Sunday, November 28, 2010

The Last Word on Investing

     There's nothing like a deathbed confession to get at the truth. Gordon Murray, a former Wall Street investment banker, is dying of brain cancer. He was diagnosed with cancer in 2008, and when a brain scan uncovered a new tumor earlier this year, he decided against an aggressive medical response. Now, as a last professional act, he has had the courage to step forward and write a book admitting that for most of his Wall Street career he was peddling snake oil.

Goldie (left) and Murray
     The book is called The Investment Answer, co-written with former professional tennis player Daniel Goldie, who also happens to have an AB in economics from Stanford and an MBA from University of California at Berkeley. Murray himself earned an AB in political science from University of North Carolina and an MBA from Columbia.

     In the book Murray reveals that all those mutual fund managers and investment gurus who claim they can beat the market averages, and deliver you a superior investment performance, are selling you a bunch of baloney. What they're really doing is collecting extra fees while producing mediocre results -- because they're not working long hours to improve your financial position, they're spending all that time figuring out how to charge you higher fees and make more money for themselves.

     The advice in this slim 70-some-page volume boils down to a few basic tenets:

     1) If you hire a personal investment adviser, make sure they earn their fees from you, not from the companies whose products they're selling.

     2) Separate your money into different piles -- a pile for stocks and a pile for bonds. Then subdivide those piles into big and small companies, value and growth companies, foreign and domestic stocks and bonds.

     3) Invest each of those piles in a passive, or index, mutual fund that focuses on the appropriate subsector. These are available at Vanguard and other low-cost fund families. Since no one can predict the future, insists Murray, there is no point in paying an active manager to try to do it.

     4) Rebalance your portfolio on a regular basis. (Once a year, for example.) Sell some of your winnings; buy more of the worst performing investments. This is counterintuitive, but crucial to long-term performance.

     With this simple approach, according to Murray and Goldie, you will secure your financial future for years to come. And if you think you can score higher returns you're probably kidding yourself -- unless, maybe, possibly if you studied business theory at a place like Stanford or Columbia and spent more than 25 years swimming with the sharks on Wall Street.

Update:  Gordon Murray died on Jan. 15, 2011. See the NY Times obit. for more on his story.

1 comment:

Anonymous said...

Okay. Anyone who invests in stocks, bonds or a bank product is an idiot. The only thing guaranteed not to kill you with a devaluation of the dollar or fees are equity indexed annuities and life insurance (tax free accumulations), offered through Canadian life and health companies. Notice I said Canadian, not American. And get this... If you do select American, you can get up to $500K of protection (better than any FDIC insurance), from state guarantee funds. Stay away from direct holdings of debt or equity paper, government issues, muni-bonds, gold or cash. Get all the upside benefits of growth, with a guarantee of ZERO LOSS when the global or American markets drop. --Troy Allen Dyer-- 888-217-7800