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Research and Commentary

Active vs. Passive Q&A (audio)

Fama/French Forum - Observations, opinion, research and links from financial economists Eugene Fama and Kenneth French.

Better than Beta? (Economist) - "WHAT exactly are fund managers selling? At heart, they are offering exclusivity. In the complex world of financial markets, the client wants the best brains to look after his money. Picking the right fund manager is like shopping at Saks Fifth Avenue or having your shoes made by Manolo Blahnik. But unlike a posh retailer, a fund manager cannot guarantee to provide a superior service year after year. Indeed, he cannot even be sure of offering a positive real return. All too often, clients hand over their money to managers that have performed well in the past, hoping that this superior record was down to skill rather than luck and that it can be replicated in the future."

The best investment advice you'll never get by Mark Dowie - "For 35 years, Bay Area finance revolutionaries have been pushing a personal investing strategy that brokers despise and hope you ignore."

Good Things Come To Those Who Wait by The Trade News - "Dimensional's risk-based investment philosophy and its unique position as a liquidity provider enable a patient and flexible trading approach that provides measurable advantages over other managers."

Active Management Fails On Performance, Risk by Morningstar - "While it's been established that most actively-managed mutual funds lag their indexes over time, a new study further twists the knife: Active management suffers even more by comparison on a risk-adjusted basis."

Why stock picking is a losing game by William Bernstein - "Imagine that the Man Upstairs is really, really pleased with you and has decided to make you fabulously wealthy. How would He do it? The simplest way would be to give you a bunch of no-brainer opportunities to make a killing on stocks and bonds. Then He'd put on this earth a host of suckers willing to take the opposite side of your bets. Millions of investors - and their brokers - seem to believe their own personal version of this fantasy."

The Index Funds Win Again by Mark Hulbert - "The investment implication is clear, according to Mr. Kritzman. “It is very hard, if not impossible,” he wrote in his study, “to justify active management for most individual, taxable investors, if their goal is to grow wealth.” And he said that those who still insist on an actively managed fund are almost certainly “deluding themselves."

The Evolution of an Investor by Michael Lewis - "Blaine Lourd got rich picking stocks. But then he realized that everything he thought he knew about the markets was wrong. And he's not alone."

Equilibrium-Based Investing by Weston Wellington - "Like conventional index funds, EBI seeks to capture market rates of return through broad diversification and low cost. But rather than follow conventional index benchmarks, EBI seeks to target with greater precision the risk factors that determine returns. Indexes are designed to be representative of market behavior, and are not necessarily optimal blueprints for an investable strategy."

Comprehending Risk by Weston Wellington - "A belief that markets price securities incorrectly leads traditional active managers to seek out "mispriced” stocks and industries. A belief that markets are unbeatable leads traditional passive managers to mimic established indices. Neither approach is likely to discover the uncharted dimensions of capital markets that reward investors over time or to find effective ways to harness them."

Behaving Badly by Weston Wellington - “There are so many people out there in the market. The idea that any single individual without extra information or extra market power can beat the market is extraordinarily unlikely. From this comes one of the great mysteries of finance: Why do people believe they can do the impossible? And why do other people believe them?”

Morningstar Ratings Fail Over a Full Market Cycle by Robert Huebscher - "Advisors might as well flip a coin to decide whether to move to a fund with a rating that is one star higher."

Kiss of Death: A 5-Star Morningstar Mutual Fund Rating? by Matthew R. Morey - "We examine the effect that an initial 5-star Morningstar mutual fund rating has on future fund performance, strategy, risk-taking, expenses, and portfolio turnover. Using a sample of diversified domestic equity funds from the 1990s we find that three-years after a fund received its initial 5-star rating, fund performance severely falls off. This result is robust across different performance measures and different samples of funds. We also find that after receiving their initial 5-star rating, the risk levels of funds rise and that the funds are not able to load on momentum stocks as well as they did before receiving the 5-star rating. These results suggest that funds, to some degree, alter their portfolios after receiving a 5-star rating and that investors should be very wary about using the 5-star rating as a signal of future 3-year performance."

