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My Investment Letter: Words of Advice for My Grandchildren

by Charles D. Ellis

My Investment Letter: Words Of Advice For My Grandchildren Splash image

One of the great joys of my life is seeing my four young grandchildren growing up: learning to crawl and then walk, learning to talk and read stories, learning to ride bikes and play computer games—learning in all directions how to do all sorts of things. Of course, they want to do all these things well: It’s more fun and wins praise.

It is way too early for my grandchildren, all under 10, to learn what they’ll need to know—and will want to know—about how to be successful at investing. But that time is surely coming, and being successful in investing will be very important.

After 50 fascinating years of working closely with nearly 100 investing organizations, knowing many of the world’s most effective and successful investment managers, teaching the advanced investment courses at both Yale and Harvard, writing over a dozen books and serving on 14 different investment committees, I’ve received a remarkable and treasured education in investing: theory and concepts, professional “best practices” and the realities of investing’s history.

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Charles D. Ellis Ph.D., CFA, founded Greenwich Associates international strategy consulting firm in 1972. He now serves as an investing consultant to large institutional investors, government organizations and wealthy families. His numerous books include “Winning the Loser’s Game: Timeless Strategies for Successful Investing” (6th edition, McGraw-Hill, 2013).


Discussion

Max Hinchman from Arizona posted 6 months ago:

I concur! It sure would have been nice to have had a bit of this insight and guidance 50 years ago. And, perhaps, I would not have had quite the financial losses that occurred.

Thanks for the "letter".


Ronald Engelsman from South Dakota posted 6 months ago:

Fifty years ago you would have had a very difficult time finding a good index fund.

Also, many of these comparisons of the performance an individual investor in common stocks achieves vs. an investor in index funds do not account the formers ability to take much better advantage of tax laws (e.g., donating shares of highly appreciated stocks to charity, reaping tax losses on certain positions etc.).

It's commonly accepted that portfolio rebalancing is a useful tactic. However, there are far better and far more opportunities to do this with individual stocks in a portfolio than with a few index funds in a portfolio.


Fred Warner from Connecticut posted 6 months ago:

Obviously Dr. Ellis is good at what he does, far better than most amateurs. I spent my life as a professional archaeologist and consider myself better trained and more productive than, again, most amateurs. In no way does that denigrate weekend archaeologists; it merely says that archaeology is my profession. My problem with the now generally accepted theory that index funds are the best thing going is that I think there is a better way. There are fund managers who are very good doing what they do professionally. Why not take advantage of their expertise? If a fund manager can return an annual l5-20% for a period of 10 years or more does that not demonstrate enough expertise to let him take the additional 1% or so? I watched my Latin America fund give me those returns for years, not watching it daily but certainly selling all of it after a year of disappointing returns. True, the funds I invest in are at the upper end of the risk scale but, with occasional checking in, they seem to do better than the market, which I understand is what index funds are tied to. It is a total mystery to me why people invest in funds that don't "beat the market"; there are enough no load funds that do.


W Worth from Washington posted 6 months ago:

The "harvesting" of losses for a tax benefit against gain is an important step for individuals. Capturing of gains are important also. My rule is any gain exceeding 30% "annualized" is a trade. Therefore any such gain is captured regardless of the period held for the security. I also own significant index funds which are held as Dr. Ellis posits.


Vaidy Bala from posted 6 months ago:

As an individual retired investor, it is my opinion one invests 80% in long term stocks and 20% in fast growing stocks both based on sound fundamental and technical analyses. It is easier to teach children graphical method as they learn statistics to understand market movements, reminding a picture is worth 1000 pages of text, boring!


Walter Stoddard from Colorado posted 5 months ago:

My belief and one that I intend to write in a letter to my kids and grand kids is the importance of stock selection and long term investing. Choosing stocks for long term holdings that have a long history of returning or growing assets for shareholders or newer companies that make products or provide services that provide real value to the public. It is these companies that one can buy and simply hold forever and that over 30 years of growing dividend payments combined with stock splits can turn a $10K investment into a $5 million investment. There's numerous examples of such companies out there and there's no reason to believe that the success we've had over these last 35 years will not continue in the future with those companies that provide necessary services & value and that have a mind set of returning value to shareholders.


George Sandvig from California posted 5 months ago:

As 35 year investor who has tried almost every strategy available, I made a copy of Mr. Ellis's letter and gave it to my Son. It is my opinion people that fancy themselves as stock pickers have not tracked their true returns due to their losses. Its like people who go to Vegas and just tell you about the times they won big. If 75% of professionals with all the technology in the world at their disposal can not beat the market, I think a person is foolish to spend their time selecting individual stocks. Kudos to Mr. Ellis, he is spot on with his advice, ignore it at you finical
peril.


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