One of my favorite investing philosophy clips in Hollywood is from “Meet the Parents.” It’s the famous scene where Owen Wilson tells Ben Stiller how much money he’s made in “wireless IPO’s.” Stiller’s character, clearly oblivious to the world of investing, struggles to keep up. At one point, Owen Wilson asks Stiller’s character how his portfolio is doing. Stiller responds, “…strong…to quite strong” in an unconvincing voice.

“Simplicity is the Ultimate Sophistication” -Leonardo da Vinci

Some form of that scene exists in hundreds of Hollywood films. The general gist is that successful investing is a mysterious endeavor where only the sophisticated, smart, and ultra-connected can succeed. Owen Wilson played a character who was a wealthy stock trader. Therefore, his character had the network and smarts to win at Wall Street.

The movie came out in the year 2000. This was the height of that kind of thinking. The dot com bubble was just about to burst. Stock traders and brokers were known as the gatekeepers to real wealth. Fee-only financial planning was barely in existence.

Fast forward to the present day, and much of that myth has been busted. It’s slowly becoming public knowledge that a low cost, simple investing philosophy has an enormous track record of beating expensive, complicated portfolios.

The battle is certainly not over. I’ve sat with way too many families and helped them learn precisely what fees they were paying in their investment accounts. Most commonly, their broker, often charging 1%+ each year, put their money into other funds or accounts that also charge them 1%+ each year. In several of those scenarios, these families were paying over $50,000 every year and were almost always underperforming the market.

In my view, there have recently been two leading champions in the investing world. These two have helped push an academic-based investing philosophy forward and have limited the faulty thinking found in “Meet the Parents.”

  • Warren Buffet. It might seem cliche to list someone who has basically become synonymous with investing. Why do I list him? His 2007 bet with hedge fund expert Ted Seides. In short, Buffet bet that the general stock index spanning the 500 largest US companies (S&P 500) would outperform a group of hedge funds selected by Seides over the next ten years. In December of 2017, the S&P 500 didn’t just win. It obliterated the hedge funds. The public nature and media attention surrounding the bet was a big deal. In the ’90s and 2000s, hedge funds were known as super secretive, highly selective investment vehicles that guaranteed riches for those lucky enough to have access to them. Today, it’s becoming more and more known that super-secret, highly selective investments often don’t make the clients who invest in them wealthier. Instead, they make the owners of the funds who charge exorbitant fees extremely wealthy. Buffet’s bet did a lot to break down this misconception and point the public to simple, low-cost investments.

  • Jack Bogle. Bogle was the founder of Vanguard. His life’s work probably did more for the average investor than anyone else. Bogle had a simple philosophy, and it went like this: A stock index is a composition of every publicly-traded company. These stocks are all owned by individual investors or money managers. As such, the return that everyone experiences in this market must equal the stock index. There may be a select few that beat the market index, but it is a zero-sum game. Everyone is trading the same basket of public stocks. If person A makes 2% more than the index, then person B has to make 2% less. The problem with most active managers is that they commonly charge a hefty fee and trigger quite the tax bill. Therefore, the collective returns of the active money managers are lower than the returns of the index by precisely the amount they charge in expenses and their induced taxes.

At Brownlee Wealth Management, we build and maintain your portfolio in an evidence-based, academically-defensible manner. Through our advantageous fee structure and sensible portfolios, we ensure that the money you make in your portfolio stays in your pocket, not ours. Schedule an intro call to find out how our prudent approach to investing works in your best interests.