Migration by Eugene F. Fama; Kenneth R. French - "We study how migration of stocks across size and value portfolios contributes to the size and value premiums in average stock returns. The size premium is almost entirely due to the small stocks that earn extreme positive returns and as a result become big stocks. The value premium has three sources: (i) value stocks that improve in type either because they are acquired by other firms or because they earn high returns and so migrate to a neutral or growth portfolio; (ii) growth stocks that earn low returns and as a result move to a neutral or value portfolio; and (iii) slightly higher returns on value stocks that remain in the same portfolio compared to growth stocks that do not migrate."

The Cross-Section of Expected Stock Returns by Eugene F. Fama; Kenneth R. French - "Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market beta, size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the tests allow for variation in beta that is unrelated to size, the relation between market beta and average return is flat, even when beta is the only explanatory variable."

Mutual Fund Performance by Eugene F. Fame and Kenneth R. French - "After costs, that is, in terms of returns to investors, active management must in aggregate be a negative sum game, by the amount of the aggregate costs that active managers impose on investors."

The Efficient Market Hypothesis and Its Critics by Burton G. Malkiel - "...the evidence is overwhelming that whatever anomalous behavior of stock prices may exist, it does not create a portfolio trading opportunity that enables investors to earn extraordinary risk adjusted returns."

The Dimensions of Stock Returns by Dimensional Fund Advisors (DFA) - "Many studies document the existence of size and relative-price effects in equity markets in the US and many other countries. These findings have important implications for equity allocation. Investors may be able to increase the expected returns of their portfolios by holding small capitalization stocks and value stocks in greater than market-capitalization proportions. Such portfolios are said to be "tilted" toward small cap and value stocks."

The Asset Pricing Anomalies in 19th Century Britain by Qing Ye, Charles Robert Hickson, and John D. Turner - "This article examines the size and value anomalies using an original dataset consisting of monthly information on stock prices and annual information on dividends for 1,051 stocks traded in the London Stock Exchange between 1825 and 1870. In this historical British stock market, smaller stocks are found to deliver significantly higher returns than the larger ones. Value stocks indicated by high dividend yield also have higher average returns than growth stocks. The empirical evidence from this article provides important and fresh new empirical evidence on the asset pricing anomalies, suggesting that the size and value anomalies are unlikely to be random events that just appeared by chance.

Active vs. Passive Management by Rex A. Sinquefield - " It is my contention that active management does not make sense theoretically and isn't justified empirically. Other than that, it's O.K. But it's easy to understand the allure, the seductive power of active management. After all, it's exciting, fun to dip and dart, pick stocks and time markets; to get paid high fees for this, and to do it all with someone else's money. Passive management, on the other hand, stands on solid theoretical grounds, has enormous empirical support, and works very well for investors. "

The Arithmetic of Active Management by William F. Sharpe - "Because active and passive returns are equal before cost, and because active managers bear greater costs, it follows that the after-cost return from active management must be lower than that from passive management."

The Cost of Active Investing by Kenneth R. French - "I compare the fees, expenses, and trading costs society pays to invest in the U.S. stock market with an estimate of what would be paid if everyone invested passively. Averaging over 1980 to 2006, I find investors spend 0.67% of the aggregate value of the market each year searching for superior returns. Society’s capitalized cost of price discovery is at least 10% of the current market cap. Under reasonable assumptions, the typical investor would increase his average annual return by 67 basis points over the 1980 to 2006 period if he switched to a passive market portfolio."

Luck versus Skill in the Cross Section of Mutual Fund Alpha Estimates by Eugene F. Fama and Kenneth R. French - "The aggregate portfolio of U.S. equity mutual funds is close to the market portfolio, but the high costs of active management show up intact as lower returns to investors. Bootstrap simulations produce no evidence that any managers have enough skill to cover the costs they impose on investors. If we add back costs, there is some evidence of inferior and superior performance (non-zero true alpha) in the extreme tails of the cross section of mutual fund alpha estimates. The evidence for performance is, however, weak, especially for successful funds, and we cannot reject the hypothesis that no fund managers have skill that enhances expected returns."

