passive investing

there is an interesting (and long) profile of blaine lourd in condé nasts’ newish portfolio magazine that hits on a bunch of different themes i think about. blaine was a stockbroker for years, making his money the way that wall street does: transferring clients’ wealth into his own pocket through money management and transaction fees while creating subpar returns. it made him miserable, until he converted to indexing and the efficient market, random walk theory. now he takes a small management fee from clients to keep them lashed to the masts of their own indexed equity portfolios, and not give in to the tempting siren calls of hot cocktail party stock picks or the allure of stock picking.

i often think about phasing into an index strategy. i enjoy following the market, waking up early and watching the open in new york, and plowing through tons of news, but i recognize that there is a limit to the appeal. i have often joked with friends that my daily return tends to be higher if i sleep in and don’t check the numbers before the afternoon session. of course the market doesn’t care whether i sleep in or not, but i endure a lot less stress and trade less frequently on the basis of emotion. i am less distracted by the daily movement of the market, which for the most part is pure noise. the article describes financial press as businessman’s porn:

He punctuates the porn show with some general lessons. One is that the financial press isn’t in the business of supplying useful information; it’s in the business of feeding people’s lust for predictions. “You keep buying the magazine regardless of how the forecasts turn out,” Wellington says, “and they’ll keep supplying the forecasts.”

i would add that the financial press’ bread is buttered by wall street firms, who generate a high percentage of revenue from the volume of client transactions. in this light, it is not surprising that business news seems to suffer from a bipolar condition, manic about the market soaring to infinity one day and gripped with fear that a replay of 1929 is imminent the next. in stock trader culture, this panicky trading mentality is expressed with a reference to the movie “trading places”: sell mortimer, sell! buy mortimer, buy!

i like the idea of putting most of my money into SPY and a combination of a few other indexes, and then forgetting about it, to pursue something interesting with the sudden windfall of free time that would create. i know a hell of a lot more about finance and economics compared with when i first started spending so much time researching them, and that effort has been well spent. i wonder if a time is coming though for me to drift with the tide.

then again, maybe i am a market junkie.

also, for the time being, i am outperforming the S&P 500.

(thanks to brooke for sending me the article).





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