Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” — Warren Buffett

It’s amazing how many supposed investment experts give out terrible advice. Sometimes it appears they’re simply making it up as they go along or regurgitating things they’ve heard rather than carefully testing and proving an investing system using accepted statistical techniques.

Things You Should Never Do in the Stock Market

As an example, I recently saw an article by a well-known investment personality telling readers they can successfully time the market.

Really?

There is absolutely no data that shows this to be true. In fact the most successful investors have, time and time again, explicitly come out against market timing. On the other hand, there are tons of studies and supporting data showing market timing to be false. Yet people continue to ignore the facts and report it as gospel.

Good luck with following this advice.

And of course there are the big banks and mutual fund companies that continually bombard you with advertisements touting how their absurdly expensive actively managed mutual funds are where you should put your money.


Again, the actual facts are ignored. Numerous studies have shown actively managed mutual funds severely underperform their respective indexes to the tune of 7 figures over a 40 year investment period. And where do you think those millions of dollars end up? If you haven’t guessed, it comes directly out of your pocket and into the mutual fund companies’ bank accounts.

That’s how they pay their people those huge bonuses and advertise in high-priced magazines, on TV and online.

And that’s how they can afford to have sports stadiums named after them.

You see, the conventional wisdom, when it comes to investing, doesn’t work in today’s environment. Back before accurate financial data were available over the Internet, it made sense to pay people to help you invest in the stock market. In those days it was difficult to find the appropriate data and even if you had it, it was nearly impossible for one person to correctly analyze the data by poring over financial statements and manually calculating the necessary results.

Today, however, data are ubiquitous and computers have removed the thousands of tedious and error-prone calculations required to successfully analyze stocks.

So if you have a computer and an Internet connection, you’re better equipped to find great stocks and create portfolios that are superior to anything the so-called pros can do for you.

Why?

Because nobody cares more about your investments and well-being that you do. And you don’t have to manage thousands of people’s money.You just have to concentrate on your own money.

Plus you can do what’s right for the long-term instead of having to sacrifice significant long-term performance at the altar of short-term gains in order to keep your mutual fund investors happy.

After all, if a mutual fund has a bad year, the tendency is for investors to withdraw their money and put it into another fund that has had a good year. So fund managers do everything they can to make it look like they’ve had a good year — even if it means doing things that will hurt the fund’s long-term performance.

That’s why just about every actively managed mutual fund practices what the industry calls, “Window Dressing.” And that’s one reason why the majority of these funds severely underperform.

As I’ve learned more about the investing industry, I’ve discovered, by reading and listening to many “experts,” that they haven’t really done their homework. An extraordinarily high percentage of them rely on regurgitating old fallacies that have been around for decades.

That’s why you see almost every “investment expert” telling you pretty much the same things, such as to use market timing, invest your money in actively managed mutual funds, diversify widely and that short-term strategies work best.

But let me give you some excellent advice. If you want to build a solid investment portfolio, it’s time to get back to basics. Find excellent companies with wide economic moats and wait until you can purchase them at prices below what they’re worth.

Then diversify across different industries and countries but do so with a small number of high-quality holdings – don’t broadly diversify over hundreds or thousands of companies.

Of course times and technologies change, sometimes rapidly, but the fundamentals don’t change. So reading some classic investing books and listening to people who have proven their systems work, such as Warren Buffett, Peter Lynch and Charlie Munger, can give you a powerful education on how to significantly outperform the markets.

Here are my recommendations on books that will give you the right type of education. They are proven, practical and based on techniques that have withstood the test of time.

1)    The Intelligent Investor by Benjamin Graham

2)     Buffettology by Mary Buffett and David Clark

3)     The Five Rules for Successful Stock Investing by Pat Dorsey

4)     And my own book, The Pragmatic Investor

Quite simply, you can’t go wrong reading any of these. And once you’re done, you’ll know more about how to invest the right way than most of the “experts” could ever hope to know.

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