Three Challenges of Investing by John C. Bogle - "Conceptually, there's no reason to debate whether or not passive management beats active management. Passive must win. Why? Because if we take all stocks as a group, or any discrete aggregation of stocks in a particular style, an index that holds all of those stocks at their market capitalization weights will precisely track their return. Therefore the index must, and will, outpace the return of the totality of investors who own that same aggregation of stocks, but incur management fees, administrative costs, trading costs, taxes, and sales charges."

The Active-Passive Debate: Bear Market Performance by Vanguard Investment Counseling & Research - "We often hear of the benefits active equity management can provide during periods of market stress. One familiar point is that an active manager can alter a portfolio’s makeup to invest in defensive stocks or in cash to protect against, or benefit from, an impending or ongoing bear market, while an index fund manager must adhere to the stated objective of tracking a benchmark’s return regardless of market direction. However, when related data is examined in detail, we find little evidence to support the theoretical benefits of active management during periods of market stress—in fact, active managers have not consistently delivered superior performance relative to a benchmark during such periods."

This Is Rocket Science by Bob Frick (Kiplinger.com) - "DFA highly values pragmatism and hires a lot of engineers, some of whom are former rocket scientists."

DFA vs. Vanguard by Edward Tower & Cheng-Ying Yang - "Passive and enhanced index funds are two important options for investors. Vanguard is
the largest provider of passive indexed funds, and DFA is one of the major providers of enhanced indexed funds, with uniquely close ties to academic financial research and an illustrious board of directors. Vanguard has low fees and investors can buy Vanguard funds directly. DFA’s fees are higher and one can invest in DFA funds only through an advisor, who charges for the service. Moreover, one must pay transactions fees to a custodian. We ask whether DFA has outperformed Vanguard by enough to justify the additional fees."

Keep it Simple by David Swenson - "Don’t try anything fancy. Stick to a simple diversified portfolio, keep your costs down and rebalance periodically to keep your asset allocations in line with your long-term goals."

Ditching the Monkey by Eric J. Savits (Barron's) - "...as a result of chance there always will be managers who beat the market, but there's no way to identify them. Sure, there will be a new Bill Miller or Peter Lynch, but seeking them before they do their thing is like trying to pick out which of a million touch-typist monkeys accidentally would produce Hamlet."

Understanding Risk and Return, the CAPM, and the Fama-French Three-Factor Model by the Tuck School of Business at Dartmouth - "We have examined two tools to help investors understand the risk/reward tradeoff which they face when making investments. We first introduced the CAPM, with its inherent simplicity, linking market covariance risk to expected returns. Its simplicity helps to build intuition around the concept of modeling return as a function of risk. The CAPM’s simplicity is also its greatest shortcoming, as the underlying assumptions limit its ability to explain and predict actual returns. The Fama-French Three-Factor Model expands the capabilities of the model by adding two company specific risk factors - SMB and HML. The three factors in concert explain most of the returns due to risk exposure."

Fundamentally Flawed Indexing by Andre' F. Perold - "Holding a stock in proportion to its capitalization weight does not change the likelihood that the stock is overvalued or undervalued. The notion that capitalization weighting imposes an intrinsic drag on performance is, accordingly, false."

Bond Strategies by Dimensional Fund Advisors (DFA) - "...over short horizons (like a year), changes in interest rates (bond yields) are largely unpredictable. This result implies that current prices of discount bonds are good estimates of the prices of bonds with the same maturities one period from now. More interesting, expected returns on bonds can be inferred from current bond prices."

