Check out this investing video series on www.kroijer.com by Lars Kroijer, who used to run a hedge fund in London. Basically it says you can’t beat the market, and explain why that is important.
It’s as easy as watching a cute cat video online, except it’s about index funds! But if you spend six minutes watching the first video it may change how you think about investments. Also, it may save you reading 200 pages of an investment book or give you a good riposte for next time a broker calls you with a hot stock tip….
If you buy in to the message of the videos (which I did) it will make investing a lot simpler going forward and you’ll probably be far less confused about all the choices out there. We are all much too busy to go through all the choice so the simple message is great. The philosophy that it’s ok to not be able to beat the market will help the young saver who is too busy making headway in a career to spend evenings and weekends trying to outperform. Anyhow, it’s certainly worth 6 minutes…
Kroijer basically says that if you can’t beat the stock markets (which most of us have no chance of doing) then the best investment would be to buy the cheapest and broadest index tracker of stocks – and this is a world equity index tracker. Some people have probably told you over the years to buy the S&P500 (good enough for Warren Buffet), but this is taking it a step further and tell you to diversify across the world. Crazily this may mean that your equity investment portfolio is just one stock, an ETF that tracks the world equity markets. Almost too simple to be good, but I was convinced after watching the videos.
[drizzle]Kroijer shows how an individual investor like most of us buying shares in Microsoft effectively competes with a super plugged in and well informed/resourced portfolio manager for an advantage (or edge) in trading that stock. He calls the portfolio manager Susan and shows us how she has better information, analytics, trading insight, management access and went to school with many of them, competitor analysis, historical context, gut feel, and so on, and we are perhaps left feeling a little silly that we would try to compete with her. But then he also shows us how very few of those same investment funds managed by pros like Susan actually outperform the markets over time. The fees eat away any advantage they may hold and only about 1 out of 10 investment funds outperform the market over a ten year period – problem is of course that we have no chance of knowing which one it is ahead of time. Therefore: buy the broad market tracker.
Since equities are too risky for some investors Kroijer says that you can combine the world equity exposure with the lowest risk investment you can find – typically government bonds – and that you can combine the two (50%/50%, 75%/25%, 25%/75%, etc.) to suit your risk profile. And job done. Who said investing was difficult.
The series consist of five videos – here is a bit on each (with links to videos and embed below):
Video 1: Investing Demystified – (Intro Overview – Part 1 of 5)
The Investing Demystified video series is based on the premise that most investor can’t beat the market (or pick investment funds to do so for them). Those investors should only buy world equity index trackers for their equity exposure, and can easily implement the simple and cheap portfolio tailored to their risk profile. They will most likely be far better off in the long run as a result!
Video 2: Investing Demystified – (You can’t beat markets or pick a fund to do so for you – Part 2 of 5 )
Far too many people believe they can beat the market – and far too few people have any incentive to tell them otherwise.
Video 3: Investing Demystified – (Only buy cheap World Equity Index Trackers – Part 3 of 5 )
The only equity investment you’ll need to hold is a world equity index tracker – it is cheap and diversified. Crazy yes, but it really can be that simple.
Video 4: Investing Demystified – (The simple portfolio to suit your risk – Part 4 of 5 )
Vary the proportion of your portfolio that’s allocated to the lowest-risk assets – cash and government bonds – to suit your risk profile.
Video 5: Investing Demystified – (Implementing the Investing Demystified portfolio – Part 5 of 5 )
How to select the right products for your hyper-efficient best-in-breed passive portfolio, and how to keep your strategy on track.