Ain’t too proud to buy an Index Fund – Part I

It’s pretty gratifying to pick a stock that’s a three bagger.  Peter Lynch used the term “bagger” to say that a stock has multiplied in value. ie three bagger stock is one that tripled in value.  Note: If you looked up the term three bagger in Urban Dictionary it is a different definition, but pretty funny.

He’s one of the few institutional investor that has outperformed the market over a long period of time, Warren Buffett being the other notable one.  However, the number of investors that can outperform the market in the long run is few and far between.

The reality is, for an investor who’s career is not in following the market everyday it’s very hard to outperform the market.  That Mad Man, Jim Cramer recommends that you spend an hour a week for each security that you have.  I spend about an hour a month for all of my portfolio.  The market moves everyday and it’s hard to keep track, let alone read and understand the earnings and quarterly reports for each stock.  You really have to do your homework.  I’ll leave that to the professionals.

In the long run it’s better to own the market than to try to pick stocks that outperform it.  Markets are efficient; especially in the world that we’re in now, with information being so easy to obtain.  Index funds lets you own sections of the markets, eg Dow Jones, S&P, and other International markets.

With that said, I’m not planning to give up all my stock picking ways.  I just plan to move my longer term portfolios over to index funds (ie IRAs and retirements).  That way I can just focus on a few and can be a little more risky with it.  Like 50% stock, 25% Las Vegas, 15% Macau, 10% Atlantic City.

It’s still fun to pick a big winner and feel like you know something that most people don’t.  Like somebody I know used to say, “I was doing that before it was cool.”  Index funds gives you a broad exposure to the market with no need to constantly follow the market.  It is especially powerful if you also join the automatic investment program, this mitigates the risk of the market.  Economist like to talk about the long run and short run.  In the long run, I think Index funds are the way to go.  But like famed economist John Maynard Keynes said, “In the long run, we’re all dead”

Next Time:  This post talked more about why I’m deciding to forgo picking stocks in my retirement accounts and moving to index funds.  Next time, I’ll talk more about why index funds instead of a mutual funds and have some statistics on it.  John Bogle has a book about mutual vs index funds.

Until next time, Go Blue!



2 Responses to “Ain’t too proud to buy an Index Fund – Part I”

  1. Dan Says:

    Hehe, I was into index funds way before they were cool…and way before you too!

  2. Vu Says:

    You can’t lose on the crap tables, I play Vegas Odds!

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