The Experts > Quotes

STEP 1 - HOW FEES SIPHON OFF WEALTH
"Memo to those who think it's OK to pay fees of 3 percent or more .... those fees will eat up most-or all-of your future gains. The fees may look small, relative to the investment earnings you expect. But that's because you overestimate what the market actually yields."
- Jane Bryant Quinn

"The miracle of compounding returns is overwhelmed by the tyranny of compounding costs"
- John Bogle, The Little Book of Common Sense Investing

"So who still believes markets don't work? Apparently it is only the North Koreans, the Cubans and the active managers."
- Rex Sinquefield, Active vs. Passive Management, October 1995

"Today, in fact, (investment fees) of all sorts may well amount to 20% of the earnings of American business. In other words, the burden of paying (investment managers) may cause American equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one."
- Warren Buffett, 2005 Berkshire Hathaway Annual Report

"Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement."
- William F. Sharpe, Nobel Laureate in Economics, 1990

"Most investors, both institutional and individual, will find the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals."
- Warren Buffett, 1996 Berkshire Hathaway Annual Report

STEP 2 - WHY INVESTMENT PROS DON'T BEAT THE MARKET
"The results of this study are not good news for investors who purchase actively managed mutual funds. No investment style generated positive abnormal returns over the 1965-1998 sample period. The sample includes 4,686 funds covering 26,564 fund-years."
- James L. Davis, Financial Analysts Journal, 2001

"In a New York Times contest, funds chosen by advisors performed 40% less than the index"
- John Bogle, The Little Book of Common Sense Investing

"If there's 10,000 people looking at the stocks and trying to pick winners, one in 10,000 is going to score, by chance alone, a great coup, and that's all that's going on. It's a game, it's a chance operation, and people think they are doing something purposeful... but they're really not."
- Merton Miller, Nobel Laureate and Professor of Economics, Univ. of Chicago

"Yet even the smartest, most determined fund-picker can't escape a host of nasty surprises. Next time you're tempted to buy anything other than an index fund, remember this--and think again."
- Robert Barker, It's Tough to Find Fund Whizzes, BusinessWeek.com, Dec. 17, 2001

"It turns out there is no such thing as stock picking skill. It's human nature to find patterns where there are none and to find skill where luck is a more likely explanation (particularly if you're the lucky [mutual fund] manager)." We are looking at the proverbial bunch of chimpanzees throwing darts at the stock page. Their "success" or "failure" is a purely random affair" - William Bernstein, The Intelligent Asset Allocator

Question: So investors shouldn't delude themselves about beating the market? Answer: "They're just not going to do it. It's just not going to happen."
- Daniel Kahneman, Nobel Laureate in Economics, 2002, Investors Can't Beat Market

"Over the 10-year period ending 2003, 142 of the largest, smartest pension funds in the USA lost an average 0.3% per year in their active large cap domestic equities programs, relative to simply investing in index funds."
- Keith Ambachtsheer, author of The Ambachtsheer Letter Independence, p.90 June 8, 2005

"Most investors are pretty smart. Yet most investors also remain heavily invested in actively managed stock funds. This is puzzling. The temptation, of course, is to dismiss these folks as ignorant fools. But I suspect these folks know the odds are stacked against them, and yet they are more than happy to take their chances."
- Jonathan Clements; The Wall Street Journal, 2001

"The deeper one delves, the worse things look for actively managed funds."
- William Bernstein, The Intelligent Asset Allocator

"Contrary to their often articulated goal of outperforming the market averages, investment managers are not beating the market; the market is beating them. ...most institutional investment managers continue to believe, or at least say they believe, that they can and will again "outperform the market." They won't and they can't."
- Charles D. Ellis, "The Loser's Game," Financial Analysts Journal, (July-Aug 1975)

"Odds are you don't know what the odds are."
- Gary Belsky and Thomas Gilovich, "Why Smart People Make Big Money Mistakes"

STEP 3 - WHY WALL STREET DOESN'T CARE IF THEY LOSE YOUR MONEY
"It is amazing how difficult it is for an man to understand something when he is paid a small fortune to not understand it"
- John Bogle, The Little Book of Common Sense Investing

"By day we write about "Six Funds to Buy NOW!"... By night, we invest in sensible index funds. Unfortunately, pro-index fund stories don't sell magazines."
Anonymous Fortune Magazine Writer, Fortune, April 26, 1999

"There are two kinds of investors: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor - the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know."
- William Bernstein, The Intelligent Asset Allocator

"It's like giving up a belief in Santa Claus. Even though you know Santa Claus doesn't exist, you kind of cling to that belief. I'm not saying that Wall Street is a scam. They want to believe they can do it. The evidence is, however, that they can't."
- Professor Burton Malkiel: - ABC News Program: 20/20, November, 1992

"I have been a stockbroker for 5 years and have made people money, but I always lose it in the end. I have taken huge risks with my clients. I have lost millions, but I am tired of looking for new clients."
- Anonymous Stock Broker Sept., 2001

"One must conclude that in general a manager's fee, and not his skill, plays the biggest role in performance. The higher the fee, the lower the performance"
- Eugene Fama, Jr.

