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Active Investors Anonymous

Disclaimer: This article contains information that was factual and accurate as of the original published date listed on the article. Investors may find some or all of the content of this article beneficial but should be aware that some or all of the information may no longer be accurate. The information and/or data in this article should be verified prior to relying on it when making investment decisions. If you have any questions regarding the information contained in this article please call IFA at 888-643-3133.

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A 1998 PriceWaterhouseCoopers study on the first 25 Years of Indexing, concludes, "even as better information on indexing becomes available, emotional factors may continue to constrain the growth of indexing. Many institutional fund managers feel driven to beat the market, even while recognizing the arguments in favor of indexing."

I am Mark Hebner, president of Index Fund Advisors (IFA), a registered investment advisory firm. Years ago I learned some painful lessons when I sold my previous business and turned the profits over to active managers. I woke up one morning crestfallen, realizing that my decision to do so had cost me about $30 million in lost opportunity. After thoroughly researching the science of passive investing and index funds, I came to the conclusion that I needed to withdraw all of my investments from several stockbrokers and place them in index funds. I concluded that a 12-Step recovery program for active investors was critically needed. Today, I am passionate about educating investors about the benefits of index funds.

The History of 12-Step Recovery Programs

The concept of a 12-Step Recovery Program originated in 1935 and today is used to treat more than thirty addictions, including gambling, alcohol, overeating, drugs, and sex. Millions of people rely on such programs.

In the early 1930’s an American alcoholic named Rowland H. (only the last initial is used to keep him anonymous) traveled to Switzerland to undergo treatment from the world renowned Dr. Carl Jung. After a couple unsuccessful trips, Dr. Jung told Rowland that he needed a "profound spiritual experience" to enable him to stop his drinking. In other words, he needed to find a higher power. Other patients with these experiences had overcome their addictions and changed their behaviors.

The 12-Step Program is partially based on the replacement of an addiction with a higher power, whatever that may be for a person. As investors become more familiar with the Nobel Prize winning stock market research outlined in this book, many may experience investing epiphanies and transform their thinking and investment behaviors. Many “Stockaholics™” are already beginning to see the light.

Rex Sinquefield, a director at DFA, attended the University of Chicago in the 1970s. He said, "Every time one of my professors talked about efficient markets, I thought I was looking at Moses coming down from the mountain, and I took that seriously." DFA is now known as the “mecca” of indexing. Maybe Sinquefield had his profound spiritual experience there in the classroom.

I had my epiphany when I heard Professor Eugene Fama of the University of Chicago, and a Director of Research at DFA discuss the Three Factor Model at a financial conference. After reviewing Step 2, which describes the research of Fama, French, and many others, readers will know why.

The Big Book on Investing

When the founder of Alcoholics Anonymous, Bill W., needed a vehicle to carry his message to millions of alcoholics, a book was the only affordable method. So, he wrote Alcoholics Anonymous in 1938. That book has become affectionately known as “The Big Book.” Coincidentally, 1938 was the same year that Alfred Cowles created what was later to become the Standard & Poor’s 500. (Cowles did not know that his creation would go on to become the first index used to establish an index fund by Rex Sinquefield.)

This Website is a modified 12-step Program designed to educate investors on how to overcome the emotional desires to actively invest. You may think of it as the “Big Book on Investing.” In 1938, Bill W. was limited to books as an affordable method of communication. But, today we have the Internet. It’s a medium I take full advantage of in my mission to lead investors to a highly efficient, tax-managed, low-cost and risk appropriate portfolio.