2

CHAPTER

The Only Three Types of

Investments You Need to Know

The third - rate mind is only happy when it is thinking with the

majority. The second - rate mind is only happy when it is thinking

with the minority. The first - rate mind is only happy when it is

thinking.

— A. A. Milne

The beauty of investing is that there is enough room for many

participants to succeed. In the U.S. markets alone, there are thou-

sands of publicly traded businesses from which to choose. Add in

Europe, Latin America, and the Asian markets, and the pool of

opportunity is vast.

Yet many investors fail to outperform the average indexes.

John Bogle, founder of the Vanguard Group of mutual funds, once

observed that nearly 85 percent of active money managers fail to

outperform the broad market indexes. 1 Part of this result can be

explained by elementary statistics. With a sample size (market par-

ticipants) so large, it is impossible for everyone to beat the aver-

age. For one, investing is a zero - sum game: Someone is buying

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