"No one is too stupid to make money in the stock market. But there are many who are too smart to make money."
Such is the entry point into a really thought provoking article by Ben Stein about stock investing. His argument in a nutshell is that in modern times the surest way to make money is by buying the broad stock indexes domestically--both in the emerging world and in the developed world.
This is the essence of lazy dumb investing; namely, that by not over-thinking the investing equation and instead, plugging into one type of instrument -- the index fund -- you can regularly out-perform the market.
Plus, by investing for the long term versus chasing short-term momentum, you avoid the pain and destruction that occurs when periodic bubble-icious cycles occur, as they are prone to do.
The "smart" investor, by contrast, plugs into a regular diet of trying to be a time teller and outguess the market day by day. For the most part, the market wins -- especially over the long haul.
Why try to be smart, he wonders, when "the inert, lazy, couch potato investor...knows that despite wars, inflation, recession, gasoline shortages, housing crashes in various parts of the nation, riots in the streets, and wage-price controls, the S&P 500, with dividends reinvested, has yielded an average ten-year return of 243%, vs. 86% for the highest-grade bonds. That sounds pretty good to him."
Now, while that sometimes makes me the euphemistically "smart" investor in terms of my investing strategy (see "Information Arbitrage" post), I am happy to say that I practice the index fund discipline, and so far, so good. This is consistent with a general strategy of trying to embrace Lazy Wisdom wherever practical and productive.
Take heart, Stein argues, even if there is a recession, recessions rarely last more than two quarters, and the economy and the stock market revive mightily after that--and that buying stocks in a recession is a good idea, not a bad idea.
Amen.
