The 14 Truths You Must Know When You Invest

Click on the Truth you'd like to read about.

Active Investing: A Loser's Game

Past Performance Not a Good Predictor

If Pros Can't Win, Why Should You?

Media Need People to Tune In

Great Companies Not Necesarily Great Investments

Price Matters

Confusing Average Returns With Market Returns

Buying Individual Stocks Is Speculating

Reversion to the Mean

Forecasts Have No Value

Taxes Often Biggest Expense

Financial History Knowledge Is Critical

Confusing Familiar With Safe

Find the Right Portfolio for You

Larry Swedroe is on a mission: Save investors, one at a time if necessary.

To spread his gospel, Swedroe writes investing books and is director of research at Buckingham Asset Management in St. Louis. But his missionary work doesn't end there: He is a cyber-Cassandra, sending missives to Web sites such as Index Funds and Vanguard Diehards and, yes, to journalists' email addresses. His message: Forget the stuff that Wall Street, the media and the mutual-fund industry peddle; the best route to long-term financial success is through low-cost passive investments such as index funds and exchange-traded funds.

Swedroe has a new book hitting the shelves this month, The Successful Investor Today: 14 Simple Truths You Must Know When You Invest. "The basic premise of my book is that the tremendous losses that investors had experienced were avoidable, and it had nothing to do with timing the market," he says. "This catastrophe was totally avoidable. People have only themselves or their advisors to blame."

For this week's 10 Questions, we've modified our format slightly to accommodate Swedroe's gospel: Instead of 10 Questions, we have 14 Truths, in Swedroe's words. When you hear what he has to say, you may better understand his passion for the subject. Who knows, maybe a few more investors will be saved.

Truth 1: Active Investing Is a Loser's Game

The arithmetic of active investing proves that, as a group, all active investors must earn the same return as active investors. All stocks must be owned by someone.

If you understand that basic principle, you will understand why active investing is a loser's game. Let's say you're in a two-stock world: MicrosoftMSFT and General ElectricGE. You and I each have $100 in each stock. You decide GE's going to outperform, and I decide Microsoft's going to outperform. You want to buy GE, so where do you buy? You buy it from me. To do so, you have to sell Microsoft. Let's say Microsoft goes up 20% and GE goes up 10%, so they end up with an average market return of 15%. You did worse because stock underperformed.