Howard Marks, one of the wealthiest investors in the United States, just released his newest investor letter, and in it, I find a few ideas that are eerily similar to what you and I have been talking about for months: Index investing is a dangerous, expensive Wall Street con.
If you're not familiar with this battle-scarred (and unreasonably wealthy) veteran of the markets, Marks fought his way through both the equity and bond markets for over 40 years.
He also happens to be an extremely incisive writer, with his book, "The Most Important Thing," considered a must-read for anyone looking to achieve success as an independent investor.
In his latest letter, he takes on index investing, an approach that I frequently call a silly waste of time if you're beyond middle age and don't have four or five decades to build your wealth.
Ironically, it was Marks' University of Chicago professors who birthed the idea of index investing in the late 1960s. They saw it as a way to ensure you never underperform the Dow Jones Industrials or S&P 500, as well as never pay ridiculous management fees. (So much for that idea...)
But what most investors don't understand about indexes - and what I want to show you today - is that indexes didn't become popular because the returns are phenomenally good...
... rather, it's because the active managers have phenomenally good salesmen working for them night and day to sell the pipe dream of low-risk, high-return indexing to regular, unsuspecting investors...
In other words, the active managers are phenomenally bad...
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of Peak Yield Investor.