I really like the iconoclastic streak in the writing of consumer reporter John Stossel. He tests conventional wisdom and is willing to point out when the conventional wisdom is actually unwise.
TAKE HIS MOST RECENT COLUMN, FOR EXAMPLE.
It’s about the fact that stock picking experts you see on TV and in other publicity venues are usually wrong. In other words: They give bad stock advice.
Why? Well, in part–Stossel says–because they frequently have hidden or mixed motives that lead to conflicts of interest, as in the case of stock experts who say they "like" a stock that they themselves happen to be selling off at the moment.
But the problem is broader than just the faces you see on TV. Indeed,
[Y]ear after year the trading advice that comes out of most of the big brokerage firms is no better at selecting winners than throwing darts at the stock table, or having a monkey throw darts. In fact, the advice is usually worse! People who chart the brokerage firms’ recommendations said that over a 15-year period ending in 2005, only 5.72 percent of actively managed mutual funds had beaten the 500 stocks that make up the Standard & Poor’s Index. In other words, 94 percent did worse.
None of the big brokerage firms would talk to me about their failure to outperform dart-throwing monkeys, so I interviewed successful money manager Robert Stovall. He used to run research departments at EF Hutton and Dean Witter Reynolds, and he told me just when the experts are useful.
"Everybody has a boss," he said. "Professionals won’t buy Coca-Cola or some other stock unless they have reports in the file produced by well-known analysts so if something goes wrong with the stock they buy, they can show their boss, ‘Hey, I’ve got a big file on this stock. All these analysts said it was a good one. Something went wrong.’"
So go ahead. Follow an expert. Then, when something goes wrong, you can blame him.
But if it’s your money at stake, you’ll probably do better with an index fund — or a monkey.
According to “the motley fools”, the S&P has, historically, done better than 85% of all mutual funds.
Advice: Buy index funds or Spyders (SPY).
God post. Stossel has been writing some phenomenal columns in the last 6 moths.
Chris
http://amateureconblog.blogspot.com/
IMHO, I think investing in indexes is a perfect choice for a Christian. First of all, because few of us have the gift of being able to pick individual stocks. Second, it tempers our greed. If you invest in indexes you will never see your money explode from $10,000 to $1 million, so you learn to be at peace with that. Finally, it takes your mind off managing your investments and frees you up for doing the other things God has for you to do.
I’ve always thought the best thing to do with stocks is to just buy something (anything) and just hold on to it. Don’t pay attention to how they’re doing every day. Forget about it until you retire or something.
Stossel has a great web site, with a good deal of archived stuff.
http://abcnews.go.com/2020/ABCNEWSSpecial/
His upshot seems to be that YOUR OWN common sense will beat expert advice most of the time.
Index funds are definitely the way to go… “Mutual Funds for Dummies” does a great job of explaining how *over the long haul*, they’ll outperform actively-managed funds.
A contrarian viewpoint is here.
Specifically point #2 seems applicable:
2. Stocks always go up in the long term.
This is a myth. Far more companies have failed than succeeded. Far more countries’ stock markets went to zero than markets, which have survived. Just think of Russia in 1918, all the Eastern European stock markets after 1945, Shanghai after 1949, and Egypt in 1954.
Buying indexes seems to be the current fad. It will collapse like every other fad. There is no hard and fast rule for investing.
IMHO, I think investing in indexes is a perfect choice for a Christian.
Another good option for Christian investing is the Ave Maria family of mutual funds. They filter out companies that support abortion and embryonic stem cell research (ESCR), as well as pornography and same-sex partner benefits.
There are bond and dividend funds for conservative (older) investors, a value fund for moderate investors, and growth and small cap funds for aggressive (young) investors.
I personally investigated the annual reports, to see if their claims hold up. There are a couple of other “Catholic” funds that still invested in Johnson & Johnson, Merck, and other corporations that participate in ESCR. However, Ave Maria funds are clear. (For full disclosure, I have no association with Ave Maria funds, except for the fact that my wife and I opened a Coverdell/education IRA for our daughter, using the Ave Maria Catholic Value Fund.)
