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 boom 1.
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:
Returns of (apparently) the greatest fund managers of all-time, to 2014.
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.
- 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.[↩]
