Charles Ellis Talks About Investor’s Blunders

By on December 14, 2011

Charles Ellis - Winning the Loser's GameConsuelo Mack recently interviewed index fund devotee and consultant Charles Ellis, author of “Winning the Loser’s Game.” Ellis also advises the Yale endowment which had 20 years of positive returns and returned 16% per year from 1998 to 2008. Ellis has written a new book entitled, The Elements of Investing"" “>”The Elements of Investing.”

Ellis began the interview talking about the importance of investors saving while they are earning money due to the difficulty catching up in later years.

Ellis commented on his early years in which he attempted to pick stocks. He also mentioned his friends who used active managers. He said they were, “triumphant, and then not.” Over time their results, with very few exceptions, would have been better if they had used index funds.

Ellis said Warren Buffett was one of the exceptions to investors who couldn’t beat the index. Ellis also said he had the good luck to own Berkshire Hathaway over several decades. Ellis commented on Buffett’s steady discipline of wise capital allocation.

Ellis said individuals working hard to generate returns all cancel each other out, which he likened to a tug of war with a rope and, “a complete waste of time.”

Ellis said there were very few investment firms worth investing with because they’ve been turned into commercial organizations. He mentioned the Capital Group, American Funds, Wellington Management in Boston, T. Rowe Price, and Vanguard as non-commercial investment organizations representing the best interests of their investors.

The conversation continued with Ellis talking about the importance of diversification over time, asset allocation, why investors should avoid esoteric areas (hedge funds, private capital, etc.) and stick to stocks and bonds, commodities as speculation (not investment), investor’s biggest blunders, investing in retirement, the role of a sophisticated financial system, and importance of the profit incentive.

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