What Wall Street Doesn't Want You T

by Larry E. Swedroe

Book Overview

Why do so many actively managed funds underperform? Why do passively managed funds provide superior returns, especially after taxes? What are the true interests of fund managers and the financial... This description may be from another edition of this product.

• Format: Hardcover
• Language: English
• ISBN: 031227260X
• ISBN13: 9780312272609
• Release Date: December 2000
• Publisher: Truman Talley Books
• Length: 379 Pages
• Weight: 1.60 lbs.
• Dimensions: 1.5" x 6.3" x 9.3"

Customer Reviews

worth its weight in gold

Every investor should read this book. Its conclusion--thatinvestors should keep to low-cost index funds, broadlydiversified internationally and across asset classes--issupported by an extremely thorough review of relevant research.Why should you buy low cost index funds? Swedroe says:(1) Fund fees--not past performance and Morningstar ratings--are the prime determinant of performance within asset classes.High fees, low returns.(2) Typical funds have high turnover, incurring substantial trading costs, market impact costs (having to pay too much for large blocks of stock), and most importantly, paying out hugecapital gains to taxpaying shareholders.(3) Indexing helps an investor clearly identify her strategy, and therefore stay the course, better than strategies based on"a little of this and a little of that."(4) Almost all variation in mutual fund returns is attributableto the investing style used (small versus large cap, growthversus value), and * not to stock picking per se *. Therefore,if you want exposure to an investing style such as small capvalue, buy the index, and don't pay a manager 1.5% to mimic theindex.(5) Almost no funds beat the market on a long-term basis.These points are indisputable, and should lead all investors toput down their Fortune and Barrons and get on with their lives.Of course, * somebody * needs to pore over company financials andmarket trends and Fed policy, etc. But it should not be thetypical investor. And since people are out there doing it anyway,there is no need for any given investor to * pay * them to do itby paying high fees for money management and investment advice.An aside: Swedroe's company, Buckingham Asset Management, hasaccess to an excellent set of low cost index funds from DFA.These are superior to Vanguard's in two ways: (1) they offermore asset classes, and (2) they screen * all * stocks for valuation and size criteria, rather than restricting attentionto the stocks that happen to be in popular indices such as thosefrom Russell or S & P. But, unfortunately, you need to use a DFA-affiliated advisor to have access to the funds. If you don't,then good luck finding an international small-cap or small-capvalue index fund.

A wake up call for investors

That Larry Swedroe would find it necessary to write a follow-up to his excellent first book, "The Only Guide to a Winning Investment Strategy You'll Ever Need," says something about the average investor in this country. Or maybe Larry just likes to write investment books. In any case, "What Wall Street Doesn't Want You to Know" is the slap up side the head that many investors need to break away from the pull of the Wall Street marketing machine.If you aren't convinced of indexing's (or, more appropriately, "asset class" investing's) superiority after reading this book, you cannot be cured. Mr. Swedroe has thoroughly researched and referenced the most definitive works on market theory, mutual fund performance, and financial economics currently available. And he presents the information in a way that most serious investors can understand or at least use as a basis to seek honest, unbiased, and straightforward advice.I highly recommend this book to investors who have tired of the unfulfilled promises of stockbrokers, actively-managed mutual funds, and other Wall Street creations or who are already enlightened enough to avoid the "dark side" in the first place.Jeff Troutner

