Monday, October 26, 2009

Investing choices for the "average joe"

Not without some considerable insistence from a dear friend, I find myself venturing into the world of blogging for the first time.

I have to admit that, although it has taken me a while to pen down some thoughts on my favourite subject, (investing), it has not been for lack of desire nor of content. More precisely, it boils down to my own concerns about wether this blog will be of interest or value to those who stumble onto it.

Having said that, let me share with you my foremost area of concern. As a 35 year old that, through a combination of work, perseverance and (some) luck has managed to put together a decent sum of "investible" funds I am shocked at the almost dismal array of options available for people like me. The traditional choices range from:

  1. Low-yielding deposit accounts that, almost by definition, trail inflation
  2. High cost mutual funds run by people who care more about the volume of assets under management than about capital preservation or growth
  3. "Apparently" risk-free government debt
So what is one to do in this situation?.

To be sure, there are some very smart money managers that, whilst charging very high fees (both management and performance-related) can be seen to deliver attractive returns over time. These however, show two traits that render them an unlikely solution for the hapless average investor:

A) they are often, long-ago closed funds such as the famed Sequoia fund run by the "Buffet-like" Bill Ruane
B) Exclusive hedge-funds where the minimal investment required is beyond the means of most mortals...

But wait, surely there's a third route. Indeed there is.

If one is willing to do a just little bit of homework (which considering the fact that it's you hard earned savings that we are talking about here), should not be too much to bear, then perhaps not all is lost. For you see, investing is as much an emotional exercise as it is a business challenge. By this I mean that if we are clear about our goals, consistent in our convictions, patient in our expectations and (minimally) thorough in our investment vehicle selection, then we will succeed.

To use the words of one of the wisest of investment minds, Buffet's mentor and former teacher Benjamin Graham:
"The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell"

In short, if we as individual investors, manage to tune-out the market "noise", ignore the recommendations of comission-driven fund salesmen and in turn let the market do its "long-term" magic of compounding the returns of carefully chosen individual enterprises, we will be well served.

1 comment:

  1. Julio, I'm glad your "dark friend" convinced you to start this blog! I look forward to reading it...frequently! So here you are - I'm your first follower!
    Buena suerte y un abrazo!!