THE SUCCESSFUL INVESTOR TODAY 14 Simple Truths You Must Know When You Invest By Larry E. Swedroe Publisher: Truman Talley Books/St. Martin's Press Publication date: September 17, 2003 Price: $25.95/hardcover // ISBN: 0-312-30979-1 FINANCIAL MARKETS EXPERT LARRY SWEDROE SETS THE RECORD STRAIGHT New Book Reveals How the Devastating Losses of the Past Three Years Could Have Been Avoided, Offering Fourteen Universal Truths About How the Market Really Works Active Investing Is a Loser's Game. The Past Performance of an Actively Managed Fund Is a Very Poor Predictor of Its Future Performance. The Interests of Wall Street and the Financial Media Are Not Aligned With Those of Investors. Buying Individual Stocks and Sector Funds Is Speculating, Not Investing. These are just four of the powerful assertions Larry Swedroe makes in his new book, THE SUCCESSFUL INVESTOR TODAY: 14 Simple Truths You Must Know When You Invest (St. Martin's Press, September 17, 2003). Swedroe - a financial markets expert, and a principal and director of research at Buckingham Asset Management - has long maintained that investors and fund managers have had little if any sustainable success chasing "hot" sectors or individual stocks. And he says that the catastrophic losses experienced by so many investors during the past three years only underscores the futility - and grave risk - of trying to "beat the market." In his new book, he outlines the basic tenets every investor must know, and explains how to put them to work. "Most Americans, having taken a biology course in high school, know more about amoebas than they do about investing," writes Swedroe. "But, the good news for investors is that, to have a good investment experience, all they need are three things. First, a belief in the capitalist system. Second, the foresight and knowledge to build a globally diversified portfolio of passive asset class/index funds that meet their risk tolerance. And third, the discipline to stay the course by regularly rebalancing their portfolios." In THE SUCCESSFUL INVESTOR TODAY, Swedroe addresses these key topics, arguing that active investing is a loser's game and that passive asset class investing is the winning strategy. Swedroe builds his case on fourteen truths about how the market really works - in contrast with the assertions of Wall Street and the financial press. These are: Active Investing Is a Loser's Game: It Must Be So. Through the latest studies and clear, mathematical argument, Swedroe demonstrates that active investing generally fails even to match its benchmarks - let alone consistently outperform the market. The Past Performance of an Actively Managed Fund Is a Very Poor Predictor of Its Future Performance. Every investor knows that mutual fund prospectuses warn that past performance is not a predictor of future results. In this section, Swedroe explains why this is true - and why investors need to heed these warnings. If Skilled Professionals Don't Succeed, It Is Unlikely That Individual Investors Will. Swedroe asserts that it is illogical for individual investors to believe they can predict which will be the very few actively managed funds that will outperform the others. The Interests of Wall Street and the Financial Media Are Not Aligned With Those of Investors. Here, Swedroe addresses a topic that has drawn increasing attention in recent months - the many conflicts of interest that riddle the investment community. Risk and Reward Are Related: Great Companies Provide Low Expected Returns. In this section, Swedroe explores what he calls the most important principle of finance - the positive relationship between risk and expected return. The Price You Pay Matters. Swedroe explains why the price you pay for an investment determines the rate of return you can expect to earn. The Most Likely Way to Achieve Above Average Returns Is to Stop Trying to Beat the Market. Because of the greater expenses incurred with active investing, in aggregate, active investors earn lower net returns than passive investors, argues Swedroe. Therefore, by simply earning market returns, you will earn greater after-tax returns than the average investor. Buying Individual Stocks and Sector Funds Is Speculating Not Investing. Swedroe distinguishes between good risk - risk that you can expect to be compensated for taking - and bad risk - which is uncompensated. He explains why stock-picking and sector funds represent uncompensated risk. Reversion to the Mean of Earnings Growth Rates Is One of the Most Powerful Forces in the Universe. In a free market, when profits are "abnormally" high (far in excess of the cost of capital), more capital gets allocated to that industry, product, or service - with the result that supply and competition increase and profits revert to the mean (approach the cost of capital). Swedroe addresses why investors ignore this truth at their peril. The Forecasts of Market Strategists and Analysts Have No Value, Except as Entertainment. Swedroe addresses the dismal record of market forecasters. Taxes Are Often the Largest Expense Investors Incur. Swedroe reveals why the impact of taxes on returns can be devastating to actively managed funds and portfolios. Knowledge of Financial History is Critical to Successful Investing. According to Swedroe, the four most dangerous words in the English language are "THIS TIME IT'S DIFFERENT." He contends that there is nothing substantially new in financial markets - only the history you don't know. Adding International Assets to a Portfolio Reduces Risk. Investing in international equities surely involves risk, asserts Swedroe, but so does investing in domestic equities. He discusses why including international assets within a portfolio actually reduces overall risk. There Is No One Right Portfolio, but There Is One That Is Right for You. Swedroe outlines how investors can assess their ability, willingness, and need to take risk, and use this as a starting point to develop a diverse portfolio that suits their needs and comfort level. Swedroe argues that, by following the principles laid out in THE SUCCESSFUL INVESTOR TODAY, investors could have avoided the devastating losses of the past three years. "The right strategy never changes, regardless of whether the bull is stampeding or the bear has emerged from hibernation," he writes. Based on the newest research as well as his own experience as an investment advisor, Swedroe has authored THE SUCCESSFUL INVESTOR TODAY to compile the important truths for investing in any kind of market, and to offer investors the guidelines they need to embark on the road to investment success. # # # ABOUT THE AUTHOR A native New Yorker, LARRY E. SWEDROE graduated from New York University with an MBA in finance. The author of three previous books, including The Only Guide to a Winning Investment Strategy You'll Ever Need and Rational Investing in Irrational Times, Swedroe lives in St. Louis, Missouri, where he is a principal in the firm of Buckingham Asset Management. More information can be found at: www.bamservices.com
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