"Not surprisingly, the efficient market hypothesis does not exactly arouse enthusiasm in the community of professional portfolio managers. It implies that a great deal of the activity of portfolio managers - the search for undervalued securities - is at best wasted effort, and quite probably harmful to clients because it costs money and leads to imperfectly diversified portfolios."
- Zvi Bodie, Alex Kane, Alan J. Marcus, Investments, p. 355

"Santa Claus and the Easter Bunny should take a few pointers from the mutual-fund industry [and it's fund managers]. All three are trying to pull off elaborate hoaxes. But while Santa and the bunny suffer the derision of eight year olds everywhere, actively-managed stock funds still have an ardent following among otherwise clear-thinking adults. This continued loyalty amazes me."
- Jonathan Clements, Only Fools Fall in ... Managed Funds?, Wall Street Journal, September 15, 2002

STEP 4 - How Money Really Grows - The Real Story
"Compounding is mankind's greatest invention because it allows for the reliable, systematic accumulation of wealth."
- Albert Einstein

"Start investing now, not later. Don't worry about whether the market is high or low - just begin investing. Trust in time rather than timing" The secret to getting rich slowly (but surely) is the miracle of compound interest."
- Burton Malkiel, The Random Walk Guide to Investing

"Those who understand compound interest are destined to collect it. Those who don't are doomed to pay it."
- Anonymous

"The average long-term experience in investing is never surprising, but the short-term experience is always surprising. We now know to focus not on rate of return, but on the informed management of risk."
- Charles Ellis, "Investment Policy," 1985

STEP 5 - What is the True Source of Investment Returns
"The essence of effective portfolio construction is the use of a large number of poorly correlated assets"
- William Bernstein, The Intelligent Asset Allocator

"There is safety in numbers."
- Euripides; Lady Luck by Warren Weaver, The Theory of Probability

"Don't invest all your money in just one or two stocks. That's the danger. I know a man who put all his money in just two stocks --a paper towel company and a revolving door company. He was wiped out before he could turn around."
- Dave Astor, 2001

"On average, 90 percent of the variability of returns and 100 percent of the absolute level of return is explained by asset allocation."
- Roger G. Ibbotson and Paul D. Kaplan, "Does Asset Allocation Explain Performance?," December, 1998, revised April 1999

STEP 6 - Why ETFs are the Vehicle of Choice
"Most investors would be better off in an index fund."
- Peter Lynch, famous stock picker, Barron's, p. 15, April 2, 1990

"Most of the mutual fund investments I have are index funds, approximately 75%."
- Charles R. Schwab, Author, Guide to Financial

"The best way to own common stocks is through an index fund..."
- Warren Buffett, Berkshire Hathaway, Inc. 1996 Shareholder Letter

"Most of my investments are in equity index funds. Why pay people to gamble with your money?"
- The Parable of Money Managers - William F. Sharpe, Nobel Laureate in Economics, 1990 - (Money Magazine Interview 7/07)

"The only way to "beat an index" is to invest in something other than the index. Why would you, when the only source of long-term risk and return data IS the index? Since you can't beat the index, be the index."
- Mark Hebner, Founder, Index Funds Advisors, Inc.

"Buy index funds. It might not seem like much action, but it's the smartest thing to do."
- Charles Schwab, Money Magazine Interview January 2007

"I have often said, and I know this will get some of your readers mad, that any pension fund manager who doesn't have the vast majority his portfolio in passive investments is guilty of malfeasance, nonfeasance or some other kind of bad feasance!"
- An Interview with Merton Miller, Investment Gurus, by Peter Tanous, February 1997, Merton Miller, Nobel Laureate in Economics, 1990

"I don't know, I don't care, Indexing lets you say those magic words."
- Jason Zwieg, CNNMoney.com, Aug. 29, 2001

STEP 7 - How Rebalancing Increases Returns
"Asset allocation is the foundation upon which portfolios should be constructed and managed."
- Charles D. Ellis, author of Investment Policy, 1985

"History shows that in the long run a thoughtfully designed, diversified allocation of "passive" funds typically beats all but a few active managers. It's not easy to structure and maintain such a strategy. It requires some initial research and discipline to stay the course. But it's much easier than predicting which active managers will randomly beat this approach."
- Eugene Fama, DFA

"We can extrapolate from the study that for the long-term individual investor who maintains a consistent asset allocation and leans toward index funds, asset allocation determines about 100% of performance."
- Roger Ibbotson, Ibbotson Associates, The True Impact of Asset Allocation on Returns

"A study of 91 large pension funds over a 10-year period have demonstrated that approximately 94 percent of variability of a fund's investment return is due to asset allocation."
- Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower, Determinants of Portfolio Performance," Financial Analysts Journal, July-August 1986, Follow-up study, "Revisiting Determinants of Portfolio Performance: An Update," 1990 Working Paper, 1986, 1990

"Rebalance your portfolio... will increase your long term return...this is an effective way of becoming a contrarian, always moving in the opposite direction of the crowd."
- Dr. William Bernstein, The Intelligent Asset Allocator