I greatly respect the Motley Fool and your point of view. TMF website and books were a big help to me when I was first learning about investing. However, I have developed into a momentum/highly mechanical trader, which explains my issue with those who say that the markets cannot be beat. I do believe there are dozens of ways to make money in the financial markets, but most of them are difficult to stick with and many go against what seems rationale.

I did over-generalize on the authors being academics. I really was just talking about Malkiel since I’m not a proponent of his theories and was not impressed by his book. But, of course, I’d rather see people invest in index funds than not invest at all. I just prefer a more hands on style and it has worked for me over the past few years.

Cheers,

PedroNY

Thanks for the thoughtful response.

First off, I must point out that most of the people on the list are NOT academics, but rather asset managers (managing hundreds of millions of dollars). Burton Malkiel is the only pure academic, and even he works with financial-services companies (or at least used to). So most of these folks have plenty of real-world experience managing money.

The evidence that supports indexing essentially demonstrates that most actively managed funds underperform a relevant index. So most large-cap funds underperform the S&P 500, most small-cap funds underperform the S&P 600, most bond funds underperform the Barclays Aggregate Bond Index, etc.

As to whether market timing works — moving in and out of the market successfully (i.e., in a way that beats the buy-and-hold investor) — is another topic. The studies aren’t too promising on that, either. However, if there’s a method that has caught my interest, it can be found here: http://www.mebanefaber.com/timing-model/.

As you might guess from a guy who works for The Motley Fool, I think stock-picking can work, too. However, here again, you’re playing against the odds. Here’s an interesting study that shows that most individual stocks underperform the overall market: http://www.blackstarfunds.com/files/TheCapitalismDistribution.pdf.

@Andrew #11 you may have a point that some of the authors are not full-time investors. However, Warren Buffett himself, who I think most would agree is the most successful investor ever, advocates that index funds are the best way to invest for the average person.

See here:

http://www.fourhourworkweek.com/blog/2008/06/11/061108-picking-warren-buffetts-brain-notes-from-a-novice/

The two biggest problems I have with indexing are also the two most common reasons given for it. First, the fact that most mutual funds don’t beat the market over the long run. That would only be a valid reason if your only two investment options were equity mutual funds and index funds. Mutual funds are flawed because of their fee structures and requirements on what they can hold and how much they are required to hold at any given time. An individual investor is not confined by these requirements, and can outperform the market by selecting a few stocks that have a higher probability to perform well (the authors I have listed below go into how to select these).

The second issue I have with indexing is the argument that “over time, the stock market goes up.” This is a very dangerous assumption to make based off of past data. Just because the market went up an average of around 10% a year over the past century does not mean that trend will continue. Our economy has matured and may not be in high growth stage that some of the emerging markets find themselves in. It is a well-publicized fact that the overall stock market has done practically nothing in the past ten years. Can you really afford to have another 10 years of zero growth (perhaps negative growth if we have inflation)? The only way to combat this is to take control of your investing and learn how to take big chunks out of the up moves and to get out during the major down moves like the tech bubble bursting and 2008′s credit crisis. The critics are right that you will not call the tops and bottoms of these moves. However, you can take the large chunks out of them by using a few techniques championed by the authors below, and that doesn’t mean daytrading or watching the market every single day. I trade off the weekly charts and do very well. Sorry for the rant but this is something I feel very strongly about.

Jack Schwager-The author of the “Market Wizards” series of books. These aren’t so much “how-to” books, but collections of interviews that will introduce you to how the professional money managers consistently beat the markets. More than anything, they will motivate you and show you that the random walk theory is bogus.

Stan Weinstein-I believe he only wrote one book, but it will teach you the basic technical analysis and charting techniques that will help you identify good times to buy and sell.

William O’Neil-His books are the best I’ve found to teach you what fundamentals to look for in selecting the stocks you want to invest in.

Martin Zweig-Once again, I think he only wrote one book, but it is very good at teaching you how to determine the overall strength of the market. Will help you increase the probability that you are buying at the right time.

My personal favorites are Bernstein, Swensen and Gibson.

From Lau Tzu:

“Nature does not hurry, yet everything is accomplished.”

“There is no calamity greater than lavish desires. There is no greater guilt than discontent. And there is no greater disaster than greed.”

“Health is the greatest possession. Contentment is the greatest treasure. Confidence is the greatest friend. Non-being is the greatest joy.”

“Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.”