Passive Aggressive

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Even a Moron Can Make 15% Every Year in Stocks

BlackBerry (NASDAQ:BBRY) has been a sour topic for me. I have been recommending BlackBerry as a sell since October (when it still traded as Research In Motion) and more recently as a target for put options. However, BBRY stock remains up 100% in the last three months despite my stubborn negativity.

I could waste my breath today restating why I still believe BBRY will fall. Instead, I’d like to make a few confessions:

  • I make plenty of bad investment decisions.
  • I sometimes let my personal experience or emotions color my judgment on an investment decision.
  • I have no special secret sources, exclusive data or crystal ball and am investing simply based on publicly available information all investors can see.

But guess what? Despite all of this — and other more colorful shortcomings that friendly readers have been kind enough to point out — I made 15% in the market last year.

Looks like even a moron can have a good year, eh?

Index Investing: The Stupid Investor’s Friend

I am half-joking about being a moron, but I’m also half-serious.

After all, what hope does a small-time investor like me have of beating high-frequency trading algorithms or egomaniacal hedge fund managers arm-wrestling over Herbalife (NYSE:HLF)? Sure, I look at 10-Ks and read Barron’s, the Wall Street Journal and a host of investing blogs … but doesn’t everyone?

The hard reality is that picking individual stocks and timing the market is a fool’s errand for most of us. I’m not making an excuse for my botched BlackBerry call; rather, I’m painfully aware that there will be more miscues like this.

That’s why I rely heavily on index investing and diversified funds — and you should, too.

After all, the biggest reason I tallied a 15% total gain in 2012 wasn’t due to any particular talent on my part. About 40% of my nest egg is in Vanguard 500 Index Signal (MUTF:VIFSX) — a low-cost mutual fund tied in lockstep to the S&P 500 Index. Another 30% or so was in Harbor International (MUTF:HIINX), an actively managed global fund with top holdings like Novo Nordisk (NYSE:NVO), Diageo (NYSE:DEO) and SAP (NYSE:SAP). The Harbor International Fund tallied about 20% last year.

The rest of my portfolio (affectionately known as the vanity investments that, through hubris or naivety, I convince myself are sure to beat the market) obviously underperformed.

That’s how even a moron can beat the market.

Remember, most active managers chronically underperform. A whopping 84% of active managers underperformed the market in 2011. More than two-thirds fell short in 2012. Expect similar results in 2013.

Passive indexing is in fashion for a reason. According to Businessweek, Vanguard closed its best year ever, shattering records with a staggering $130 billion in deposits to its low-cost, index-based fund model.

Remember this the next time you make a bonehead call of your own.

I love the market, and I love reading about stocks. I’ll continue to dabble in the market, even if it means more moronic calls in the future.

But stupid as I might be, I’m not stupid enough to forgo the power of passive investing in index funds.

Related Reading:

Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he held a position in Apple but none of the other stocks named here.

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Comments
  • http://www.facebook.com/people/Paul-Fezziwig/644811936 Paul Fezziwig

    hmmm, you panned BBRY just before a 150% run up and still claim to have a credible opinion of predicting their demise….if you were an investor would you listen to your opinion with a track record like that? Even a ‘moron’ wouldn’t listen dont you think?

    I suggest not mentioning BBRY anymore if you want to have any credibility for 2013.

    • bstano

      What bullshit – what s MORON