Weekend reading: The returns from the world’s greatest active investors

Good reads from around the Web.

I am not one of those who believes active investing will always gobble up the majority of our savings, like some baleen whale mainlining krill with a cheeky glint in its eye.

The trend is your friend, as most good active investors know, and the trend is towards passive investing:

• The advantage of low cost funds is undeniable.

• The secret is out – active investing is a zero sum game.

• The simplicity of pairing a global equity tracker fund with a bond tracker is impossible to beat. For many people that might be all the portfolio they need.

True, there are some counters.

For example, much of the growth of passive funds under management to-date has been into ETFs, and much of that money is traded actively. So the growth in passive may be somewhat exaggerated.

I’m also regularly reminded by Radio 4’s Moneybox – which I almost always listen to after filing my Weekend Reading articles – that sadly there’s no shortage of suckers out there. Every week seems to bring another person who gave their life savings to a man on a phone, or who thought a 15% return per year with no risk sounded reasonable, or who bought big into the Kazakhstan vodka boom1.

Hedge funds, too, make me wonder. Despite the side-splittingly hilariously dreadful performance of hedge funds as an asset class, they still have $3 trillion in funds under management.

If the rich will throw their money away like that, why shouldn’t the rest of us?

Then again, have you seen the bathrooms, cars, and the plastic surgery favoured by many of the world’s truly loaded?

‘Discerning buyer’ isn’t the first phrase that springs to mind.

The world’s greatest active investors

Whether active investing will eventually be shunted to the sidelines by passive investing in the years ahead is still too early to call.

But one thing I am sure of is that even if only a minority of money is put into active funds in the future, there will always be some people – like me – who try to beat the market for ourselves.

Regular readers will know of this tension at the heart of this blog. I’m surely in the top 0.01% of being informed about the case for passive investing. (Does that sound arrogant? Editing a blog that champions exactly that, week in, week out, for a decade, could get you there, too!)

But despite this excess of knowledge, I myself invest actively. Much to the amusement of the fully passive and superior role model, The Accumulator.

The following table – tweeted out by fellow seeker after glory Richard Beddard – reminds me why:

This data comes courtesy of Excess Returns, a 2014 book by Frederik Vanhaverbeke. I haven’t read it but I might soon.

Now, I can already imagine some readers readying their rebuttals: Survivorship bias! One in a million monkeys would toss heads one hundred times! Some of those records were built in older, more inefficient markets! This or that structural benefit is available to them and not to us! You don’t need to beat the market to retire happy!

And of course I agree. I’ve written a blog about this stuff, remember.

I’m just being honest. I’m still fascinated by the intersection of markets and businesses. I like pitting my wits against the world’s millions.

And this table shows what’s possible – however unlikely.

If you can’t join ’em, beat ’em

When I was 16-years old I bet my father I could run a four minute mile. I never did, not least because I was in hospital two years later. But I was getting there.

I was sprinting 100m close to 11 seconds, too, which was pretty fast for my frame.

Well, those days are gone. I try to keep physically fit – on a budget, of course – but the flaming torch of failing to be one of the world’s genetically gifted freaks long ago passed to another generation.

But Warren Buffet, on the other hand, he’s 86-years old.

Watch your back, Buffett!

From the blogs

Making good use of the things that we find…

Passive investing

• What’s the best strategy for moving money into the markets? – Elm Funds
• Vanguard UK equity income fund: Two-year update – DIY Investor (UK)
• More returns data adds to active managers’ woes – Evidence-based Investor

Active investing

• Why not Google it? – Wexboy
• Seven traits needed for successful active investing – What Works On Wall Street
• Why does inflation tend to be good for value investors? – The Value Perspective
• Active investors must be allowed to pick stocks – Enterprising Investor
• How to avoid yield traps [PDF] – UK Value Investor
• 10 long-term UK shares to hold in an ISA portfolio – Part One and Part Two
• Charlie Munger and the art of stock picking – Investing Caffeine
• Gravity and Apple – Asymco

Other articles

• Long-term investing is about saving yourself from yourself – Financial Samurai
• The eight wonder – What I learned on Wall Street
• Why is my life so hard? [Podcast] – Freakonomics
• Lessons for living from the older generations – A Wealth of Common Sense
• Regret less, act on your wish list now – Behaviour Gap
• Robert Shiller on income inequality and robots [Podcast] – Wharton

Product of the week: Fancy paying less than 1% a year for a two-year fixed mortgage? Of course you do – it’s the joint lowest rate on record, says ThisIsMoney. But it also warns you’ll need a 40% deposit and £1,495 free to pay fees to win over the good people at the Yorkshire Building Society.

Mainstream media money

Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.2

Passive investing

• DALBAR’s ‘poor timing’ maths is apparently wrong – Advisor Perspectives
• More on this: Just how bad is fund investors’ timing? – Morningstar

Active investing

• The global economy is enjoying an upswing. Really. – The Economist
• Merryn blows the dust off her ‘Buy Japan’ thesis [Search result] – FT
• Running an active fund? Win early, then be consistent – Bloomberg
• Dividend bonanza was prompted by tax reforms [Search result] – FT
• 20 surprising facts about Warren Buffett – Entrepreneur
• Why the big bond bull market needn’t crash [Podcast] – Bloomberg

A word from a broker

• Ten most frequently asked questions about ISAs – Hargreaves Lansdown
• A deep dive into “the top 25 UK equity fund managers” – TD Direct

Other stuff worth reading

• Squeeze an extra £1,000 a year from your cash nest egg – ThisIsMoney
• U-turn over Budget plan to increase NIC rate for self-employed – BBC
• How to use ISAs to reduce your inheritance tax bill [Boo! Hiss!] – Telegraph
• Space, the final frontier for investors [Search result] – FT
• The insightful ThisIsMoney show quoted us this week! [Podcast] – ThisIsMoney
• But, but… I thought Bitcoin was supposed to be cheap? [Search result] – FT
• Defending Jim Cramer’s call to sell stocks in October 2008 [Search result] – FT
• Comma comeuppance: When rogue punctuation proves costly – BBC
• Five things you should never say to a woman in tech – Recode
• Iceland’s recovery will be tough to sustain – Bloomberg
• Oh, and New Zealand is getting full – Bloomberg

Book of the week: I re-watched The Big Short the other night, and I enjoyed it even more second time around. Who would I rather be, I wondered? Christian Bale’s hedge fund outsider Michael Burry, Ryan Gosling’s hilarious big banking insider, or the lunatic played by Steve Carell? Probably none of those… maybe Brad Pitt’s character, who I thought was super cool even if Pitt’s fans boycotted the film on account of his supposedly ill-fitting suits. (I suppose Mr. Pitt is held to a higher standard.) It also reminded me that I still haven’t read Michael Lewis’ most recent effort, The Undoing Project, which tells of the genesis of behavioural finance. Seems a bit worthy by comparison, doesn’t it?

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1. No, there’s been no such boom. But if there had been then someone from Tunbridge Wells would have tried to get in early – late – and invested the kids’ inheritance. [↩]
2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]