The best $99 you can spend to become a better investor

Reprinted courtesy of MarketWatch.com
Published: Dec. 9, 2016
To read the original article click here

I thought about using the phrase “flagrant deception from financial media” in the title of this article, because that’s what triggered today’s topic.

But I’m a positive guy, and we’ll end on a positive note. Hence the idea of the best $99 you can spend to become a better investor.

Backing up, last week I wrote that “investors who trust everything they hear from Wall Street won’t be successful.”

You would think that the financial media would be more trustworthy than salespersons eager to earn a commission any way they can.

But last week my inbox showed me otherwise, as I was offered a “bargain-price” of $99 if I subscribed to the “flagship newsletter” published by a well-known financial magazine.

The offer claimed that the newsletter’s portfolio “has returned a massive 298.0% compared to the measly 56.1% return from the S&P 500 SPX, +1.49%  since inception.”

How did they do it? Starting in 2000, they started recommending value stocks “that the ‘smart money’ misses time and time again.”

Gee whiz — what a novel concept!

Except that value investing wasn’t even remotely new or unusual in 2000.

The bargain price. The email pitch claimed that for the next 48 hours I was being offered “a rare chance” to try this newsletter “for only $99.”

 

Yet shortly thereafter, I saw an online ad offering the same subscription “at the lowest price!” That price: $49.

“Massive” 298% return. Assuming reinvestment of dividends, the S&P 500 Index gained 90.2% for the 15 calendar years ending Dec. 31, 2015. And it’s up more than 9% this year. That means the newsletter portfolio did substantially better than the approximately 95% gain in the S&P 500.

But over the past 16 years, investors could have done far better (539.8%) by investing in a low-cost value index fund, such as the DFA small cap value fund DFSVX, +2.28%  , and at substantially less risk.

I have a deep-seated distrust of the newsletter industry, and this is only one of many examples I’ve seen.

The bottom line: I think investors are mostly wasting their money subscribing to newsletters in the hope of gaining special insights and stock selection.

Here is a much better way to spend your $99 and your time: Read some of the best books on investing. I’ll recommend five for starters, along with their prices. You can buy them used for less, and in many cases you can borrow them free from your public library.

If you want “special insight” on how to understand and manage the most challenging emotional aspects of investing, you’ll find it in “Your Money & your Brain” by Jason Zweig, available for about $12.50 in paperback. This book is every bit as valid and valuable now as when it came out in 2008.

If you still believe you can benefit from actively managed mutual funds, you should get the “second opinion” that’s contained in “The Little Book of Common Sense Investing” by John Bogle, the inventor of the index fund and one of the most trusted experts in the fund industry. Price: about $13.

Speaking of mutual funds, there’s no better way to easily understand them than reading Eric Tyson’s “Mutual Funds for Dummies” for about $14.50. Get the 2016 edition. I consider myself a savvy investor, and I learned a lot from Tyson’s book.

At the risk of self-promotion, I must recommend my 2011 book “Financial Fitness Forever.” This book walks you through the most important choices every investor makes and shows you how to use index funds to get the best unit of return per unit of risk for a wide range of conservative to aggressive investors. Price: about $25.

Finally, a terrific newcomer this year by Jonathan Clements, “How to Think About Money.” I’d love to get this $14 paperback into the hands of every young college graduate.

For more, check out my latest podcast: “The death of equities.”

Richard Buck contributed to this article.

 

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