A Good Summary of Recent Research on Investing

Larry Swedroe presents in 357 pages a broad overview of much of the recent research and discourse presented by rational observers of Wall Street. For the individual investor the author cuts through the hype of Wall Street and forcefully feeds a diet of statistics and research in support of low-cost index funds. For investment advisors this book can be used as an introduction to much of the recent research on stocks and investing. Fans of the writings of John Bogle (Common Sense on Mutual Funds), Jonathan Clements (Wall Street Journal columnist), and Burton Malkiel (A Random Walk Down Wall Street) will particularly enjoy the many reinforcing concepts presented in this text.Larry correctly argues that to maximize the investor's chances for success the investor should take into account his or her time horizon, allocate assets among categories accordingly, and then diversify using low-cost and (where appropriate) tax efficient index funds or tax-managed mutual funds. Through successive chapters he notes: (1) markets are efficient; (2) active managers of investment accounts cannot add value over the long term, considering the burdens of their fees and taxes; (3)market timing is not a strategy that works over the long term; (4) investors in stocks and stock mutual funds decrease their risk level as their time horizon is extended to 20 years or more; and (5) investor behavior, driven by the emotions of fear and greed, often interfere with good long-term investment results. The real gems of the book are saved for the last chapter, when he brings it all together with some asset allocation recommendations. The appendices should not be overlooked, especially his brief discussions of: (A) selling when a low tax basis is present; (B) why investors should generally avoid variable annuities; and (C) the all-too-common hype today that high net worth investors are better off owning individual stocks than stock mutual funds.I agree with the comments by other reviewers that DFA is hyped too much. Individual investors who choose to go it alone, without a registered investment advisor, should probably confine most of their index fund search efforts to passive index funds offered by Vanguard (and perhaps a few other select fund companies), and not worry about missing out on the DFA offerings. Larry's discussion of value stocks vs. growth stocks could be a little more focused and reasoned, but the statistics presented on choosing value stock mutual funds are interesting.This is a good text for those investors desiring an overview of the rational behind passive (index fund) investing. John Bogle's book, Common Sense on Mutual Funds, is a better book for the beginning investor, as it more patiently presents the basic concepts of investing. This book should be considered as one of the next books to read by investors. Larry Swedroe's book gives investors the insight to see beyond the hype of Wall Street. After reading Larry's book (and perhaps others), the inves

IndexFunds.com Review

This book is an excellent follow-up to Larry's first successful title on index investing, The Only Guide to a Winning Investment Strategy You'll Ever Need. As in his first book, the author copiously quotes and analyzes the tenants of Modern Portfolio Theory and debunks, in clear and crisp prose, many of the myths perpetuated daily by the financial media. The systematic, academic approach to dissembling the myth that active managers can outperform the market leaves little doubt that Wall Street's success is not perpetuated by financial truths, but rather through marketing savvy. Practices which highlight to this point include selection of the index that makes the manager's returns look the best over time, regardless of whether the index is an appropriate comparison of the manager's holdings; depiction of returns on a "gross" basis as opposed to showing the same returns net of management fees, trading costs, cost of cash, and market impact; and perhaps the largest and least-discussed factor inhibiting real returns - taxes. See if you can find any of these factors mentioned or accounted for the next time you see Peter Lynch chatting you up in a 30-second sound bite!The book goes on to provide many useful morsels of investment wisdom such as explaining risk and how risk figures into asset allocation. It concludes with some sample allocations for readers to consider. One criticism would be that we would like to see more index product examples quoted from sources other than Dimensional Fund Advisors (DFA) and their proprietary products that can only be purchased through Registered Investment Advisors (RIA) such as the author's firm. If you can keep this in mind as you study the author's superior research and analysis of the benefits of passive investment over stock picking, you will come away with the unquestionable conclusion that it is certainly time to raise the petard against the drivel that is fed to the American mutual fund investor on a daily basis through television and the financial press.

A must read for the serious investor

After working with countless investors throughout my career, I have grouped them into primarily two categories - amateur investors and serious investors. Amateur investors will continue to succumb to Wall Street's hype of picking individual stocks and actively managed mutual funds in an effort to beat the market. This should come as no surprise, as this is how Wall Street makes its living, and the industry will spend billions of dollars in advertising revenue to entice them to continue this pursuit. As a result, the amateur investor who is more attuned to the speculative nature of investing will have little use for this book.However, if you are a serious investor who is committed to maximizing your returns for the long haul, this book is a must read. Mr. Swedroe first details the fallacy of pursuing top-performing stocks and mutual funds, and why this activity is in fact detrimental to building wealth. He then explains the various risk/reward dimensions of various asset classes, and most importantly shows the reader HOW to build a diversified portfolio by combining these asset classes of passively managed (index) funds with their tolerance for risk in relation to an investment time horizon. When it comes to investing, it has been said that the only difference between genius and stupidity is that genius has its limits. The incredible volatility of the stock market has forced many investors to deal with the conflicting emotions of fear and greed in this context. For investors who have finally chosen to remove themselves from Wall Street's losing ways and instead build a simple and sophisticated portfolio for the long haul, Swedroe's book is pure genius. The author has become the pied piper of passive portfolio management. His efforts at revealing the genius of passive investing (indexing) continues to impact thousands of investors who tune in to his work. Swedroe's new book is certain to have a major impact in the ongoing indexing revolution that, despite its recent popularity, is only now beginning to reach the average investor.