Stock Picks | "Simple Path To Wealth" By Collins - Is It Really That Easy And What's The Point ?

29th Jan '22 by Majestic Cedar

8 comments 738 reads

Guys and Girls

I have just read the above book by Collins and it has totally paralysed my recent activity in selecting stocks, funds, ETFs etc as the essence of his book is essentially just buy the Vanguard Total Stock Market Investor Fund as it covers such a diverse range of stock and charges low commission. To be fair to Collins, I think he is totally transparent in his advice and the book is written in a refreshingly readable fashion. I am not looking to bash Collins.

However, his central premise is pretty much stocks go up and down, buy this Vanguard fund and it will cover the infinite risks out there over time. Also, you will never be an effective stock picker yourself, pretty much forget about it, it is an illusion to encourage you to invest so the money machine can take its slice on commissions.

This therefore leads to the question, are we wasting our time using this wonderful website (which I do think is amazing) trying to pick stocks ?

I am an amateur investor, long term, and not looking for a quick bust.

Interested to know whether more stock pickers have read this book or come across this simple argument before.

thank you

Peter

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Lochinver

29th Jan '22

This is a constant question that I am always asking myself.

As long term investors I guess we are all in a the best position to answer your own question because we will know how successful or not we have been compared to the trackers such as the one you referred to.

I am a relative newcomer to this world, having signed up to SP and IC in Spring 2021. Prior to that I held shares for a couple of years but when I joined SP i quickly realised I was absolutely a ‘gut feeling dabbler’ ! Which is definitely not the way to invest your hard earned money ! And a tracker would have been far better.

So I spent a month or so sorting out the wreckage, getting together a portfolio I had faith in which passed all the new tests, starting to learn a more appropriate way of doing things, learning how to do it properly but most importantly being forensic about learning from the mistakes I have ( and of course still ) make and being forensic about all new investments ( my checklist is now as long as my arm).

Which Im afraid is a long winded way of saying its still too early to judge if I personally can be more successful than simply passive investing. Only when I have followed this new way of doing things for a couple of years will I be able to judge the answer to your question.

My gut feeling is positive though. I have had a 30 year career as an FD in medium sized businesses and have bought and sold a number of businesses in that capacity. Whilst I was a newcomer to much of the intricacies of share valuation, risk and all the technical terms, it did mean that I had picked up some skills which help me to decide if a business is any good and worth investing in. And identifying those elements that make me feel uncomfortable with investing in or continue to invest in.

The other thing to say is that I do enjoy share investing , far more than I did being an FD to be honest. So I think this is another item to factor into the debate. And I have always been a big fan in believing that you have much more chance of being successful if you spend time doing something you enjoy and want to do, rather than something that you have to do !

Apologies for the ramblings. Maybe I should just have said “ I dunno, the jury's still out !!”

muscleriot

Investors like Michael Burry, Peter Lynch claim passive indexing is now not a good idea. Stock picking, not passive is likely superior in a inflationary environment. Shareholder activism has died under the dominance of passive investing, and indexing and ETFs are a place people pile into at the highs of a bubble - overvaluing stocks - who may then pile out of or suffer low returns.

However, Warren Buffett still says for beginners, indexing is ideal - you don't have to waste time or worry on stock picking and you can gradually drip feed into it while spending your time increasing your income working which will be far more fruitful than worrying about a few percent compound gain from stockpicking on building up a 100k or so investment.

But thats only as long as you don't invest a lump sum into the index at any one time, Because that's timing the market. As far as inflation worries - over the long term (drip feeding) your better owning companies than cash or bonds.

However, Buffett also says if you have the skills and time to put into stockpicking then its worth the time over an index. There is a paper he wrote on why stock picking gives superior returns over indexing called 'The Superinvestors of Graham-and-Doddsville' https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors

whatmore1951

Tracker funds etfs etc haven't been around that long. I do wonder what would happen if there was a full blown fear driven market crash and all these passive investors rush for the exit at the same time.

There are things I don't want to invest in such as tobacco but passive investing doesn't let you discriminate.

Also, I am very wary of debt. Passive investing means you are investing in companies that have in my view too much debt. An x-ray analysis of my own portfolio shows net gearing of around 14%.

My view is for beginners well selected investment trusts are the place to start.

Will S

There is a hedge fund manager that did an analysis of the effect of passive investing in a significant downturn. It didn't end well....

rmillaree

"I do wonder what would happen if there was a full blown fear driven market crash and all these passive investors rush for the exit at the same time."

Hopefully being passive investors they wouldnt worry and they would do nowt

letap73

The argument is that a diversified selection of trackers appears to beat stock pickers - aka the fund managers. Vanguard ETFs have low charges and combined with a long term investment plan ( 30 - 40 years, so start young!) - you should in theory ride out periods such as 2008 . The performance of the US indices has been dominated by the tech titans and in effect investing in a US index ETF will have captured the performance of these tech titans.

Clearly a lot of the success of index investing is based on past performance. The Collins book, the book by Bogle and websites such as Monevator and the Bogleheads explain this very well.

It is worth noting the regard Buffet had for John Bogle.

shipoffrogs

30th Jan '22

What happened?

Majestic Cedar

31st Jan '22

Thank you all, appreciate your thoughts, glad to hear I am not alone.

"Simple Path To Wealth" by Collins - is it really that easy and what's the point ?

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Majestic Cedar

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