Asset Location for Taxable Investors by Vanguard Investment Counseling and Research - "It has long been understood that asset allocation, based
on an investor’s goals, risk tolerance, and investment horizon, is one of the most important determinants of long-term portfolio performance. Proper diversification, low relative costs, and rebalancing are also critical to realizing the benefits of the selected asset allocation. Perhaps less understood is the impact of asset location. Asset location refers to where or in which type of account (taxable or tax-deferred) an investor should purchase stocks and bonds. After determining the appropriate asset allocation, the investor should decide whether the primary goal is to maximize after-tax return by forgoing tax-inefficient investments or strategies (for example, active equity mandates, real estate investment trusts [REITS], commodities, or other alternative investments) or to include these tax-inefficient assets or strategies in the hope of adding performance or reducing the portfolio’s risk."

International Equity: Considerations and Recommendations by Vanguard Investment Counseling and Research - "Despite the size and potential benefits of international markets, some U.S. investors have been slow to venture abroad. According to various market surveys, international equities represent only approximately 11% of the typical institutional plan sponsor portfolio. This relatively low allocation may reflect concern about the risks unique to international investing, including: (1) the perceived higher risk of foreign markets, (2) the impact of currency volatility, (3) increasing global correlations, (4) higher investment costs, or even (5) aversion to short-term underperformance relative to domestic markets. We weigh these risks against the potential benefits"

Performance and cost often go hand-in-hand by Vanguard - "The fact is, there's one very important element affecting long-term investment return over which you have a great deal of control, and that's cost."

Time Diversification and Horizon-Based Asset Allocations by Vanguard Investment Counseling and Research - "Our findings suggest that there is little evidence to support the notion that time moderates the perceived volatility inherent in risky assets. However, we would expect the risk-reward relationships of the past to prevail in the future, and if that is the case, a longer investment horizon may support a willingness and ability to assume the greater uncertainty of equitycentric asset allocations. This may be true particularly for younger investors for whom the allocation to human capital and the risk posed by the erosion of purchasing power by inflation can reasonably be assumed to be greatest."

The Five Myths of Active Portfolio Management by Jonathan B. Berk - "In this paper I have argued that much of what we observe about the behavior of actively managed mutual funds is consistent with a world with rational, value maximizing, investors that compete with each other. An important insight is that returns cannot be used to measure managerial skill. Because prior studies have generally used return to measure skill, they have come to the erroneous conclusion that active managers add little value. Given their overall levels of compensation, one would expect that in aggregate they should have significant levels of skill and thus add considerable value. I show that when skill is measured correctly, the data is indeed consistent with the existence of relatively many skilled managers who add considerable value but capture this themselves in the fees they charge."

False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas by Laurent Barras, O. Scaillet, Russ Wermers - "Prior approaches to identifying skilled funds in a population examine the performance of each fund in isolation, without regard to the role of luck in this multiple fund setting. Our paper develops a new, simple technique to properly account for false discoveries, or funds which exhibit significant alphas by luck alone. As such, our approach correctly identifies the proportion of funds with truly positive or negative performance in any segment of the cross-sectional alpha distribution, even with cross-fund dependencies in estimated alphas. We find that 26.6% of U.S. domestic-equity funds exhibit truly negative four-factor alphas (net of expenses and trading costs), while only 0.6% exhibit truly positive alphas over the 1975 to 2006 period. While the unskilled funds reside throughout the left tail, skilled ones are located only in the extreme right tail. We find much higher proportions of skilled fund managers when we examine Aggressive-Growth funds, or when we examine funds prior to 1990. We also find much a much higher proportion of skilled fund managers (9.6%) when we examine alphas before expenses (but after trading costs). Our findings carry some important implications. First, the large growth in the number of actively managed funds has resulted in a much lower proportion of truly skilled funds, and, second, the large number of actively managed funds has not resulted in a competitive level of fund fees and expenses."

Value-Growth Dynamics in Interest Rate Cycles by MSCI Barra - "In this article, we look at whether growth stocks truly are more interest-rate sensitive, or “longduration,” than value stocks."

