The Best Investors Spend Their Lives Asking Why, Why, Why

I just finished reading this thread on The Bogleheads Forum (a popular place where index investors hang out and philosophize about personal finance):

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=121776&newpost=1781884

The topic at hand isn’t all that important—it was a bunch of guys debating the get-the-party-started question of international allocation within a portfolio—but I wanted to point out an example of the dumbest way to approach personal finance or any other topic: the constant appeal to authority.

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Two Things You Could Have Done In 1989 To Become A Johnson & Johnson Millionaire Today

If you wanted to accumulate $1,000,000 worth of Johnson & Johnson stock over the past twenty-four years, there are two straightforward ways that you could have accomplished it: some variation of lump sum investing or dollar-cost averaging.

(1)    If you wanted to make an investment in Johnson & Johnson stock on August 19th, 1989 that would be worth $1,000,000 today, you would have had to set aside $43,000 in 1989. That would be roughly the equivalent of coming up with almost $100,000 in terms of today’s purchasing power.

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Why You Do Not Want To Win On The Game Show “The Price Is Right”

Benjamin Graham’s famous question that all investors should ask themselves before making any purchase decision (On what terms, and at what price?) even applies to the game show “The Price Is Right” as well.

Check out this recent anecdotal article written about contestants from the famous game show:

http://shine.yahoo.com/work-money/price-8230-taxes-high-174700410.html

One of the mainstream appeals of a show like “The Price Is Right” is that it allows financially illiterate people the opportunity to receive a good or service that they could not otherwise afford. Even though it is irrational (and in some ways even perverse), no one wants to see the guy with a fully funded 401(k), a hundred grand in emergency savings, and a taxable portfolio stuffed with blue-chip stocks  take home a $75,000 Jaguar. You want that car to go to the widow raising two children on $40,000 per year because you know that if they do not win that car on a game show, they’ll never own that kind of luxury item during their time here on earth.

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