ETF Investing – Low Maintenance and Stellar Returns

So the big day is finally here and we are ready to unveil our eBook the world.  A huge thanks goes out to all of the great help I’ve had building and marketing the eBook!  Without further ado….

ETF Investing
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KISS – Keep It Simple and Stellar

Click Here to download our thorough ETF Investing manual for FREE

So why ETF Investing?  I honestly believe that for most people, investing through ETFs is by far the most efficient and profitable way to invest money.  The bottom line is that most human beings want the investment returns that the stock market provides, but are terrible at picking stocks.  Most people get convinced that they should be buying mutual funds, and that they are the best answer, but this is almost assuredly false.  Our eBook will show you mathematically, and beyond a shadow of a doubt why ETF investing is superior to most other kinds of investing for MOST people.  If you are Warren Buffet, obviously you might have success in other ways; but, for most of us mere financial mortals, using ETFs just makes so much sense.

I’m not going to pretend that this Free eBook is some new investment strategy that no one else has ever seen – it isn’t.  What it is, is a common sense guide on the best investment option for the average person.  It isn’t written by a world expert on financial machinations that holds 3 Ph.Ds.  It is written by a business teacher who is relatively experienced at breaking down investment concepts for “average” people to understand.  I have to admit to not conducting some new survey, or coming up with a new metric to measure stocks by, instead I used the analysis and research of people far smarter than I to convince you that ETF investing is probably the right path for you.

Our eBook Is FREESo What Do You Have To Lose?

If you still aren’t convinced by the price tag and slightly above average sales pitch, I decided to give you a little taste of the product:

Chapter 4 – Stock Picking Is For Suckers

Just do ______ and _______ and you too can beat the market!”

“Simply follow these few basic rules to win at the stock market and make yourself rich in the process.”

“If you use our secret formula for penny stocks you are guaranteed to make millions.  Look, we did it, so can you!”

These are just a few of the very successful marketing pitches that have found their way into the world of investing over the years.  There are certainly no shortage of people who claim that they know the special way to get you unbelievable returns on money.  Whether it is the “value investing approach” of Warren Buffett (which actually makes a lot of sense to me… if you are as good at seeing value as Warren Buffett is), the growth model that Peter Lynch espouses, or several other fairly well-known investing strategies that have all been in vogue at one time or another.  All of these have one thing in common: the promise to make you rich quickly by giving you investment returns that are much higher than the market average.

So You Think You Can Beat The Street Huh?

The sad truth is that about 99.9999999% of people out there do not have anywhere close to the capability to pick stocks that will consistently outperform the market, no matter what strategy they choose.  The outliers like Lynch, Soros and Buffett are extremely skilled, and were likely born to allocate capital (many would argue that they are also extremely lucky).  Your buddy down the street that claims he has a system that is returning 15% a year over an extended time frame is either extremely lucky, doing creative accounting, or you took a time machine back to 2007 where everyone figured they had the system gamed.  Here is what I recommend, next time someone tells you that they know how to “Beat the Street” after watching a Gordon Gekko movie, compare the tone of their voice and their mannerisms to someone who believes they have a way to figure out slot machines.  These people are essentially taking the same approach to growing their money – gambling it in the hopes of high returns.  To disguise this desperate attempt, and lack of true knowledge, the risk advocates will come up with all kinds of crazy reasons to justify their system and convince you of its merits.

Efficient Market Theory (EMT)

Now you might be asking yourself, “Wait a minute, this guy who says picking stocks is for suckers, and claims we shouldn’t listen to people that have a ‘system’… Isn’t he trying push a ‘system’ of his own?”  My best argument would be that I certainly did not invent ETF investing, and the mathematics behind my argument have been proven again and again since the 1960s and even before that to some degree.  ETF investing (or index investing as some people call it) is based on the idea of Efficient Market Theory (EMT) that began at the University of Chicago Booth School of Business over 50 years ago.  A professor there named Eugene Fama published a thesis that basically (I’m paraphrasing for brevity) proclaimed that because of supply and demand principles, each individual stock on the stock market was guaranteed to be priced fairly.  The idea was that with information becoming so widely accessible (and this was well before the internet) investors could price in all the relevant information and the stock would be valued at exactly what it should be.  With so many investors trying to outdo each other by trading back and forth, Fama argued that the natural tug-of-war of the free market would make sure no one really had any advantage in trying to “Beat the Street.”  The theory assumes that all investors will act rationally and have relevant information to base their decisions on.