Market Efficiency, LT Returns, and Behavioral Finance by Eugene F. Fama - "Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is about as frequent as post-event reversal. Most important, consistent with the market efficiency prediction that apparent anomalies can be due to methodology, most long-term return anomalies tend to disappear with reasonable changes in technique."

Why Index? by Moneychimp.com - " If you're analytical and good with numbers, it's only a matter of time before the logic of indexing (diversification, low expenses, tax efficiency, control over your allocation) starts making total sense."

The Informational Efficiency of Stock Prices: A Review by James L. Davis - "If securities prices are informationally efficient, then the fees charged by active managers are not justified."

Earnings Growth and Stock Returns by Truman A. Clark - "Many investors and financial commentators believe that high earnings growth rates and high rates of return are synonymous. This is false. What is true is that differences in earnings growth rates influence the breakdown of expected rates of return into their capital gain and dividend components. All else equal, a higher rate of earnings growth produces relatively more capital appreciation and less dividend yield. But earnings growth does not affect expected total rates of return (which are sums of expected price appreciation and dividend yield). Expected returns are determined by risk alone, and the greater the risk, the higher the expected rate of return."

Explaining Stock Returns: A Literature Survey by James L. Davis - "an overview of the work that has been done in an important area of financial markets research—explaining the behavior of common stock returns."

Don't Believe the Hype by Daniel M. Wheeler - "The press has an acute understanding of how most investors think—that you need to know the future in order to invest successfully. Therefore, they focus on making forecast after forecast. Traditionally they've done so by having their writers pick up the phone and call sources who profess to have a crystal ball. Often these sources are Wall Street analysts and brokers—the very same people who focus on making sales instead of giving solid advice. "

The Cocktail Party Fallacy by Eugene Fama Jr. - "Investors provide capital in exchange for an expected return in exactly the way a lending bank provides capital in exchange for an expected interest rate."

Interview with Gene Fama Jr. by Eugene Fama Jr. - "You don't have to believe in the virtue of capitalism so much as the efficacy of it. Markets appear to be pretty good at pricing and allocating resources, including investment capital. I don't begrudge anybody the attempt to outguess the market, I just don't think it pays in terms of effort and cost. "

DFA Funds Hard to Buy, Easy to Own by Timothy Middleton - "DFA is run on principles developed in the nation's graduate schools of business, notably that of Chicago. They include the "efficient markets" theory, a phrase coined by DFA's director of research. They embrace "modern portfolio theory." And they know frequent trading can be more costly to investors than a high expense ratio, so they refuse to deal with hyperactive investors. Keeping you and me out makes DFA more economical to run, which boosts the returns of shareholders it is willing to accept. "

Passive Management: It's Not an Oxymoron by Beverly Goodman - "Passive portfolios are structured to take advantage of academic theory, rather than manager bravado. Stock or bond purchases and sales are based on academic research, scientific rules and statistical probabilities. Investing decisions are made according to asset class, and the more circumspect decision-making leads to highly efficient cost management and tax management."

If You Can't Stand the Heat... by Larry Swedroe - "While painful to endure, bear markets (or simply, periods of underperformance) are actually a good thing in one important sense. The reason is that if there were no bear markets and stocks were not volatile, risky investments, they would not provide a risk premium."

Recessions and Investor Behavior by Larry Swedroe - "...even investors that could perfectly time their exit from stocks just prior to the beginning of a recession and reentry into stocks immediately upon the ending of a recession would have failed to benefit from such a strategy. And the analysis does not take into account the costs (especially taxes) of such a timing strategy."

Black Swans and Market Timing by Javier Estrada - "Do investors obtain their long term returns smoothly and steadily over time, or is their long term performance largely determined by the return of just a few outliers? How likely are investors to successfully predict the best days to be in and out of the market? The evidence from 15 international equity markets and over 160,000 daily returns indicates that a few outliers have a massive impact on long term performance. On average across all 15 markets, missing the best 10 days resulted in portfolios 50.8% less valuable than a passive investment; and avoiding the worst 10 days resulted in portfolios 150.4% more valuable than a passive investment. Given that 10 days represent less than 0.1% of the days considered in the average market, the odds against successful market timing are staggering."

