Geoff Gannon November 1, 2006

Guest Columnists

As part of my continuing effort to increase both the amount of content and the diversity of content on this site, I’m proud to present two new guest columnists: Max Olson and Steven Rosales.

I’ve added a “Columns” section to the website. If you look in the “Navigate Site” box on the right-hand side of your screen, you will see that the third link down now reads “Columns”. This link will take you to the Gannon On Investing Guest Columns Page, which presents all the articles written by guest columnists in reverse chronological order (i.e., in the same manner as a blog).

If you’d prefer you can jump directly to a specific column by following one of the links a little further down on the page. Once again, if you look to the right-hand side of your screen, you will see that the third box down is entitled “Guest Columnists”. Currently, there are two links in that box: “Max Olson” and “Steven Rosales“. Simply click on the name of a columnist and you’ll see his latest articles.

For now, I’ve only posted one article from each guest columnist. Of course, you’ll see many more articles appear in the days ahead.

Please take this opportunity to sample the work of each writer.

Column: Max Olson

Column: Steven Rosales

Max’s articles will cover a variety of different topics in value investing. Steven has a series of articles planned. His first article serves as an introduction to that series. Therefore, I’m reprinting it below:

I am a new investor. What does that mean? Simply that I do not have much experience investing. While I had read books about investing and was aware of the stock market, I had never given much thought to investing.

I saw the stock market as a competition where I was at a disadvantage; investing involved too much risk for the potential reward. Therefore, as of January 1, 2006, I had never purchased a stock. But that has changed. It changed because I reached a point in life where I had funds to invest and needed to make some decisions on how to invest them.

Now many people think that the best way to invest is to place your money with a mutual fund. I was one of those people up until November 2005 when I read John Bogle’s book on mutual funds. Two things about this book stood out to me. The first was that whether the fund increases or decreases my investment, the people who are running it get paid, and that these “fees” impact my investment results (if I am up 10% on the year, and I have to pay a total expense fee of 1.5%, I have actually only made 8.5%).

The second point that stood out to me was the fact that the vast majority of money managers do not outperform the stock market. In his book, Bogle points out that most people would be better off just buying the market in an index fund. These are funds where essentially every stock is part of the fund and your return is guaranteed to match what the whole stock market does, good or bad.

When I read this I realized there were actually two distinct risks in mutual funds. First, that I only had a 15% chance of picking a mutual fund that would do better than the market as a whole, and second, that this mutual fund would then have to do a lot better than the market as a whole to outperform index funds after all the mutual fund’s fees and expenses had reduced its performance. For example, if the market goes up 10% and it costs me 2% to be in a mutual fund, than the mutual fund has to earn 12% just to stay up with the market.

So with this sobering thought I began to ask myself whether there might be a better way for me to invest my money than just handing it off to a mutual fund. Could I find a way to participate in the stock market and avoid having to do it through mutual funds, and at the same time not increase (in fact, hopefully decrease) the risk associated with investing in a mutual fund?

The answer to those questions is what this series of articles is all about. As a new investor I have set off on a journey to discover if a reasonably intelligent individual who is willing to devote a sensible amount of time can learn to successfully invest in the stock market.