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Financial Happenings Blog
Monday, January 08 2007

There is a fascinating story here about about the google float.  As it became apparent the company was going to float, senior management became concerned that suddenly large numbers of their staff would have enormous wealth, and would be targetted by the financial services industry.

To prepare their staff for this targetting, management organised a series of investment seminars with the greatest minds in investment and portfolio economics.  Here is what they were told:

Bill Sharpe - a nobel prize winner - said don't spend great slices of money trying to beat the market.  Just invest in a low cost index fund, which will provide guaranteed better than average managed fund performance - and concentrate on making google a better company.

Burton Malkiel - author of the famous book 'Random Walk Down Wall Street' and Yale and Princetown finance professor said don't try to beat the market, and don't believe anyone who says that they can. 

Famous investment commentator John Bogle was next.  His advice was to stay away from the 'giant fleecing machine' of high cost managed funds and financial planners.  Stick to a low cost index or passive strategy.

So there you have it.  Three great minds suggesting that the best approach to managing money is to focus on keeping costs low, your portfolio well diversified and being prepared to accept market returns.  This is the start of the philosophy that underpins out investment approach, and we develop this a little further using acadmic reseach that says small companies tend to outperform the market by about 2% and value by about 4%: so using an index fund, a small company index fund and a value company index fund infact results in above index returns - although it is still a passive strategy, just combining index style funds.

Posted by: Scott Francis AT 05:30 pm   |  Permalink   |  Email
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