Collected Quotes

Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees
Warren Buffett, 1996 Shareholder Letter

Most of the mutual fund investments I have are index funds, approximately 75%.
Charles Schwab, 2000

Despite volumes of research attesting to the meaninglessness of past returns, most investors (and personal finance magazines), seek tomorrow’s winners among yesterday’s. Forget it. The truth is, much as you wish you could know which funds will be hot, you can’t - and neither can the legions of advisers and publications that claim they can.
Fortune, 1999

What’s really quite remarkable in the investment world is that people are playing a game which, in some sense, cannot be played. There are so many people out there in the market; the idea that any single individual without extra information or extra market power can beat the market is extraordinarily unlikely. Yet the market is full of people who think they can do it and full of other people who believe them. This is one of the great mysteries of finance: Why do people believe they can do the impossible? And why do other people believe them?
Daniel Kahneman, Princeton University

I believe the search for top-performing stock funds is an intellectually discredited exercise that will come to be viewed as one of the great follies of the late 20th century.
Jonathan Clements, Wall Street Journal

If you think education is expensive, try ignorance
Anonymous

If index funds look great before taxes, their performance is almost unbeatable after taxes, thanks to their low turnover and thus slow realization of capital gains.
Jonathan Clements, Wall Street Journal

Taxes and expense ratios are probably the most important things, after a well-diversified portfolio
Joel Dickson

The preponderance of evidence is so convincing we conclude that the typical approach of managing taxable portfolios as if they were tax-exempt is inherently irresonsible, even though doing so is the industry standard.
Robert Arnott and Robert Jeffrey, Journal of Portfolio Management

If you crunch the numbers turnover has to come down, not low, but to super-low, like 15-20 percent, or taxes kill you. That’s the real dirty secret in our business: Mutual funds are bought with and sold with virtually no attention to tax efficiency
Theodore Aronson

If you have 2% a year of your funds being eaten up by fees you’re going to have a hard time matching an index fund in my view. People ought to sit back and relax and keep accumulating over time.”
Warren Buffett

Despite the solemn import that fund companies attribute to past performance, there’s no evidence that the 4 percent who beat the index owe their record to anything other than random statistical variation. The whole industry is built up around a certain degree of black magic.
Fortune, 1999

…building a portfolio around index funds isn’t really settling for average. It’s just refusing to believe in magic.
Fortune, 1999

For professional investors like myself, a sense of humor is essential. We are very aware that we are competing not only against market averages but also against one another. It’s an intense rivalry. We are each claiming that “The stocks in my fund today will perform better than what you own in your fund.” That implies we think we can predict the future, which is the occupation of charlatans. If you believe that you or anyone else has a system that can predict the future of the stock market, the joke is on you.
Ralph Wanger, A Zebra in Lion Country, 1999

A number of smart people are involved in running hedge funds. But to a great extent their efforts are self-neutralizing, and their IQ will not overcome the costs they impose on investors. Investors, on average and over time, will do better with a low-cost index fund…
Warren Buffett

After taking risk into account, do more managers than you’d see by chance outperform with persistence? Virtually every economist who studied this question answers with a resounding “no.” Mike Jensen in the Sixties and Mark Carhart in the Nineties both conducted exhaustive studies of professional investors. They each conclude that in general, a manager’s fee, and not his skill, plays the biggest role in performance.
Eugene Fama, Jr., Professor, University of Chicago

Why does indexing outmaneuver the best minds on Wall Street? Paradoxically, it is because the best and brightest in the financial community have made the stock market very efficient. When information arises about individual stocks or the market as a whole, it gets reflected in stock prices without delay, making one stock as reasonably priced as another. Active managers who frequently shift from security to security actually detract from performance [compared to an index fund] by incurring transaction costs.
Burton Malkiel, Professor, Princeton

History shows that in the long run a thoughtfully designed, diversified strategy of “passive” funds typically beats all but a few active managers. It’s not easy to structure and maintain such a strategy. It requires some initial research and discipline to stay the course. But it’s much easier than predicting which active managers will randomly beat this approach.
Eugene Fama, Jr., Professor, University of Chicago

It’s a big lie that, repeated often enough, is eventually accepted as the truth. You can beat the market, trounce the averages, outpace the index, beat the street. An entire industry strokes this fantasy.
Jonathan Clements, Wall Street Journal

Active management is a beauty contest in which the average contestant is kind of ugly.
John Rekenthaler, Wall Street Journal

No matter where we look, the message of history is clear. Selecting funds that will significantly exceed market returns, a search in which hope springs eternal and in which past performance has proven of virtually no predictive value, is a loser’s game.
John Bogle, founder of Vanguard

There is no evidence of any large institutions having anything like a consistent ability to get in when the market is low and get out when the market is high. Attempts to switch between stocks and bonds, or between stocks and cash, in anticipation of market moves have been unsuccessful much more often than they have been successful.
Charles Ellis, Winning the Loser’s Game, 2002

