"The stock-picking mystique is so deeply entrenched in our financial culture that it feels like heresy to suggest that it is, on balance, dumb. The facts are clear, however. For the vast majority of investors—including professionals—stock-picking efforts waste both money and time"
"Stock-picking fund managers are even worse than we thought at beating the market...the S&P 500 outperformed more than 92% of large-cap funds over the last 15 years...active management clients may actually just be paying someone to shuffle their investments around!"
... Fortune Magazine
"We continue selling what most of us have not delivered and, realistically, will not deliver: beat the market investment performance. Most investors have not yet caught on."
Founder, Greenwich Associates
Many years ago, I joined Merrill Lynch for what became a 30-year career.
My specialty was bonds not stocks, because interest rates were much higher back then, and many investors felt that a double digit return in bonds was more attractive than taking stock market risks.
In the early 1980s, the prime rate hit 20%, the 30-year Treasury bond yielded 15%, and you could find good quality, tax free municipal bonds paying 13%. To those paying federal and state income taxes exceeding 50%, those munis represented a taxable equivalent annual return of nearly 30%! Who needed stocks!
With tax free bonds in big demand by those in the top tax brackets, by the time I retired, my clients included chairmen, presidents and/or directors of more than 50 Fortune 500 firms.
Anyway, it was a great run. Interest rates continued their long decline throughout my career and right up to the present, meaning bond prices have been in a virtual bull market for almost 40 years!
HOWEVER...despite the great returns delivered by bonds during those years, there were many times when a few of my clients were tempted to jump into the stock market. This presented a big problem.
The record was clear, based on hundreds of studies over the years, that the vast majority of "stock picking " strategies, whether employed by individuals or professionals, consistently failed to match let alone beat the market! Worse, investors invariably got caught in every bear market and suffered losses, sometimes catastrophic losses. I couldn't afford to have that happen to my clients, because as close as I was with them, and as well as we were doing in the bond market, I knew all of that could be forgotten if they lost money in some stock strategy I put them into.
I had to find a better way, one which would allow them to capture the stock market gains they were looking for without being subjected to the usual market risks.
Fortunately, there were tools available to do just that, but they weren't being promoted because they would fly in the face of Wall Street's many stock picking strategies, funds and "buy" lists developed over the years. Fees and commissions from the latter, after all, were (are) what the Street is all about.
In this site, we will discuss how some of us used these tools to capture most or all of any annual appreciation in the S&P 500 Index, yet suffer little or no loss in the event of a market decline or even a crash. This approach, with some tweaking, is still valid today.
Financial Resolutions, LLC