Bravo!

I know that for a fact because I have lots of friends who argue anecdotally.

But seriously, I enjoyed the article and ensuing discussion.

Best,

Len
Len Penzo dot Com

The doctor comparison is far different, as doctors have identifiable skills that can be causally linked to outcomes. Moreover, if doctors failed surgeries at a rate of greater than 50%, they wouldn’t be considered “good.” Finally, the health care world is not mainstream and high profile as the investment world is, so its no surprise that you can’t name great doctors off of the top of your head. I can easily name more investment managers than doctors, but that doesn’t make them great.

I guess to be direct and respond your original question about why the distrust over active management, the answer is that there simply is no evidence to suggest that stock picking adds any additional return over index investing on a risk-adjusted and cost-adjusted basis. That’s not to say it can’t be done, but the odds are heavily against you and anyone else who tries to do it.

JF

What I was trying to say was that many RIAs don’t see it as their job to beat the market. Instead, they help with other issues (asset allocation, retirement planning, etc).

And you’re right. I had to look this Bolton gentleman up. Though in fairness, I wouldn’t know many US fund managers either.

Many (most?) managers, or those running retail funds anyway, hug their benchmark these days, because short term investors are so driven by recent performance and divergence from the indices.

You get then the infamous closet tracker – only with a 1.5% charge!

If you’re going to go for active funds, you may as well go for one who does something genuinely different and tries to outperform. (I’m not saying they will! )

Another point on funds – a manager can be pretty good and beat the index by say 2% a year, despite the various hurdles in his way, but after his/her fees and various other costs that’s probably not going to be enough to beat the index.

Managers don’t have to just be better than the index. They have to be better than the index plus fees. Even harder!

To address Evan’s point then, I actually think individuals picking stocks may have more hope (if they’re the right individuals) then individuals picking managers, although this is all now a million miles away from Mike’s extremely pertinent point about time frames.

Nine years is nothing – big economic trends take decades. Interest rates have been broadly trending down since the 1980s. Whole careers have been built on that trade alone.

I also like to remember that for every person that wins there must be one that loses. Personally I’m a low fees and minimise tax index tracking kind of investor. Then to spice it up a little I bring 129 years of data into the argument.