There is no reliable way to predict the future performance of a money manager or mutual fund. By the time a hot mutual fund, money manager, or even asset class graces the top ten list of the financial press, the overwhelming odds are that within a short period of time the performance will decline.
Donald Trone, William Albright, Philip Taylor, The Management of Investment Decisions

Economists, when faced with a conflict between theory and evidence, discard the theory. Stockbrokers discard the evidence.
Andrew Smithers and Stephen Wright, Valuing Wall Street

Let’s say it clearly: No one knows where the market is going - experts or novices, soothsayers or astrologers. That’s the simple truth.
Fortune, 2001

It is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office.
Paul Samuelson, Nobel Prize Winning Economist

Like the investors of every past age, [investors] still search for the money manager with the magic elixir to assure investment success. This search leads to a frenzy of meaningless activity, rarely resulting in sustainable performance.
Donald Trone, William Albright, Philip Taylor, The Management of Investment Decisions

Over the years, Morningstar’s star system has been frequently - and sometimes wilfully - misunderstood. Many commentators insist on treating the star rating as a predictive measure or a short-term trading signal. The rating, which is clearly labeled as a historical profile, does neither.
Amy Arnott, Morningstar

I own last year’s top performing funds. Unfortunately, I bought them this year.
Anonymous

We have learned that past investment records make lousy crystal balls.
Fortune, 1999

It cannot be possible to make reliable predictions about when the stock market will rise or fall. If it were possible, the market would respond in advance and it could not then rise and fall in the way it does. The fact that market timing must be unpredictable, but that investors clamor to know when things will happen, is probably the single main reason why so much nonsense is writen about the stock market. It is an old English adage that if you ask a silly question, you will get a silly answer.
Andrew Smithers and Stephen Wright, Valuing Wall Street

It’s tough to make predictions, especially about the future.
Yogi Berra

If you knew what was going to happen in the economy, you still wouldn’t necessarily know what was going to happen in the stock market.
Warren Buffett

The four most dangerous words in investing are, It’s different this time.
Sir John Templeton, Money Magazine

I would rather be certain of a good return than hopeful of a great one.
Warren Buffett

October. This is one of the peculiarly dangerous months to speculate in stocks. The other are July, January, September, April, November, May, March, June, December, August, and February.
Mark Twain, Pudd’nhead Wilson

When we buy an actively managed fund, we are like gamblers in Vegas. We know it is likely to be a losing proposition, yet somehow we feel we are getting our money’s worth.
Jonathan Clements, Wall Street Journal

The stockbroker services clients in the same way that Bonnie and Clyde serviced banks.
William Bernstein, The Intelligent Asset Allocator

Trading often and heavy is not something that makes you a lot of money. Now, that’s contrary to my own interests, but it is the truth.
Joe Ricketts, founder Ameritrade

Investment advice doesn’t have to be complicated to be good. There is no better advice on how to live longer than to quit smoking and buckle up when driving.
Charles Ellis, Winning the Loser’s Game

I’m often accused of “disempowering” people because I refuse to give any credence to anyone’s hope of beating the market. The knowledge that I don’t need to know anything is an incredibly profound form of knowledge. Personally, I think it’s the ultimate form of empowerment. You can’t tune out the massive industry of investment prediction unless you want to: otherwise you’ll never have the fortitude to stop listening. But if you can plug your ears to every attempt (by anyone) to predict what the markets will do, you will outperform nearly every other investor alive over the long run. Only the mantra of “I don’t know and I don’t care” will get you there.
Jasen Zweig, columnist for Money Magazine

More so than women, men simply think that they are better at investing than they actually are. Men also get a thrill from trading, and thrill seeking is likely to be biologically based.
Professor Meir Statman, Santa Clara University

It’s not that stock prices are capricious. It’s that the news is capricious.
Burton Malkiel, Professor, Princeton

The greatest results in life are usually attained by simple means and the exercise of ordinary qualities. These may for the most part be summed up in two - common sense and perseverance.
Owen Flethman

There are two times in a man’s life when he should not speculate: when he can’t afford it, and when he can.
Mark Twain, Following the Equator

If fifty million people say a foolish thing, it is still a foolish thing.
Anatole French

It is often the case that important discoveries provoke a confederacy of resistance from those who embrace the established doctrine.
Mark Kritzman, Puzzles of Finance

Just because I want to maximize my current spending but have a high degree of certainty that I won’t exhaust my resources doesn’t mean that the markets owe me such an outcome.
Wes Wellington, DFA

Finance is the art of passing money from hand to hand until it finally disappears.
Robert Sarnoff

The avoidance of taxes is the only intellectual pursuit that carries any reward.
John Maynard Keynes

This decade is strewn with examples of bright people who thought they built a better mousetrap that could consistently extract abnormal returns from the financial markets. Some succeed for a time. But while there may occasionally be misconfigurations among market prices that allow abnormal returns, they do not persist.
Alan Greenspan, 1998

Many receive advice, few profit by it.
Publilius Syrus, 42 B.C.