The problem with index stock funds is that they buy shares in all sorts of companies that offend Christian principles. Do you want to own shares of pharmaceutical companies, which profit from the manufacture and sale of condoms and abortifacient drugs? Do you want to profit from media and cables companies that produce and/or carry pornography? What about the myriad of companies that are in otherwise morally acceptable industries, but which provide “partner benefits” to homosexuals, or donate profits to groups like Planned Parenthood? Do you really want to be profiting from or supporting such immoral business practices? I would hardly call index funds “a perfect choice for a Christian” as another poster described them. No thank you, I will invest my hard-earned money elsewhere.
“Stocks always go up in the long term.
This is a myth. Far more companies have failed than succeeded. Far more countries’ stock markets went to zero than markets, which have survived. Just think of Russia in 1918, all the Eastern European stock markets after 1945, Shanghai after 1949, and Egypt in 1954.”
Your examples all seem to be countries (with the exception of egypt) that became socialist. Obviously, if a country becomes socialist, stock values will fall. For stable capitalist countries, long run stock returns are pretty good.
As Thomas Sowell would say, “some thoughts on the passing parade.”
Monkey throwing darts – I’ve never seen a monkey throw a dart. But I have seen them throwing poop. (Sorry about the imagery so early in the day.)
John Stossel’s writing about the education cartel in this country has been great. When the NEA denounces his writings, you know he is on target.
Mr Stossel is very much a libertarian. While there is nothing wrong with that, he takes his libertarian philosophy to giving a woman the “right to choose.” Too bad. Hopefully he will look into Libertarians for Life
How far do you take the “acceptable pratices” concept when investing or buying services? Commenters above have mentioned:
companies that support abortion and embryonic stem cell research (ESCR), as well as pornography and same-sex partner benefits; manufacture and sale of condoms and abortifacient drugs, companies that produce and/or carry pornography; companies that provide “partner benefits” to homosexuals, or donate profits to groups like Planned Parenthood.
How about companies that manufacure goods in China (forced abortions), companies that use non-union labor or use “sweatshops” in countries like Vietnam? Or companies that want to develop environmentally sensitive areas or don’t use the latest and greatest pollution control technologies?
Where do you draw the line without going into scrupulosity?
Supposedly some enterprising and influential activists short the stocks of the companies they’re attacking. Big conflict of interest there, since if their allegations are proved to be shaky they can’t back off as easily. Ralph Nader has been accused of this.
“Where do you draw the line without going into scrupulosity?”
It is a difficult question at times, but sometimes the dilemmas we face aren’t easy. A good place to start would be the U.S. Bishops guidelines for their own investments. They can be found here:
http://www.usccb.org/finance/srig.htm
“companies that use non-union labor”
wow.
“companies that use non-union labor”
I thought someone might pick up on that. 🙂
I don’t know if people still follow along, but not that long ago, there was a program to “buy union.” I think the slogan was “Look for the Union label.”
Well, I’ve been using the dartboard for a while since the WSJ’s has beaten the reader’s picks most of the times.
When I put money in my kids college funds, I get a list of ETFs and then I ask each of them to pick a random number up to the number of ETFs. I then filter by the chosen ETF’s category and try to pick the one with lower costs and better record.
So far, my kids’ funds have beaten my 401k. 😉
I refuse to “buy union”. Unions are self-serving and lost their reason of being decades ago in the US. One doesn’t need to look beyond Detroit to understand why…
The bishops justly mention that workers should not be forbidden from joining unions, but forcing unionization is worse.
There are reputable moralists such as Germain Grisez and Fr. John Hardon who argue that it is never licit to invest in companies that engage in practices contrary to the moral law. Please see:
http://www.catholicexchange.com/vm/index.asp?vm_id=94&art_id=29619
This would probably rule out investing in an index fund, since such an investment is likely to include companies that profit from the sale of immoral pharmaceuticals. Note also that these moralists speak of immoral business practices in general, not just the so-called “non-negotiables.”