Now I would be remiss if I didn’t say that many smart people have found serious faults with the specifics of this theory.  In the short-term especially, we continually see that people do not act rationally.  Emotions cause large fluctuations in the market, and these can be taken advantage of by very skilled traders to some degree.  There is also the fact that not all investors have access to the same information (although one could argue the playing field is now more level than at any other point in the stock market’s history).  Many hedge fund managers that control hundreds of billions of dollars, as well as numerous corporate titans, have first-hand knowledge gleaned from networks of contacts that the average do-it-yourself investor will never have.  It is also possible that with the rise of the ‘quants’ (a totally different topic that I probably shouldn’t tangent into) certain investors have access to advanced mathematics and the corresponding technology needed in order to take advantage of market momentum from one moment to the next.  So, if you are skilled at reading the market’s emotions, have an inside track on if the newest pharmaceutical will be approved by the FDA, or are a genius with a supercomputer that used to work for NASA, I definitely think you should immediately exit this eBook and go about picking stocks.  For the rest of us mere investing mortals, the long-term truth of Efficient Market Theory still carries a lot of weight.  To fully understand why ETF investing is better than these other systems, you must first believe that it is almost mathematically impossible for you to get higher returns than the market average.

Even though EMT has several flaws in the short-term that can be theoretically exploited by elite stock pickers, its long-term record holds up far better.  Over a longer period of time, investors do act fairly rationally, and the principle of supply-and-demand does ensure that the price is accurate the majority of the time.  So what does this mean for your investment portfolio?  It means that in order to grow your money in the most efficient way possible, you should concentrate on parts of investing other than what stocks to pick.  The bottom line is that there are relatively few things that you can control about investing.  The most important things, the things that you should be focussing on are: limiting the fees you pay as a part of your investment strategy, and what asset classes your money is in.  I will go into more depth in a couple chapters about how to accomplish these goals.

Fees, Fees! FEES

The scariest thing about stock picking and trading is not necessarily that you will be bad at it (although this a pretty legitimate possibility), but that even if you pick stocks that return the average, or slightly above the average of the market (very difficult to do), the fees that you will pay in trading costs, analytical costs, and investment advice will eat away at your returns far more than most people realize.  This isn’t even taking into account the opportunity cost of spending a day in the sun instead of poring over stock information.  Here is the scary truth: A recent study by Morningstar (a trusted investment analysis website) stated that the average stock investor trailed the average returns generated by the stock market from 24% from 2001-2011.  This study is not an anomaly.  A Dalbar study from 1990-2010 showed that while the S&P 500 had an average return of 9.1% for the twenty year period, the average American stock investor achieved a 3.8% return.  That is frankly unbelievable.

To put those numbers in perspective, according to the Dalbar study, if I had invested $1,000 in 1990 at the market average, I’d have about $2,000 in 1998, and $4,000 in 2006 (Quick little party trick: If you ever want to quickly calculate investment returns, just remember “The Rule of 72.”  Simply divide 72 by whatever your expected investment returns will be and the result is the number of years it will take for your money to double.  For example, if your expected rate of return is 9%, it takes 8 years for your money to double.  It’s not as accurate for very small, or very high returns, but when thinking about averages, or trying to impress eBook readers, it’s very useful).  The average American investor however, if they invested $1,000 in 1990, would take until 2009 just to get to $2,000!

How can this be you ask?  Well until fairly recently it cost the average DIY investor quite a bit of money per trade to buy and sell stocks.  With the advent of the discount brokerage, you can now complete most trades for $5.00 per trade.  When you are constantly trading stocks back and forth, these fees add up in a hurry, and you lose the power of compounding returns.  It’s true that it was much more expensive twenty years ago, but it is still a major factor even today.  Fama (the aforementioned professor) liked to say, “Your money is like soap.  The more you handle it, the less you’ll have.”  Even 1-2% in fees can seriously hurt your returns over a long time window.  If you take my situation, where I started putting money into ETFs at 20 years old, my investment window will be 35-40 years, and possibly even longer.  The stock market has returned over 10% per year on average over the course of its history (including dividends and excluding any fees).  Many experts believe that this average is overly ambitious going forward, so we will look at the number conservatively.  When I was 20, I was able to invest $2,300 in ETFs.  If I average an 8% Return On Investment (ROI), by 65 my principle will have compounded to $73,400!  If I read tons of investing books, learned from my mistakes, became a very good investor and beat the average ROI by a couple percent, yet had 3% of my returns eaten up by fees, I would have an ROI of 7%.  At this rate I would now have $43,305 when I turned 65.  While still pretty nice, that’s a substantial difference, and that’s assuming that I was a whole lot better than the average American investor!

