The first principle is that you must not fool yourself and you are the easiest person to fool. — Richard Feyman
Our experiences shape our lives. Our lack of desire to learn from experiences cost us — among many other things — a chance to become rich.
When J.P. Morgan Chase’s chief executive, James Dimon, disclosed a $2 billion trading loss during a conference call on last Thursday, he said: “This trading may not violate the Volcker rule, but it violates the Dimon principle.”
While largely successful trader of the past from the London for the J P Morgan Chase contributed to over $2 billion in losses by selling piles of insurance against corporate debt with the assumption that the economy was on the upswing, mutual fund of J P Morgan was betting against the same assumption.
No one knows what Dimon principle is, but it’s a striking lesson for all of us — mere mortals — to learn from. While shareholders of the largest bank in America are trying to find the nuances of Dimon principle, it can be summed up into a lesson John Bogle learned almost 50 years ago when he began his career on the Street.
Trust no one because no one knows nothing on the Street.
Trust no one
Do you remember those Beardstown ladies? These sweet ladies made their share of fame by writing a best seller investment guide back in 90s. This group of women — from those days of investment clubs — proved that they can beat the market with their innate art of picking great stocks.
They sold millions of the Beardstown Ladies’ Common-Sense Investment Guide through 1998 based on their incredible market-beating performance. We all know that, in fact, they were calculating their return for the common-sense guide in somewhat uncommon way.
Say you started a year with $10,000 and added extra $5,000 during the year. If your account balance was $20,000 at the year-end, you would claim 33% return on your investment. Beardstown ladies’ club didn’t calculate that way. Their return for the same would have been 50% as their common-sense ignored the extra $5000 injection. Not too bad for the fame.
Trust your common-sense
From 1984 through the end of 2001, when the S&P 500 advanced at a compound annual rate of 14.5% and the average equity mutual fund rose 11.5%, actual fund investors made just 4.2% — financial research firm Dalbar
What John Bogle learned over 50 years ago still provides best investment lesson for anyone who wants to become rich. Investing is not a complex, esoteric realm of knowledge for the few elites on the Wall Street. It’s a subject of common-sense that most of us mere mortals can master by making it simple.
Invest in Index Funds
You can’t go wrong with the time proven philosophy of John Bogle who grew Vanguard to become one of the largest funds with over $500 billion in assets when he retired in 2000.
Try to invest in the no load index fund with consistent performance to beat S & P 500 over the decade or more.
Our Web is full of common-sense investment ideas that you can profit from without ever going to bed worrying about your financial well-being.
1. Vanguard funds have some of the lowest expense ratios in the industry. Almost all of Vanguard’s ETFs have a corresponding mutual fund that either track an asset class or an index. — MoneyCone
2. I wonder if it would actually be possible for every single person to retire a millionaire? — Jlcollinsnh
3. Knowing that I’m a financial advisor, I’ve come to learn that most people really don’t have the slightest clue as to what asset allocation means. — Worksavelive
4. Index funds may be a better option for you if your mutual funds aren’t beating the market. — Thedigeratilife
5. My number one goal is not to lose money. If I cannot make money, I sure as hell will do everything possible not to lose money. — Financialsamurai
6. Choosing a high yield mutual fund is a little like exploring through a wasteland of worthless investments, and I think there’s a few crucial basics beginners can learn from my adventure. — thefreefinancialadvisor
7. The goal is to find funds with the best Sharpe Ratio in their peer group. The second criterion to use is a reasonable expense ratio. Anything under 1.25% is reasonable. — Shortroadtoretirement
8. Data suggests that long-term investors win. This is just as true today as it was 50 years ago. Some may ask, what about the “Lost Decade?” That’s the period from 2000-2010, where the S&P had an overall -1.25% return. — Roshawnwatson
9. One of the biggest mistakes people make when they’re picking their mutual funds is to look at the past returns and expect that the fund will do the same thing going forward. — Mymoneydesign
Don’t fool yourself by allowing the so-called experts to tell you how market is going to do in the next month, or — for that matter — even a year. Invest wisely. You are destined to become rich.
I always knew I was going to be rich. I don’t think I ever doubted it for a minute. — Warren Buffett
(Photo Courtesy: Nationaal Archief)