Using Yogi-isms to learn how to better invest funds

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"When it comes to a fork in the road, take it." - Yogi Berra
“When it comes to a fork in the road, take it.” – Yogi Berra

Investing is not easy. In sporting terminology you need to “bring your A-Game”.

In this week’s article I will act as your financial coach. We will use two famous quotes by the late Yogi Berra to develop an investment strategy.

Yogi Berra passed away two weeks ago at the age of 90. Having won the World Series 10 times, and as an All-Star player for 15 consecutive seasons, he was regarded as one of the top 5 New York Yankees of all time. He is also widely known for his Yogi-isms, his short and witty bits of wisdom.

We will rely on two of his quotes to illustrate the investment strategy.

Yogi-ism 1: “You can learn a lot by just watching.”

To have a good investment strategy it is essential to watch, or even study, what is known about investing.

The two best sources are academic research, and historical data collected by large expert firms that track investment returns around the globe.

There is consensus that actively-managed, high-cost, mutual funds are not good investments. However, many investors rely solely on information from large financial institutions and mutual fund companies that sell investments. In my opinion that is an error.

Yogi BerraOur recommendation is to take a good look at what is going on, and listen to what the experts in the large firms that monitor mutual funds, and the academic community have to say. Don’t rely on promotional literature.

The next question is how do you apply what you learn?

Yogi-ism 2: “When you come to a fork in the road, take it.”

If you currently own high-cost mutual funds, and you are aware it is not in your best interest to do so, what fork in the road will you take?

The two options are: continue with the status quo, or be proactive and change based on the evidence.

Assume you talk to a financial institution about a mutual fund recommendation. Be aware there is a potential conflict of interest because that firm is a financial retailer, and the objective of every retailer is to maximize their profits.

If they sell a high-cost mutual fund their profits will be high. If they sell you a fund that has much lower fees, their bottom line will suffer.

If you were the head of the financial institution looking for high earnings, you would hope your staff would promote the higher cost option.

My observation is that these firms are doing a good job at attempting to maximize their profit, and that this practice inhibits investors from achieving their objective of having fairly priced, well performing investments.

We said we would coach you on investment strategy, so here it is. If you want to be an All-Star in investing, watch what’s going on and listen to the academic and independent firm’s experts who have nothing to gain. Use that knowledge to best decide which fork in the road you should travel.

To quote Yogi one more time: “You’ve got to be very careful if you don’t know where you are going, because you might not get there.”