If Everyone Has a System, How Does Anyone Ever Lose Money?

Now that we all have a phobia of investment fees, I want to let you in on the other chief reason why the vast majority of investors never even approach average returns in their overall portfolio – basic human psychology.  You see everyone knows, “Buy low, sell high.”  If you’ve read a couple of investment books no doubt you came across some catchy Mantras like, “Cut your losers and let your winners run,” “Bulls make money, bears make money, but sheep get slaughtered,” “Market timing is the key,” and so on.  Many have come before you armed with these snappy credos… and then fell flat on their face.

Study after study has shown that investors across all gender lines, ethnicity lines, demographic groups, and every other measurement ever invented all succumb to the same basic psychological weaknesses that we as humans have.  Our evolutionary responses have evolved over time to make us risk-averse.  This means that we are much more afraid of losing, than we are happy to be striving for the win.  Losing money hurts us much more than gaining money makes us happy; therefore, the end result is that we are extremely prone to rash acts when we begin to see our stocks slide downwards.  This explains the irrational jumps that the market can take in a day.  Are the combined companies listed on a specific stock exchange really 5% less valuable than the day before?  Of course not, investors merely panicked and then proceeded to flood the market because they were afraid of losing money.  As human beings, investors are actually genetically predisposed to buying stocks when the market is humming along, and selling them when it is crashing – in other words, the exact opposite of, “Buy low, Sell high.”  This emotional roller coaster is what you are signing up for if you want to try and pick specific stocks.  Again, I want to reiterate, it’s not impossible to have success using this method – just very difficult and very unlikely.  Warren Buffett and his pal Charlie Munger have stated that they know full well that at any given time 40-50% of their company’s net worth could evaporate very quickly.  They are braced for this and have been through it before.  If you believe you are equal to Mr. Buffett and Mr. Munger then you might want to venture down that path, but statistics say that it is extremely unlikely that you possess the attributes needed to succeed at stock picking

Why Are ETFs The Answer?

So how do ETFs solve these major problems that we are genetically predisposed to?  They certainly can’t cure every ill, but basic ETFs are the easiest way to diversify your investment dollar.  By purchasing one share of a global market-based ETF you will get exposure to hundreds of companies that are spread out amongst various industrial sectors, geographical locations, and have different consumer demographics.  This means that while each company certainly faces their own respective risks, the risks to the overall ETF are very nullified.  A global-based ETF would be created by a formula that sought to track the world’s economy so it would be primarily invested in large companies based in many different countries, that are themselves internationally diversified; therefore, you truly are splitting your investment dollar into thousands of different proverbial pots.  A similar situation exists for bond-based or commodity-based ETFs.  ETFs allow you to take almost any amount of money, and efficiently invest it in the overall market (basically guaranteeing yourself that market average minus small fees).  This diversification places an investor at a lot less risk than a stock picker who has entirely invested themselves in 5, 10, or even 20 companies.  It also encourages long-term planning and less trading due to the mindset of investing in the overall market, and not in specific stocks.  By committing to an ETF investing strategy you are admitting that you are better off playing the averages than trying to beat the market.  This is strangely empowering, and allows you to focus on generating more income from your labour, or just finding new ways to enjoy your leisure time.

Think About Who Your Opponents Are In This Game

Stock pickers play a really fun game.  There is no doubt that gambling is a true adrenaline rush, and has entertainment benefits that ETF investing doesn’t have.  No matter what system or strategy stock traders claim they are taking advantage of, they are still gambling to some degree.  There are so many unforeseen events that can take place in the world’s economy (has the last decade taught us nothing?) that you need to be pretty bright, fairly lucky, and commit a ton of homework time, to even have a shot at beating the market.  I’d like to once again gently remind those of you that have stuck around to this point that there is always someone else on the other end of your trade that believes they have gotten the better end of the deal.  Often this person is a hedge fund manager who has access to information you don’t have, or a NASA-level mathematician who has forgotten more about numbers than you will ever know.  Are you sure you want to compete against these people?  If you are going to try your hand at the trading game, I would first calculate what you believe your transaction fees will be, and think about the fact that you have to beat the market average by the much, just to break even with what you would have earned by easily purchasing an ETF.

