Introduction to Index Funds: The
12-Step Program for Active Investors
Active investors ride an expensive and emotional roller coaster. Enticed by the
lure of quick riches, they are easily led into gambling with their hard-earned
money. They pick stocks, time markets and carefully select the latest
hot-performing fund managers, hoping to hop on an brief and exhilarating ride to
wealth without risk along the way. They remain oblivious of the potential
destruction of their wealth from speculation.
The fantasies of fast money are born and fed at the crossroads where Madison
Avenue creativity intersects Wall Street greed. Big brokerage firms know well
the truth they hide — that trading and speculation erode the wealth that can be
effortlessly obtained by simply buying and holding a globally diversified index
portfolio. They keep their dark secret at bay, encouraging trust in an industry
that is ingloriously reputed to facilitate one of the greatest transfers of
wealth known today.
This epic rip-off is masterfully played out as commissioned brokers, active fund
managers and highly-paid investment or pension fund consultants seek to
perpetuate the myth that they add value when the facts reveal quite the reverse.
More than 100 years ago, French mathematician Louis Bachelier determined that
the expected return from speculation is zero, which becomes negative when
considering costs. This conclusion unceremoniously slams the door on the hope
that investors can succeed by bending their ears to hear the siren songs of Wall
Street.
I know well the influence that big brokerages seek to carry with investors.
After I received proceeds from the sale of a business years ago, I went to
several big-name brokerage firms, certain they would responsibly grow my wealth.
Twelve years later, I realized the folly of that decision when I compared the
results of my own portfolio growth with that of a risk-appropriate index
portfolio. I was shocked to learn how dearly I had paid for my belief that
managers could beat markets, and I wondered how many more had suffered the same
result and how otherwise intelligent people could be deceived.
After much research, I determined that active investors have varying degrees of
addiction to gambling in the stock market. They become attached to the allure of
quick riches and the ill-informed perception that identifying mispriced
stocks is easy, fun and profitable. They are convinced that they possess certain
insight that few others have or understand. They make predictions about future
events, backing up speculation with money. And they entrust their financial
futures into the hands of the lucky, assuming they were skilled, unaware that
luck is not a repeatable skill.
My first book, Index
Funds: The 12-Step Program for Active Investors, comprehensively
details these facts. Hundreds of colorful charts and graphs, along with original
works of art, illustrate the pitfalls of active investing, detailing a superior
investment strategy that is supported by reams of data-rich, unbiased and
peer-reviewed academic studies.
In 1935, Alcoholics Anonymous founder Bill W. developed the first “12-Step
Program.” It offered alcoholics a step-by-step approach to replace their
addictive behaviors with rational actions, and more than 70 years later remains
the “gold standard” for treating victims of some 30 all-consuming addictions.
This 12-Step Program for
Active Investors seeks to help active investors reclaim their
financial futures by investing in index funds backed by facts and data instead
of relying on speculation.
The “big book,” as it is commonly called, conclusively reveals the many merits
of a risk-appropriate, globally diversified index strategy. This updated and
condensed version of
Index Funds: The 12-Step Program for Active Investors also unlocks
the secrets of scientific, evidence-based investment strategies. While the “big
book” provides exhaustive analysis fit for investing enthusiasts, this condensed
book simplifies the big book and help every investor, regardless of their level
of investing experience, make better investment choices.
The following pages describe an overview of the 12-Steps designed to cure active
investors: The 12-Step Program for Active Investors