IFA Radio's Episode 31

IFA Radio
Monday, August 02, 2010

When I first heard about indexing and the concept of simply putting your money away in an index fund and not touching it, I did what anyone trying to learn more about any subject would do: I bought several books that dealt with indexing. I purchased Burton Malkiel’s classic, A Random Walk Down Wall Street. I got John Bogle’s Common Sense on Mutual Funds, and as I was wading through them, I couldn’t help but notice it was a lot more interesting to read a magazine like Businessweek because of all the colorful graphs and charts and even artwork. So I thought a compromise was in order. The dense, rich language of these brilliant books could maybe use some colorful graphs and art like you would see in Businessweek or Money magazine. So that was the genesis of the idea of Index Funds: The 12 Step Program for Active Investors.
But as I continued reading all these books, I realized that it wasn’t just the colorful charts and beautiful art that was missing. The books seemed to jump around to different subjects. Whether it was Stock Picking, or Market Timing, it seemed like these books couldn’t nail down the subjects. It made sense to me to have all the information that debunked a particular active strategy all in one place, so when it came time to explain the folly of an active investor’s ways, I could easily thumb through a book and get to it.
And finally, as I continued my reading, more and more evidence piled up against active investing, I started to wonder how anyone could take part in it. Academic research was drowning out any “proof” that someone could speculate and make more money than someone who actually invests. This led me to the correlation of those who are addicted to gambling. A gambler knows deep down that the numbers and statistics are heavily in the house’s favor (else there wouldn’t be a “house”). So when I did an internet search for help programs for stockoholics, Alcoholics Anonymous popped up with a special section that dealt exclusively with Stock Market Gamblers. The light bulb went on! It occurred to me that there was no real 12-Step program for stock or tradeaholics. And what better way to organize all these different problems with active management than going through each one step by step by step. So I took the fragments of my earlier ideas and combined them with that and came up with the framework for Index Funds: The 12 Step Program for Active Investors.
 

 

 

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