Active Investing Is About Being Right, Not What You "Do."

Do you like investing? Find it fun to read, study and peruse investment resources to better yourself as an investor? Have you given your children a few bucks to buy their favorite stock so they can start early, learning important financial lessons?

You may be wasting your time. Does persistence, effort, practice, and increased activity over time make one a better investor?

In most every field of endeavor, we are paid on amount and quality of our output. Lawyers paid to write contracts, negotiate, or litigate. Teachers are paid to teach, janitors to clean and engineers to code. Unless you are a hyper-kinetic professional trader with a true edge, one of the paradoxes of investing, is that activity and knowledge, have little or no correlation with success. In fact more activity usually leads to bad results.

Active investing is about being right, not what you “do.” Warren Buffett has 2 great quotes on this topic: “Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell….We don’t get paid for activity, just for being right.”

Do you know enough to be right, to bet against everyone else? If not, just use MarketRiders.

If you must actively invest, at least measure whether you’re adding to your net worth or just engaging in expensive entertainment. Use our online portfolio manager to build a virtual portfolio to benchmark yourself. Let’s say you have a portfolio with 1/3 equally spread amongst your favorite tech stocks, a few large caps and some commodity stock. You can use our 5 step process (the right yellow box when you click “Create A Portfolio”) and build a virtual portfolio with 3 ETFs: a tech, large cap and a commodity. Put an equal amount of capital in your virtual portfolio and see who wins – your portfolio or the ETFs. The lesson may be sobering.

There were lots of great articles this week about tools for investing. We were mentioned in Money Magazine and BusinessWeek as the do-it-yourself movement continues to gain steam.