Personally, I know my limits.  I was sold on ETFs when I first read the term “couch potato investing” associated with them.  Now keep in mind, while I’m no investment professional, I’m fairly confident I could explain the makeup of a derivative to you, have a solid grasp on how to evaluate a financial statement, and am a regular contributor to several of the biggest personal finance blogs in North America.  I like to think I’m a fairly knowledgeable individual when it comes to personal finance, and micro/macroeconomics.  All the literature I have read has lead me to believe that the investing game is slanted big time in favour of the biggest fish, and I have nowhere near the resources or brains needed to compete with them on a consistent basis.  I might be able to “beat the street” for a year or two by making a lucky/smart call here or there, but given a long enough time sample, I consider it virtually impossible that I could come out ahead, especially once my trading fees are calculated.  I’ll stick to seeing a mere .07-.30% of my ROI chewed up due to ETF fees, as opposed to 3%+ trying to be Warren Buffett.

I Spend About 50x More Time Playing Fantasy Sports Than I Do Investing

I don’t mean to brag, but I might actually be the Warren Buffett of the fantasy football world (ladies raise your hand if your husband believes he knows everything about sports as well).  I can tell you the spreads between the top WR and the #20 WR, where to find a value in a tight market, how to adjust your rankings for a different scoring system, and 101 other really nerdy things about fantasy football (maybe that will be the title of my next eBook).  I can honestly say that in 10+ years of playing fantasy football, there was only one season where I didn’t finish “up” after totalling all of my leagues (the Warren Buffett of fantasy football does not play just one league).  If I had to take a complete guess at my earnings over the 10 year time frame, I’d have to save that I’ve made around $2,000 (over and above my dues/fees).  Since I’ve “invested” about $3,000 in league dues during that time, I’ve got a pretty decent year-over-year return going.  The only problem is that in addition to the 3K in dues I’ve invested, I’ve probably put it about oh… 2,000 – 3,000 hours watching football and studying football statistics.  Let’s just agree that I don’t do it for the money!  The point of this random detour (other than stroking my male ego) is that I like doing nerdy, geeky things and even I don’t like poring over financial stuff all day long.  ETF investing means that you can get better returns than the vast majority of investors out there, while doing almost NO WORK!  This is important, because if you’re going to compete with my fantasy team next season you need all that extra time to be comparing catch-to-target ratios and not dividend ratios.

Click Here to get the rest of our eBook FREE!



  1. My Own Advisor

    Congrats on the eBook! Just promoted and tweeted!:)

    I will hopefully get some time to read through this book in another few weeks, but in the meantime, awesome work on the book – you should be very proud.

    No doubt I think ETFs are excellent products, I own a few myself, but indexing is just that – you are following a benchmark and benchmarks will never be better than average. I’m not saying I can be better than average, via stock picking, rather, I’ve chosen to invest in ETFs and stocks because it offers the best of both worlds for me 1) average returns and 2) passive income that is tax-advantaged with the dividend tax credit. You can’t get that with ETFs :)

    Overall, ETFs work on many fronts for many investors and they would be wise to hold a few in their portfolios.

    I’m looking forward to reading all the pages of this cool eBook!


  2. Teacher Man

    Thanks Mark, your support is huge!

  3. PK

    Congrats on the release!

    On the fantasy football point – I’ve only been playing for like 5 or 6 years, and only in 2 leagues. Your WR point is interesting, but personally I lean RBs when I have the choice. Some WRs mayhave similar average point scores, but there is so much volatility in Wide Receivers (23 points one week, 2 the next…) that they scare me. Any hints?