Selection Skill, Transactional Skill by William J. Bernstein - "The evidence that money managers cannot persistently earn excess returns is impressive. Burton Malkiel's famous monkey-throwing-darts-at-the-stock-page analogy resonates with anyone familiar with the data on manager performance persistence. Yes, in any given period a few simians will obtain superb results. But this is due to chance—last year's winners, in the aggregate, will have only average performance next year."

Correlation, Return Gaps and the Benefits of Diversification by Meir Statman and Jonathan Scheid - "Correlation is the common indicator for the benefits of diversification, but it is not a good indicator. This is for two reasons. First, the benefits of diversification depend not only on the correlations between returns but also on the standard deviations of returns. Second, correlation does not provide an intuitive measure of the benefits of diversification. Return gaps are better indicators. Return gaps are the difference between the returns of two assets or between two portfolios."

The Expected Value Premium by Long Chen, Ralitsa Petkova, and Lu Zhang - "We estimate the expected value premium using expected rates of dividend growth and expected dividend-price ratios for value and growth portfolios. We find that during the 1941—2002 period, the expected value premium is positive in every year, significant in various subsamples, and countercyclical. Unlike the equity premium, there is no noticeable trend in the expected value premium."

Commodity Futures in Portfolios by Truman A. Clark - "The evidence indicates that the purported investment benefits of commodity futures are exaggerated."

Value and Momentum Everywhere by Clifford S. Asness, Tobias J. Moskowitz, and Lasse H. Pedersen - "We study jointly the returns to value and momentum strategies for individual stocks within countries, stock indices across countries, government bonds across countries, currencies, and commodities. Value and momentum generate abnormal returns everywhere we look. Exploring their common factor structure across asset classes, we find that value (momentum) in one asset class is positively correlated with value (momentum) in other asset classes, and value and momentum are negatively correlated within and across asset classes. Long-run consumption risk is positively linked to both value and momentum, as is global recession risk to a lesser extent, while global liquidity risk is related positively to value and negatively to momentum. These patterns emerge from the power of examining value and momentum everywhere at once and are not easily detectable when examining each asset class in isolation."