Jimmy, I’m suprised that you would recommend index funds without confronting the moral dimension of the issue, especially given your position regarding voting for politicians who take the wrong position on the “non-negotiables.” Perhaps you could address the morality of investing in companies that engage in immoral business practices in a future post.
Index funds simply follow the indexes like S&P 500, Wilshire 5000, etc., and the only way for those to fail in the long run is if the market fails, which — as was noted — only happens when a nation abandons capitalism tout courte. Despite the ups and downs of our market, it has never completely failed, nor does it seem literally possible that it would in a capitalist economy.
I would agree that to invest directly in something immoral would be wrong, however, investing in an index fund is more on the order of a Catholic who works for a grocery store that sells condoms.
To the last anonymous poster, I do not agree with your analogy. First, a person may work at such a business out of necessity – perhaps in the short-term they cannot find another job. Second, although it is true they are helping their employer to profit from the sale of condoms, they do not themselves profit directly. Third, no one is forced by necessity to buy shares of a company doing immoral things or engaging in gravely immoral business practices. There is a difference between working for a bookstore that sells pornographic magazines and being a part owner of that store and thereby making a profit from the sale and distribution of such materials.
I had to make some hard decisions in the not too distant past – did I want to chase after high returns on my money, or did I want to invest my money without serious concern I am profiting from immorality? The choice was obvious and not really a choice.
Of course, when you give your money to a bank to save/invest it, you have no clue if they are in turn lending it out to some abortion mill or investing it in some pharmaceutical company. It truly is impossible to avoid total complicity in evil in financial matters, unless you forsake all of society and go live in the mountains like a hermit. Every time you pay taxes or buy a government savings bond you are giving money to an organization that will no doubt turn around and do something immoral with it (e.g., fund certain forms of research, give some of it to Planned Parenthood, etc.) But my belief is we should do what we can, within reason, to limit our financial involvement in evil. I do not think it is unreasonable to expect practicing Christians to avoid stocks of companies involved in serious evil.
The key part is whether markets always go up in the long run. I would never claim that investing is a bad thing. Investing always has and always will have risk. Just because you buy an index, doesn’t mean you’ve escaped that risk.
If you would have bought the DOW in 1929, you would have had a losing investment through 1950. This doesn’t even account for inflation. If you would have bought in 1965, you would have had to wait until after 1980 to see an appreciably gain. The NASDAQ is even worse.
As more people invest in index funds their rate of return will decrease over time. The reason is that whenever a change is made in the index, real assets will be sold and real assets will be bought. This change over effect already causes a 5% change in company valuation. It is already at the point where many investors are taking advantage of arbitrage opportunities around these changes.
I’m not claiming one shouldn’t invest. Just don’t be mistaken into believing that one has figured something out that no one else has. Personally, I believe your typical investor would be better off adding an extra 2% to his portfolio without assuming additional risk than trying to get an extra 2% return and adding significant risk.
“I do not think it is unreasonable to expect practicing Christians to avoid stocks of companies involved in serious evil.”
I don’t think it is unreasonable either, for people buying individual stocks. However, as an investor I have no control over what is put in the S & P 500 index.
“However, as an investor I have no control over what is put in the S & P 500 index.”
Neither do I. And furthermore, neither you nor I have any obligation to buy shares of mutual funds that invest in all or most of the S&P 500 companies. No one is forcing you to buy an index fund that has investments in vile business activities. Stop trying to make excuses for yourself.
Is it immoral to invest in UPS because they profit from delivering packages to planned parenthood?
Why don’t you respond to my most recent post first (May 20, 2006 7:47:40 AM), instead of trying to change the subject? Finding it hard to face the truth, perhaps?
Actually, I was responding to your first post. If you invest in UPS, you will be profiting from immorality. Now of course, the issue of proximity and proportionality comes into play, but it also does in the case of index funds.