An Investor Who Won By Staying Out Of The Race

Simplicity, caution, and independent thinking — that’s the approach Sheldon Jacobs used in developing one of the most successful investing newsletters in the country. Sadly, Jacobs passed away last month, and in a recent piece for MarketWatch, Chuck Jaffe looked back at Jacobs’ refreshing approach to both investing and life.

“Where some newsletters focus on charts and use jargon, Sheldon basically evaluated funds by looking for which ones had the qualities that could not only have produced good returns but could keep generating them in the future, without taking a major stumble,” Jaffe writes in discussing Jacobs’ No-Load Fund Investor newsletter, which Jacobs started in 1979. “If you use the Hulbert Financial Digest to judge his results, it’s clear that go-go, top-the-charts investors were never Sheldon’s audience. In most years, he wasn’t aiming to beat the Wilshire 5000 Total Stock Market Index, and he didn’t.”

But, Jaffe adds, in 2006, the newsletter was No. 1 for risk-adjusted performance over a 15-year period, according to Hulbert. The reason? Jacobs didn’t follow the herd when the herd was walking off the cliff. “In 2000, as the Internet bubble was bursting, No-Load Fund Investor lost less than 1% while the Wilshire dropped 11%, according to Hulbert,” Jaffe says. “In 2001, as the carnage continued, Sheldon’s newsletter was up half a point, while the index dropped another 11%. In 2002, Jacobs lost 4.25%, but the market lost four times that amount.”

Later in his life, Jacobs suggested the simple approach of investing in two funds, one a total stock market index fund, the other a small-cap index fund, and splitting the money four-to-one between the two. “You will not find a simpler solution that works well,” he told Jaffe in 2013. Jacobs said at the time that another more complicated option was to split the total market holdings between a capitalization-weighted index and a fundamental- or equal-weight index.

What seems to have impressed Jaffe most about Jacobs was his willingness to steer clear of the win-at-all-costs Wall Street mentality. “You can be average to above-average just doing the very basics and not doing anything more,” Jacobs once said. “If you are an average investor and you or your funds are in the 52nd percentile instead of being above average or at the top of the charts, that’s okay if you are on the pace to reach your goals. It’s not a competition.”

“You don’t have to have the best portfolio in the world, divided up into the perfect allocation and always rebalanced at just the right time,” Jacobs added. “You just need to have a portfolio that does what you expect, that you can manage at every stage in your life; too many people these days make investing complicated, and that’s not what average investors really want, and it doesn’t have to be that way.”