Stocks of companies selling commodity-like products should come with a warning label : Competition may prove hazardous to human wealth.
Wide diversification is only required when investors do not understand what they are doing.
I think that the people who buy those index funds, on average, will get better results than the people that buy funds that have higher costs attached to them, because it’s just a matter of math.
If I were going to put money into an index fund in relatively equal amounts over a 20 or 30-year period, I would pick a fund – and I know Vanguard has very low costs. I’m sure there are a whole bunch of others that do. I just haven’t looked at the field.
Diversification may preserve wealth, but concentration builds wealth.
The great personal fortunes in this country weren’t built on a portfolio of 50 companies. They were built by someone who identified one wonderful business.
My money, I should add, is where my mouth is : what I advise here is essentially identical to certain instructions I’ve laid out in my will. My advice to the trustee could not have been more simple : put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund (I suggest Vanguard’s). I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions, or individuals – who employ high-fee managers.
The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time.
If you like spending 6–8 hours per week on investments, do it. If you don’t, then dollar-cost average into index funds. This accomplishes diversification across assets and time, two very important things.
Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.