How to have a long-term investment advantage


“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”

~Charles Munger, speaking of himself and his partner, Warren Buffett

Munger and Buffett emphasize the importance of minimizing your investment mistakes. In baseball, they would not recommend swinging for home runs and getting lots of strikeouts. They would think it is advantageous to get lots of singles and doubles.

Our long-term investment philosophy is structured to help eliminate bad investment decisions.  By following this advice, you will be far ahead of most people. We are continually learning, studying and reading, so you and your family can benefit.

Don’t invest in funds and stocks that usually underperform their benchmarks

This sounds simple. You should invest in funds that beat their benchmarks. You should hire the best money managers. However, you may be surprised to learn how difficult this is to implement. We are proud that the funds we have recommended have consistently outperformed their benchmarks and their peers, over the short and long term.

Some recent evidence that most mutual funds and money managers consistently underperform their benchmarks reiterates a huge amount of similar data:

  • “So far in 2014, more actively managed mutual funds are trailing market benchmarks than in any full year since 2011, according to data from Morningstar.”*
  • “More than 74% of actively managed funds that invest in shares of big US companies are lagging behind the S & P 500 index, up from 50% last year…The story is similar across many categories of funds investing in small and midsize stocks.”*
  • Since 2004, in 8 out of 11 years, more than 50% of the large stock US funds did not beat their S & P 500 benchmark.  And even more startling, in 7 of those 8 years, 60-80% of the funds each year underperformed their benchmark.*

We understand this data about the consistent underperformance of most mutual funds.  This is the basis of the investment philosophy we have utilized for over 10 years. This is why we utilize primarily DFA mutual funds, as well as select others. But many investors do not realize these facts and they don’t incorporate this information into their investment portfolio.  The data for 2014 should make our clients even more confident that our style of investing is the right approach.

  • These facts should encourage you to really understand your investments. We can help you do this.
  • You should know how each fund or stock that you own has performed, over many years.
  • If you are a current client, you will be pleased that the funds we utilize in various assets classes (such as US large, US large and small value, US small cap, International small value, Emerging markets, real estate and others) all have excellent performance data compared to their peers and their respective benchmarks.
  • You should know the cost of your investments. All too often when we evaluate a prospect’s current portfolio, we find underperformance and high fees.
    • Do you know the real costs of the mutual funds that you own or money manager you use?
    • The investments we recommend outperform and are among the least expensive in the financial industry. And their costs have decreased over the years.

You will be more successful by avoiding certain types of investments

Hedge funds are alternative investments “pitched” to the wealthy as great investments and diversifiers, but the facts tell another story. As of June 30, 2014, Hedge funds are on track for their sixth consecutive year of underperforming the S & P 500, according to the WSJ and research firm HFR, Inc.  Almost 10% of hedge funds close every year, according to HFR, Inc.*

It is very difficult to pick which hedge funds will be successful, in advance, consistently and for a long time. And hedge funds are very expensive. This is why we do not recommend investing in hedge funds.

As Munger and Buffett would say, you can get a long-term advantage by adopting an investment philosophy which avoids many investment mistakes. We are confident that our approach to investing meets this criteria.

*Source:  Wall Street Journal, June 30, 2014, Section C, various articles

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