Debunking Third-World Myths (Video) - Hans Rosling

Papers by Kenneth R. French - Kenneth R. French

Fiduciary Focus: Active vs. Passive Investing (Part 1) - W. Scott Simon

Fiduciary Focus: Active vs. Passive Investing (Part 2) - W. Scott Simon

Fiduciary Focus: Active vs. Passive Investing (Part 3) - W. Scott Simon

Fiduciary Focus: Active vs. Passive Investing (Part 4) - W. Scott Simon

Fiduciary Focus: Active vs. Passive Investing (Part 5) - W. Scott Simon

Fiduciary Focus: Active vs. Passive Investing (Part 6) - W. Scott Simon

Fiduciary Focus: Diversifying Risk vs. Stock Picking - W. Scott Simon

The Catch-22 of Investment Return - W. Scott Simon

Diversifying a Concentrated Portfolio Part I - W. Scott Simon

Diversifying a Concentrated Portfolio Part II - W. Scott Simon

Financial and Estate Planning

360 Financial Literacy

Social Security

Taking Social Security Too Soon Can Cost You

Taking Social Security Too Late Can Cost You

The Baby Boomer's Guide to Social Security

Social Security - The 62/70 Solution

Two Ways To Optimize Social Security Benefits

Saving for College

College Savings Plans Network

College Board

Guide to Financial Aid

Crash Course in Wills and Trusts

Nolo - Your Legal Companion

National Association of Financial and Estate Planning

Bankrate.com - Loan and Mortgage Info

HSH - Loan and Mortgage Info

Long-Term Care

Stock Options

Choosing a Medigap Policy

CFP Board of Standards

An Overview of Equity-Indexed Annuities

Identity Theft

Charitable Planning

Warren County Foundation

Community Foundations

GivingNet

Taxes

The IRS

Fairmark Tax Guide for Investors

Ed Slott - IRA Tax Center

Roth IRA Info

1040.com - Tax Forms, Publications, Instructions

Reference

MoneyChimp

Ohio State's Virtual Finance Library

IndexUniverse.com

Bogleheads Forum

National Bureau of Economic Research

The Federal Reserve

White House Economic Statistics Briefing Room

Words of Wisdom

"Invest your time actively and your money passively." - Michael LeBoeuf

"Investors should remember that excitement and expenses are their enemies." - Warren Buffett

"The stock market is a giant distraction to the business of investing." - John C. Bogle

"The market can stay irrational longer than you can stay solvent. " - John Maynard Keynes

"In all things there is a law of cycles." - Publius Cornelius Tacitus, Roman Historian (55-117 AD)

"When the time comes to buy, you won't want to." - Walt Deemer

"Risk is good. Not properly managing your risk is a dangerous leap" - Evel Knievel

"To be uncertain is to be uncomfortable, but to be certain is to be ridiculous." - Chinese proverb

"No pain, no gain." - Unknown

"If volatility is the disease, then time is the medicine." - Roger Gibson

"If you find a path with no obstacles, it probably doesn't lead anywhere." - Frank A. Clark

"What happens to my portfolio in this or that year isn't any more interesting to me than what happens to cookies the first minute they're in the oven. Only the final result is important." - Yobria from Bogleheads

"Panics, in some cases, have their uses; they produce as much good as hurt. Their duration is always short; the mind soon grows through them and acquires a firmer habit than before." - Thomas Paine

"Dangers bring fears, and fears more dangers bring." - Richard Baxter

"Without the strength to endure the crisis, one will not see the opportunity within. It is within the process of endurance that opportunity reveals itself." - Chin-Ning Chu

"It's better to know what you know than to know what you don't know." - Unknown

"An investment in knowledge always pays the best interest." - Benjamin Franklin

"There are two times in a man's life when he should not speculate: when he can't afford it and when he can." - Mark Twain

"October:  This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February." - Mark Twain

"I am an old man and have known a great many troubles, but most of them never happened." - Mark Twain

"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Winston Churchill

"I sincerely believe ... that banking establishments are more dangerous than standing armies." - Thomas Jefferson

"Costs Matter" - John C. Bogle

"It's not a big surprise that 5-star funds have lower costs, as expense ratios are the best predictor of returns that we know of." - Morningstar

"Morningstar's research has shown that fund fees are one of the most reliable predictors of performance. The lower the expense ratio, the more likely it is that a fund will outperform over the long haul." - Morningstar

"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." - Warren Buffett

"The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective." - Warren Buffett

"Price is what you pay. Value is what you get." - Warren Buffett

"The investor of today does not profit from yesterday's growth." - Warren Buffett

"There seems to be some perverse human characteristic that likes to make easy things difficult." - Warren Buffett

"We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.' " - Warren Buffett

"Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient." - Warren Buffett

"If you're analytical and good with numbers, it's only a matter of time before the logic of indexing (diversification, low expenses, tax efficiency, control over your allocation) starts making total sense." - Moneychimp.com

"It is not easy to get rich in Las Vegas, at Churchill Downs or at the local Merrill Lynch office." - Paul A. Samuelson

"Most professionals don't beat the market. Let's not over-rate my industry." - Jim Cramer

"One of the toughest ways to make money is to argue with the stock market. The market will always be bigger, stronger and more powerful than we are and will do what it wants to regardless of what we may think, say or do. It can be absolutely infuriating when what seems like common sense to us is completely ignored by the market beast." - James "Rev Shark" De Porre

"Prices in the marketplace...are by definition the right price. Anyone who's got a different view is bringing information to the market which it doesn't have, something I doubt very much." - Alan Greenspan

