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To: EL KABONG!!! who wrote (50282)	5/21/2004 10:05:58 AM
From: AC Flyer	Respond to of 74559

>>low risk, diversified combination for your top 3 holdings<< My approach to investing is to make it as exciting as watching paint dry. I do not have the time, nor am I smart enough, to actively trade to consistently superior returns. So, my goal is to beat the indexes by a few points every year with a diversified, value-oriented portfolio, which I generally do. Apologies to anyone looking for a hot prospect. I saw this recently - it is consistent with my philosophy: Becoming a Top 20% Investor Over very long periods of time, the average stock will grow at about 7% a year, which is GDP growth plus dividends plus inflation. This is logical when you think about it. How could all the companies in the country grow faster than the total economy? Some companies will grow faster than others, of course, but the average will be the above. There are numerous studies which demonstrate this. That means roughly 50% of the companies will out-perform the average and 50% will lag. The same is true for investors. By definition, 50% of you will not achieve the average; 10% of you will do really well; and 1% will get rich through investing. You will be the lucky ones who find Microsoft in 1982. You will tell yourself it was your ability. Most of us assign our good fortune to native skill and our losses to bad luck. But we all try to be in the top 10%. Oh, how we try. The FRC study cited at the beginning of this chapter shows how most of us look for success, and then get in, only to have gotten in at the top. In fact, trying to be in the top 10% or 20% is statistically one of the ways we find ourselves getting below average returns over time. We might be successful for awhile, but reversion to the mean will catch up. Here is the very sad truth. The majority of investors in the top 10-20% in any given period are simply lucky. They have come up with heads five times in a row. Their ship came in. There are some good investors who actually do it with sweat and work, but they are not the majority. Want to make someone angry? Tell a manager that his (or her) fabulous track record appears to be random luck or that they simply caught a wave and rode it. Then duck. By the way, is it luck or skill when an individual goes to work for a start-up company and is given stock in their 401k which grows at 10,000%? How many individuals work for companies where that didn't happen, or their stock options blew up (Enron)? I happen to lean toward Grace, rather than luck or skill, as an explanation, but this is not a theological treatise. Read the Millionaire Next Door. Most millionaires make their money in business and/or by saving lots of money and living frugally. Very few make it by simply investing skill alone. Odds are that you will not be that person. But I can tell you how to get in the top 20%. Or better, I will let FRC tell you, because they do it so well: "For those who are not satisfied with simply beating the average over any given period, consider this: if an investor can consistently achieve slightly better than average returns each year over a 10-15 year period, then cumulatively over the full period they are likely to do better than roughly 80% or more of their peers. They may never have discovered a fund that ranked #1 over a subsequent one or three year period. That "failure," however, is more than offset by their having avoided options that dramatically under-performed. Avoiding short-term under-performance is the key to long-term out-performance. "For those that are looking to find a new method of discerning the top ten funds for 2002, this study will prove frustrating. There are no magic short-cut solutions, and we urge our readers to abandon the illusive and ultimately counterproductive search for them. For those who are willing to restrain their short-term passions, embrace the virtue of being only slightly better than average, and wait for the benefits of this approach to compound into something much better..." That's it. You simply have to be only slightly better than average each year to be in the top 20% at the end of the race. It is a whole lot easier to figure out how to do that than chase the top ten funds. Of course, you could get lucky (or Blessed) and get one of the top ten funds. But recognize it for what it is and thank God (or your luck if you are agnostic) for His blessings. I should point out that it takes a lot of work to be in the top 50% consistently. But it can be done. I don't see it as much as I would like, but I do see it. 2000wave.com