  4. Teacher Man

    Haha, my talents and expertise dictate that I should really be running a FF site some days PK. The bottom line is that depending on your rules everything can be different. What I recommend is back checking what the difference was between every 10 RBs and every 10 WR last year, as well as how many were picked up total in your league. This should give you a pretty good idea of value relative to your scoring system. QBs are almost always overvalued by most people. I’ll pick up a guy like Tony Romo in the 9th round every year after everyone has loaded up on legitimately good QBs. People forget they are building a statistical team and not a real one. Volatility is overemphasized in my opinion, you have multiple players starting every week, the volatility will balance out (and if you’re really cagey you can increase your odds of your players hitting a hot streak by looking at who they play during your “play off” weeks at the end of the league – usually weeks 13-16).

  5. Dana

    Hey! I know this is kind of off-topic but I needed to ask. Does building a well-established blog like yours take a large amount of work? I am completely new to writing a blog but I do write in my diary every day. I’d like to start a blog so I will be able to share my experience and thoughts online. Please let me know if you have any ideas or tips for new aspiring bloggers. Thankyou!

  6. Andrew @101Centavos

    No reason you can’t do both. One might be more cautious overseas, and an ETF might just fit that investor’s risk profile. Or, ETFs might be used to invest in areas where time can’t be spent to acquire the necessary knowledge. For me, I like learning about stock valuation, but my stock selection is largely limited to sectors I know something about and have an interest in.

  7. Elizabeth @ Simple Finance

    I am definitely not part of that 0.000001% that can pick their own stocks. I’ve done moderately well in the past, but I just don’t have the time nor energy to devote to the research. I’ve heard different things about ETFs. Your post really spelled it out for me in simpler terms than I’ve read elsewhere. Thanks!

  8. Teacher Man

    Hey Dana, it does take a lot of work in some ways. The writing is the easiest part in my opinion. It’s getting your name out there and all the technical stuff that really takes some time.

  9. Teacher Man

    Thanks Thad, appreciate it!

  10. Teacher Man

    Fair enough Andrew. ETFs are a great way to get the returns of equities without being a stock picking genius.

  11. Teacher Man

    Great Elizabeth! I’m glad to have helped. Any suggestions for the next chapter? Also, any publicity you want to spread about it would much appreciated!

  12. W-at-Off-Road-Finance

    I think you’re right that ETF investment is a good choice for people with limited financial skills and interest. That said, I can see a couple of issues:

    1) It’s not clear that the return on US stocks will be positive, let alone several percent positive over the next 20 years. As the employed population shrinks due to boomer retirement and increased numbers of “discouraged” workers the size of US industry is likely to shrink with it.

    2) A more minor point, but list/delist slippage in indexes like the S&P can be a real problem. Even if an ETF traces the index very closely, the index itself can suffer if there are a lot list/delist events.

  13. Ed Rempel

    Hi JB,

    Its good to hear from a fellow ex-Winnipeger. This is a good article, very well written, and good advice for most people – but it is not actually accurate.

    Index investing is based on the Efficient Market Theory, which the academic community has realized almost unanimously is just false. Robert Shiller said it best: the efficient markets theory “represents one of the most remarkable errors in the history of economic thought.”

    At a recent academic finance conference, finance professors were asked if they believed the EMT. Only 1% raised their hands.

    Belief in the EMT peaked in the 1970s and was still generally believed in the 1990s, but the bubbles in the last decade have proven it false.

    Here is the problem.

    – The EMT claims that bubbles never exist and that the market is always fairly valued. NASDAQ 5,000 was the proper valuation and the 80% fall was a result of actual decline in real value of those companies.
    – The EMT is based on the assumption that investors are rational. Studies such as the Dalbar study proved that the vast majority of investors are irrational the vast majority of the time. The vast majority of investors would prefer overvalued stocks that have gone up recently to undervalued stocks. The most reliable rule of investing is: “The masses are always wrong.”
    – Studies show that low priced stocks on average beat the index. This is why studies show that most of the fund managers who do beat the index over time are value investors.

    The thinkers that proved it false are the experts in behavioural finance, such as Richard Thaler.

    The best book on the subject is “The Myth of the Rational Market”, by Justin Fox. He traces the entire history of the rise and fall of the EMT.

    There are also the strong, semi-strong, and weak versions of the EMT. I believe that the weak EMT is the closest to accurate. The weak version claims that news and charting don’t work, but actual unique research into stocks works, as does insider knowledge.

    My belief is that the EMT contains some “truthiness”. I love that word! The main lesson of the EMT is that news is quickly discounted by the stock market. Most investors watch the business news, read the papers or check investing web sites and thing that they should use this information for investing. In general, anything in the news is fully discounted in current prices – and usually more than fully discounted.

