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The Gone Fishin’ Portfolio:

Get Wise, Get Wealthy…and Get on With Your Life

On the road to $1M rating:

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An investment strategy the promises to beat the S&P 500 year after year? Hmmm. I always run a mile when I hear similar claims. If not even most of the best fund managers are able to consistently outperform any price index, could this book teach any amateur investor how to do it?

Still, the strategy in this book seemed to be backed by reasonable arguments, and I thought that even if it didn’t manage to outperform the S&P 500 every single year, it may be at least work as a means to diversifying risk, so I continued reading.

The first part of the book is a 101 investment course for those who want to manage their own money without putting too much effort into the process. The author introduces us to mutual funds, the method of entry into the stock market that doesn’t require you to read a single annual report or even follow the Wall Street Journal. By pooling the money of thousands of investors, mutual funds allow you to buy into hundreds of stocks at once, giving you the following benefits:

  • a share of a mutual fund buys you a piece of each company owned by the fund. If you wanted to buy shares of each one of the companies separately, the result would likely be prohibitively expensive.
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  • the fund makes all investment decision so that you don’t have to keep track of every single stock.
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  • funds are a great way of diversifying risk by owning a piece of many different businesses at the same time.
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  • there are mutual funds that invest in all types of securities, including stocks, bonds, Treasuries, etc. There are even funds that mix different types of securities (e.g. stocks, bonds, and cash) among their holdings.

There are two main types of mutual funds: actively managed ones and index funds.

  • Actively managed funds are administered by a manager who actively tries to outperform a particular index. The manager will trade the securities owned by the fund on a regular basis, trying to select the best-performing ones in the hope of beating the market.
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  • Index funds aim to replicate the movement of a particular index, usually by holding the same securities and in the same proportion of said index. This job can easily be done by a computer, so index funds generally have lower associated fees than actively managed ones.

The Gone Fishin’ Portfolio strategy consists on buying a certain mix on index funds, which the author strongly recommends over actively-managed ones. I, for one, completely agree with his view. There’s plenty of evidence out there that most managed funds fail to outperform their benchmark index in the long-run (for more on this, check out this article from the New York Times).

There are, of course, some actively-managed funds that will be able to beat the benchmark for several years in a row, but you have no guarantee that the particular fund you choose will be one of those. Moreover, picking up the “good” managed funds will require all the research and time investment that you wanted to avoid in the first place by investing in mutual funds.

After this very useful introduction to investment through mutual funds, the author dives into The Gone Fishin’ strategy. And the question is, of course, does it work? More on this here.

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