Why I Invest Like I Do

. That’s why I prefer index funds.

The conversation continues with a response from the original commenter:

When you were working full time, what did you used to use to invest? Did you ONLY watch those instructional videos? Basically, if someone wanted to actively manage their account where would you suggest they look first?

Old Limey’s response:

When I was working full time I could have never actively managed my own money as I was far too busy with my career in aerospace. It was only after I retired in 1992 that I became very interested in the market and had rolled over my 401K to Fidelity. I started using computers in 1956 with the earliest IBM mainframes and when I finished in 1992 I was using the fastest computer in the world, the Cray XMP4 supercomputer. Along the way I wrote a lot of computer programs so it was a “No Brainer” for me to get a computer and start writing financial software after I retired. My background was perfect for what I wanted to do which is why I don’t believe that my path will work for the majority of people with completely different backgrounds.

For two years after I retired I lived and breathed market analysis and trading and timing systems. I worked 7 days/week from the time I got up until the time I went to bed learning what I needed and writing my software until it was driving my wife crazy and she appeared one day, with hammer in hand, ready to smash my computer. That’s when I wrapped up my software and marketed it until 2008 when I took it off the market. Because it uses the MS-DOS operating system and the database is getting larger as days and new funds are being added much of it has run out of DOS memory and it is on life support. I still use some parts of it that will still run but since I gave up trading and trying to make capital gains in 2007 and switched to fixed income investments, investing has become so much simpler for me.

Let’s look at a few of his comments (from both of his posts):

• “When I was working full time I could have never actively managed my own money.”

Translation: If you’re working, you probably don’t have enough time to manage your own investments the way they need to be managed (to get above-market returns).

• “My background was perfect for what I wanted to do which is why I don’t believe that my path will work for the majority of people with completely different backgrounds.”

Translation: He had a unique set of skills and a particular temperament that made him a successful investor. While these skills aren’t the only ones required to do well investing, it’s worth noting that you likely do need some sort of extraordinary abilities/skills/experiences to make yourself a great investor. Most people don’t have these.

• “For two years after I retired I lived and breathed market analysis and trading and timing systems. I worked 7 days/week from the time I got up until the time I went to bed learning what I needed and writing my software.”

Here’s the time commitment we’re talking. Anyone willing/able to do this?

• “There is no substitute for experience, and it takes years of investing and trading to become a very successful investor, and even then some people just don’t invest the time, and don’t possess the abilities or have the interest and dedication that it takes.”

There’s that time commitment again. And even if you do make it, you may not have the skills to succeed at investing.

Given these thoughts, here’s what else I’ll add:

1. Consider the thousands of mutual fund managers that do put in the time, effort, training, etc. in an attempt to become successful investors and they STILL do not beat the market averages.

2. I do not have the time or inclination to pay the price of becoming a very skillful investor. I do not know that I’d be any good at it even if I did put in the time required.

3. As such, my strategy is the following:

Create the biggest gap possible between my income and spending so I can save a ton of money.

Keep fueling these investments by saving early and often (after all, time is a bigger determinant of investment success than return.)

Do everything I can to maximize return by reducing investment costs, having the right asset allocation, and so on.