    When I read the business news, I assume all news stories are probably negative indicators. For example, if you read several news stories supporting gold, that means it is probably time to sell it. That is the lesson of the EMT.

    Okay, so the EMT is false. The EMT is the logic behind index investing. Does that mean that index investing does not work?

    The most in-depth study on this is the Yale study on “Active Share”. It proved that if you most mutual fund managers that are true “stock pickers” do beat the index, and that this out-performance persists.

    If that is true, why does the average mutual fund lag the index? The Yale study showed that the EMT has led to the rise of index funds and “closet indexers”. About 40% of mutual funds are index funds or closet index funds, which will obviously underperform.

    “Closet index funds” are based on the the belief that “it is better to fail conventionally than succeed unconventionally”. Many fund managers try to be similar to the index, so that they don’t lose money except when everyone else is. This tends to protect the job of the fund manager and tends to bring money into a mutual fund. But being similar to the index except with an MER means you are going to underperform.

    Closet index funds are the worst investment. If you see a mutual fund with holdings similar to the index – run! In Canada, this means that if the top 10 holdings of a mutual fund have 3 or more banks, you almost definitely have a closet indexer.

    If you take index funds and closet index funds, and then add the funds that are far more conservative than the index, only about 1/3 of mutual funds are even trying to beat the index.

    The bottom line is that any study that shows that the “average mutual fund” underperforms the index is irrelevant. The only relevant question is: Do the top mutual fund managers beat the index reliably over time?

    It is like making a robot that runs faster than the average human. The robot will run faster than nearly all the old people, children and cripples. Yes – but the only interesting question is will it run faster than the fastest humans?

    The studies supporting index funds are mostly of the 2-minute variety. Sort investments on 1-year return and see how many are above the index. There is no attempt to even remove index funds. There is no attempt to see if there is a group that does beat the index. If there is any systematic group that will beat the index, such as value investors, that is useful knowledge for investors.

    The index industry has tried to prove their point by claiming that very few mutual funds “consistently” outperform the index. Obviously, this is a sales pitch. “Consistently” is a word that does not belong to stock market investing, except for long term returns. Few funds beat the index “consistently, but also indexes beat very few mutual funds consistently (except closet indexers) and do not even beat my chequing account consistently.

    ETFs also have a problem in that they are made to trade. John Bogle showed that ETF investors significantly underperform index mutual fund investors because they tend to trade more often.

    Having said all this, most of your advice is still very sound. Amateur investors are much better off with index funds or ETFs than trying to pick their own stocks. The reasons you have mentioned are right on, JB. Amateur stock-picking, doing no original research, relying on news, using a “system”, and following your gut are all bad investing methods.

    However, knowledgeable, experience investors can beat the index. Many beat the index by a lot over long periods of time. This is why the vast majority of fund managers, brokers and financial planners are invested in mutual funds or use professional portfolio managers.

    Fund managers and other investors that beat the index must do at least 3 things:

    – Do original research and not just use publicly available data.
    – Have a discipline that prevents them from making the common emotional/behavioural errors made by most investors.
    – Have a portfolio very different from the index.


  14. Teacher Man

    Hey Ed – Welcome to THE authority on the Smith Maneuver!

    In the eBook I explain about Eugene Fama and the Efficient Market Theory. I’m pretty well-versed in its details. I think you are oversimplifying the theory and the response to it. When you pose a question like, “Do you believe in EMT” and don’t allow for varying degrees in the answer, you are going to get slanted results. I actually agree with you that the “weak EMT” theory is the most accurate, although I think I believe in its principles a little more than you do. In our eBook I explain that the short-term market is absolutely not rational, but over the long-term, the market is fairly rational. It is tough to argue otherwise with all the information and the widespread access to that information available today. I’ve read most of the books you recommend, and I agree that value investing makes a lot of sense, I just question the ability of most people and/or money managers to do this properly over the long-term (many are even starting to question the current moves by the patron saint of value investing – Warren Buffet). To simply say EMT is considered false by the academic community is definitely not true.