"Anyone who says active managers can win should wear a T-shirt that says, "I Can't Add" - Larry Swedroe

"Stocks are risky, and the risk is that you will get below expected returns" - Larry Swedroe

"Successful active management contains the seeds of its own destruction" - Larry Swedroe

"In any economy with rational, profit maximizing investors who compete with each other, all expected risk-adjusted excess returns must be zero, and realized excess returns must be unpredictable." - Jonathan Berk

"Facts do not cease to exist because they are ignored." - Aldous Huxley

"What we see depends mainly on what we look for." - John Lubbock

"Most people might just as well buy a share of the whole market, which pools all the information, than delude themselves into thinking they know something the market doesn't. " - Merton Miller

"So everybody has some information. The function of the markets is to aggregate that information, evaluate it, and get it incorporated into prices." - Merton Miller

"The essence of the efficient market thing is, after all, as we in economics have always held: There's no free lunch." - Merton Miller

"To beat the market you'll have to invest serious bucks to dig up information no one else has yet." - Merton Miller

"What counts is what you do with your money, not where it came from." - Merton Miller

"The only function of economic forecasting is to make astrology look respectable." - John Kenneth Galbraith

"The more unpredictable the world is, the more we rely on predictions." - Steve Rivkin

"Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." - Fred Schwed, Jr.

"It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it." - John C. Bogle

"Those who have knowledge, don't predict. Those who predict, don't have knowledge. " - Lao Tzu, 6th Century BC Chinese Poet

"The temptation to form premature theories upon insufficient data is the bane of our profession." - Sherlock Holmes

"If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what`s going to happen to the stock market." - Benjamin Graham

"There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor - the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know." - William Bernstein

"All the time and effort people devote to picking the right fund, the hot hand, the great manager have, in most cases, led to no advantage." and "Most individual investors would be better off in an index mutual fund." - Peter Lynch

"Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves." - Peter Lynch

"He who works his land will have abundant food, but he who chases fantasies lacks judgment." - Proverbs 12:11

"Foul cankering rust the hidden treasure frets, But gold that's put to use more gold begets." - William Shakespeare

"The miracle of compounding returns is overwhelmed by the tyranny of compounding costs" - John C. Bogle

"Bad performance and service are not cheap; you have to pay dearly for them." - Rex Sinquefield

"The only people who still believe markets don't work are the North Koreans, the Cubans and the active managers..." - Rex Sinquefield

"Money's only something you need in case you don't die tomorrow... " - Carl Fox

"The probable is what usually happens." - Aristotle

"It is a truth very certain that when it is not in our power to determine what is true we ought to follow what is most probable." - Rene Descartes

"The only new thing in the world is the history you don't know." - Harry S. Truman

"When we buy and sell stocks -- We don't get to see who's on the other side of the table. -- Would you feel differently if you knew that a team of gunslingers from Goldman Sachs was betting against you?" - Ben Stein, Phil DeMuth

"The risks of your portfolio can't be boiled down to its standard deviation. The real risk is that your portfolio fails to meet your investment goals." - Ben Stein, Phil DeMuth

"Investing is a strange business. It's the only one we know of where the more expensive the products get, the more customers want to buy them." - Anthony M. Gallea, William Patalon III

"One way to end up with $1 million is to start with $2 million and use technical analysis. " - Ralph Seger

"If all the economists were laid end to end, they'd never reach a conclusion." - George Bernard Shaw"

"If the nation's economists were laid end to end, they would point in all directions."- Arthur H. Motley

"If all the economists in the world were laid end to end, it wouldn't be a bad thing.” - Peter Lynch

"The economy depends about as much on economists as the weather does on weather forecasters." - Jean-Paul Kauffmann

"My problem lies in reconciling my gross habits with my net income." - Errol Flynn

"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities." - Benjamin Graham

"Wall Street people learn nothing and forget everything. " - Benjamin Graham

"The investor's chief problem - and even his worst enemy - is likely to be himself" - Benjamin Graham