How To Really Ruin Your Financial Life and Portfolio

Chapter 3Believe in Your Heart That You Can Pick Stocks

Do you sincerely want to be rich? That was a question that Bernie Cornfeld, a latterly convicted swindler, used to ask his audiences as he pitched them on the merits of buying his product, a “fund of funds” that used investors’ money to buy several layers of mutual funds. At most or all of the stages, Mr. Cornfeld charged steep fees to the investors when those same investors could have just bought the funds themselves for modest fees. (Of course, those fees were chump change compared with what hedge fund managers now charge, but that’s another story.) Mr. Cornfeld himself did sincerely want to be rich. He used his winnings to buy lavish homes and beautiful women—or at least so he considered them. Eventually, he went to prison for fraud in faraway Switzerland.

But that is a digression. His basic question still makes a lot of sense. Do you sincerely want to be rich?

If you do—and who doesn’t—then you must step up to the plate and swing for the fences. That means you have to try to pick the stocks that will outperform the market. You do not want to just buy the broad indexes like the Dow Diamonds, an index that replicates generally the performance of the Dow Jones 30 industrial stocks. Yes, just buying and holding this index over the postwar period would have given you returns vastly superior to those of almost any managed mutual fund or portfolio of wealth managers. The data is overwhelming on that point.

There is simply ...