Read of the Day: Keep Investing Simple

Some good insights from a guy named Barry Ritholtz.  He writes a blog or something.  You may have heard of him:

BR’s Guide to Simple Investing

1. Use ETFs to get equity exposure more often than picking individual stocks.

2. Valuation when making purchases matters more than anything else I can think of to your long term investing success.

3. Low Cost passive investing, dollar cost averaging into 5 broad indices (Big cap, tech, emerging markets, fixed income, etc.) is ideal for do it yourself investors.

4.  Rebalance across various asset classes regularly. Do so at least annually, preferably quarterly. (Online tools for doing this should drive your broker selection).

5. Keep your Costs and Expenses low. This may be the only free lunch in all of investing.

6. Reduce your Turnover level; keep it low (this helps with #5, plus most of these)

7. Avoid the Noise: Reduce your consumption of useless chatter, be it in print or on TV. Classic investing books are vastly superior to ephemeral market gossip.

8.  Review your portfolio regularly. Check your allocations monthly. To see how your holdings are doing, use weekly, not daily charts.

9. Venture Capital and Private Equity ain’t easy — if you lack the skills, capital and risk tolerance, avoid them.
9B. Most IPOS are a sucker game.

10. Avoid new financial products at all costs.

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Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Nils

    It seems like his approach still assumes buy and hold, no cash position… What I’m looking to devise is a strategy where the market can be exited and reentered, maybe using a sufficiently large trailing stop on current holdings and entering a new trailing stop to buy when stopped out, following the market down and entering when the market picks back up. This needs some backtesting.

  • denny

    “Low Cost passive investing, dollar cost averaging into 5 broad indices (Big cap, tech, emerging markets, fixed income, etc.) is ideal for do it yourself investors.”

    I would love to know what total return you would have earned using this technique during the last decade. Is there any stats for this?

  • Nils

    I mean this specifically as opposed to dollar cost averaging on the way down.

  • Nils

    You can look it up yourself if the respective ETF have been around long enough. He’s being a bit to vague to test it as he’s not describing a particular trade (like buying 20% SPY, 20% QQQ, 20% IWM, 20% TLT and 20% GLD or something like that).

  • jaymaster

    I read Barry almost daily, and he often states what his current cash position is, and occasionally his equity and bond percentages too. I recall cash up to 40-60% a few times over the past few years.

    Of course, he makes his money managing other people’s money for a fee, so he understandably can’t spill ALL his beans. Or why would anybody pay him???? I guess he’s not too different from Cullen/Orcam in that respect.

  • Tom Brown

    I read that yesterday on Barry’s site. I’m glad to see you’ve highlighted it.

  • Old Dog

    Just like most people think they are better than average drivers they also think similarly about their investing skills – and this applies to most financial professionals (the vast majority lag the markets).

    So most their investing success (fees you pay them) comes down to claims their advice is better than the other guy’s (and therefore worth paying for).

    If their advice truly was better over the long term they would be quietly and privately becoming very wealthy and you and I would never have heard about them.

    As Barry says – Valuation matters more than anything else. And IQT (on Hulbert Honor Roll) has the long term track record to show subscribers where the values are. And they do it for a very modest annual fee.

  • Nils

    I’m talking specifically of his proposed model, not his paid services which I (and most other people) can’t afford anyways.

  • Lukey

    Google “lazy portfolios” and you can find a number of models for this style of ETF investing that have been performance tracked for years.