I could not sit by and watch idly while the lemmings called do-it-yourselfers are hurdling your collective financial futures off the cliff…..

Tirebiter, COL, jersey tiger and fizzle (or shizzle) this is dedicated fully for your delight…

I am sure you have access to such wonderful fiancial rags as thestreet.com or even better the motley fool, heck you might even get money magazine!!!! Well I read the New England Journal of Medicine once, but that don’t make me a doctor! And even giving the aforementioned financial journals the status of the New England Journal is a joke, it would be more comparable to reading Men’s Health and thinking you are a GI doctor because you read an article on firming your abs….

Please do not let the facts get in the way of a good story. As I read your posts a Voltaire saying comes to mind: “A witty saying proves nothing.” I watch as you personally attack Amsterdam as he provides you with solid data (some of which I provided him so I can verify the accuracy), and some hate him for his chosen profession. Why? Because he makes an honest living, risked everything, started from nothing, became a success and is living the American dream. Meanwhile you who sit in a job you probably hate, earning your safe dependable salary, not risking anything all the while complaining on a chat board about somebody’s character you don’t even know? Do not debate the man, debate the issue. Nuff Said!

If you think that DIY strategy for investing works, then check out the morning star report about the actual dollar weighted return of individual investors versus the actual rate of return of a mutual fund:

LINK

Basically investors lose out regularly because the get in an out instead of sticking with a strategy (oh by the way indexing is not a strategy just like hope is not a course of action, but will address that later). The investor returns are the actual returns from individual investors in any chosen mutual fund (type in the symbol of your favorite) during the past years. Amazingly the actual fund performance beats the individual returns because all the DIY guys invest with their guts and misinformed research instead of using a solid strategy with *gasp* help from a financial professional. Notice I said professional, not some guy who spent four years as a peon in a hedge fund or some guy who knows a guy who made money day trading!!!!

The real reason you DIY guys lose money is found below:

LINK

By missing the 10 best days in the last 10 yrs in the market you less than half your return. By missing the 20 best days in the last 10 yrs you actually compound you money in a negative direction!! Do any of you think your crystal ball is soooo correct to guess the 10 or 20 best days out of the 2500 plus days the market is open for trading during a 10 yr period. If so you would be so wealthy you would not be posting advice for free on tiger droppings. The market only has a few truly great days, and they usually happen when the DIY guys are sidelined because they are waiting for the market to get healthy again. If you look at the trading volume of buys to sells versus the market direction you will see the herd is wrong every time. The highest ratio of sells is always when the market is down and the highest volume of buys is when the market is up. Say it with me people buy LOW sell High. So why not buy when the market is down??? Fear. Why do I need a financial professional??? To prevent me form making emotional decisions with my money. Why don’t surgeons operate on their family??? Emotions. Why operate on the most emotional thing you have, your assets??? I don’t have that answer.

When should I get back in the market you ask??? Yesterday. If you use mutual funds with a clearly defined purpose as per prospectus (not indexes) you could be accumulating extra shares in the form of dividend reinvestment and year end capital gain distributions, especially while the shares are cheap because the market is down. That way when the market returns you are far far far ahead of the game. When I read how tirebiter can’t understand how a mutual has a positive return while its price is down, I cringe like nails on a chalkboard. Owning mutual funds is about accumulating shares, not absolute price. If you owned say 100 shares at $10 you have a $1000 account. Now lets say you reinvest dividends and capital gains for 10 yrs and have accumulated 50 extra shares (not unreasonable with a quality dividend paying mutual fund) over that time frame and now have a total of 150 shares. Now let’s say the market value of said fund is down 30%, to $7/share- your account is now worth $1050 in a down market. Your account is now worth more in a seriously down market. Did that just happen? Now instead imagined you listened to the wizened COL and bought some great index fund that also went down 30%. By the time that index goes back to even the other mutual funds will be vastly ahead because of dividends and cap gains, two things most indexed lack severely. What scares me most about the DIY crowd is most of them don’t even understand the most basic principle of the investment vehicle they own. If you don’t understand the simple things that you certainly don’t understand the complex things like taxation, or even tactical allocations or portfolio strategy.

As far as indexing as an investment strategy, well Peter Griffin said it best…. “Ouch… Ouch.” I can see it now, the guys who invented the index strategy must have had a conversation that went something like this…”We’ll tell people they could buy things that look like the index, so they’ll feel safe, but we’ll take our fees off the top so it never really has the return of the index.. Yeah Yeah, and it will be easy cause there is no research involved. And people will love us cause they will get totally mediocre returns cause most of the stocks that make it into the indexes are soooo bloated you missed the elevator on the run up to make it into the index, but at least they did not pay a lot.” You gripe about amsterdam’s fund choices because he has exposure to fixed income devices inside them and whine why the comparisons are not fair….Well no one makes you buy an index. You can go get a fund programmed to your specific needs that has great performance, but you can’t get that in indexes. But hey it doesn’t cost much, but some book by some guy said it sounded good.

I see DIY guys all the time, usually when they are retired and don’t have enough money to live on, or in down markets when they are crying over spilled milk. Too late then jack...

Glad we had this talk!