretty. Two companies, Enron and Nortel, are bankrupt; and 7 out of 8 of the remaining companies underperformed market averages! IMHO every such magazine cover should have on the front in bold letters : Following the Stock Pick Advice Given in This Magazine May Be Hazardous to Your Financial Health."
The folly of following such advice is not the only takeaway. It is also important to understand that, if we asked 1,000 self-proclaimed market gurus in 2000 to produce a list of 10 stocks, some would have done exceedingly well by pure luck. Some surely would have picked the dot.com companies that made it thru the bust and avoided the mine field of financial companies in 2008.
Surely some of the gurus would have done well because of skill. The issue is that no one has yet shown how to identify them ahead of time.
The bottom line, once again, is to follow the advice of long-time market investors Warren Buffett, John Bogle, William Bernstein, Burton Malkiel, Charles Ellis, Dan Solin and many others to invest in low-fee, low-cost, low-turnover index funds .
-"The Elements of Investing", by Ellis and Malkiel
-"The Investor's Manifesto", by William Bernstein
-"The Smartest Investment Book You'll Ever Read", by Daniel Solin