    I have read your comments on several online forums and blogs and I agree with most of what you write. Here is where you and I agree Ed, most people can’t pick stocks (I believe I’ve read in other places that you yourself have found this out over the course of your investing life), and the majority of mutual funds are closet indexers (which I also cover in the eBook). Where we disagree is the ability of the common person to determine which mutual funds can beat the market. I think there are extremely few managers out there that can beat the market, and most of the ones that can are handling hedge funds, and other investments that the majority of investors do not have access to.

    So I agree that there probably are “All-Star Fund Managers” (as you often call them) out there that can beat the index. I don’t believe there are that many, and I believe very few are available to the common investor. The studies I reference are fairly extensive and back up these beliefs. So now the real question becomes, can the average person pick mutual funds managers (not mutual funds, which is an important difference that most people don’t understand) that will outperform over the long-term? I’m not convinced that they can, and I’m pretty certain there is a market out there for people that don’t even want to try. This is where ETF investing wins out for the vast majority of people in my opinion. I do illustrate in the book why ETFs can underperform the index due to trading fees etc. I address how to minimize these concerns.

    Now I know you run a service that depends upon you picking managers that will outperform the market. I want to keep my anonymity on here, but we have actually had conversations before and I was very impressed with your pitch. I like your method for finding managers and I believe you may have some success going forward; however, I don’t believe that the average person is as capable as you are at picking stock managers, or understanding exactly why the vast majority of mutual funds and small-time stock pickers have little hope of beating the returns one can easily get with ETFs.

    Thanks for stopping by! I hope it isn’t a one-time thing.

  15. Teacher Man

    Interesting points offroad, here are my responses:

    1) I think you’re overestimating this supposed “boomer retirement.” I think any negative downsides have already been priced into stocks. The Boomers are going to go into retirement very gradually, it will not be sudden. The smart ones are keeping their exposure to equities since they are looking at 25-45 year retirements.

    2) Definitely true, and under-reported. Most estimates I’ve seen claim that the end result will only be a few hundredths of a percentage point though. The other thing you can do is overweight the Russell 2000 and that would lessen the effect.

  16. Money Infant

    Just downloaded the eBook for some light Sunday reading :)

  17. Teacher Man

    Looking forward to hearing your thoughts MI!

  18. Penny Stock Blog

    The key to making money in exchange traded funds is to totally avoid the most popular exchange traded funds. And buy only those fubds that have declined by an enormous amount. By an enormous I mean a decline of at least 75% from an all time high. And if you want to really increase your odds buy an exchange traded fund thats down by 90% from its all time high. The only thing that you need to watch out for are funds that use leverage to enhace returns these securities should not even be considered exchange traded funds their more like options..

  19. Teacher Man

    I would totally disagree with that statement PSB. There maybe some value and money to be found doing what you suggest, but once you start trying to outsmart the market you become part of the statistic that shows the vast majority of people that try to pick stocks and trade equities underperform the average over time. Taking advantage of the ultra-cheap fees associated with large ETFs and just riding the index-tracking returns in the way to go for the vast majority of investors that can’t get into hedge funds etc.

  20. LaTisha

    Congrats on the e-book! I am just now finding this, heading over to download it now!

  21. Ghino

    Looking forward to reading your ebook.

  22. Brad

    Ok, just a few points regarding my view on what you are expounding.

    An ETF is a financial investment. Any financial investment entails risk. Any risk a person enters into must be assessed and understood by the person engaging in that risk. Your words are “I honestly believe that for most people, investing through ETFs is by far the most efficient and profitable way to invest money.”

    “Most” people might not be futurists. They might not realize that technology is changing at an exponential rate. Their jobs could be at risk in 10 years. Who needs money in 15 years, when machines are building the machines that do everything else? What happens if owning land or the means of production is much more valuable than mere money?

    You have an effective writing style. You should be teaching people the ABCs of financial literacy not wasting a whole book on what’s better, stocks or a whole new improved basket of stocks.

    FYI, I’m semi-retired (OK, retired) whose work is micro-farming. For fun I trade leveraged regular and inverse commodity ETFs Ya, ETFs. The reason I like them is because its so easy. That’s because;
    1) it’s supply and demand based, like Efficient Market Theory on a bungee cord.
    2) the news pulls and pushes it, but it’s always gotta come back because of the bungee cord.
    It was reported that natural gas went up lately because the long term (monthly) weather report had hotter than normal temperature predictions. Wow, betting on the weather, a month ahead of time. They must be geniuses.

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