What caught my eye this week.
Back when passive investing first began to make serious inroads into the active investing orthodoxy – say 20 years ago – its adherents could be testy.
With none of the amiable grace of Vanguard founder Jack Bogle – whose own son runs an active fund – some passivistas would shout down, sneer at, or stonewall any signs of opposition to their creed.
I suppose it was defensiveness.
Now that even a Sunday newspaper will tell you to buy an S&P 500 tracker, it’s hard to recall when investing in index funds was a fringe pursuit. Something best left to people of low ambition and little intelligence, who’d rather a witless robot picked stocks and who’d prefer to run into the buzzsaw of the Dotcom crash than make a few ‘easy’ decisions to get superior returns.
Actually, when I put it that way then, yeah – the active investing diehards could be just as annoying, too!
I remember the balancing act required in moderating comments on this blog. As a person who loves investing in all its stripes – and who picks stocks [1] as much for sport as the hope of a serious return – I never vibed with this ‘with us or against us’ attitude that some readers lent into.
Here’s the evidence, make your own mind up – that’s been my approach.
Passive is almost certainly the best and easiest way for you to achieve your returns. But you do you.
All in it together
Things have calmed down in the last few years. Surely because index investing is no longer an underdog.
Indeed at the end of 2023, passive funds in the US actually overtook [2] active funds in terms of assets under management for the first time.
The rest of the world is close behind, and the direction of travel is clear.
A good few of us still enjoy investing in companies directly or tilting our mostly-indexed portfolios with side bets (and come join us on Moguls [3] if that’s you).
But I honestly can’t remember the last time an arrogant commenter turned up on Monevator calling all index investors complacent idiots. It was years ago.
You do still sometimes see that attitude elsewhere – on hives of S&V [4] like the ADVFN bulletin boards, say.
However I’d suggest the majority of smart retail investors now understand the strong argument [5] for passive investing in index funds – however they run their own money.
The price is right
Even Eugene Fama seems to have taken a chill pill.
The Chicago economist – whose 1965 paper Random Walks in Stock Market Prices [6] underpinned the intellectual case for the first index funds that arrived a few years later – told the Financial Times this week [7]: “Efficient markets is a hypothesis. It’s not reality.”
The FT says:
Fama is surprisingly phlegmatic when it comes to defending his life’s work, echoing the famous British statistician George Box’s observation that all models are wrong, but some are useful. The efficient market hypothesis is just “a model”, Fama stresses. “It’s got to be wrong to some extent.”
“The question is whether it is efficient for your purpose. And for almost every investor I know, the answer to that is yes. They’re not going to be able to beat the market so they might as well behave as if the prices are right,” he argues.
Fama also makes a good point when he admits to some regrets about choosing the word ‘efficient’ to describe markets.
‘Efficient’ sticks in the craw of those who’ve through bubbles and crashes and who struggles afterwards to see an intelligently discounting market at work.
Easy now! You don’t need to revive the old fighting spirit to shout at me. I understand boom and bust is not incompatible with efficient markets. I’m just saying many people do struggle with the concept.
Anyway Fama has the best rejoinder…
“If prices are obviously wrong then you should be rich,” he says.
Have a great weekend.
From Monevator
How historic returns have varied by country – Monevator [8]
Reminder: our member articles have their own archives – Mavens [9] and Moguls [10]
From the archive-ator: How to ensure you won’t run out of money in retirement – Monevator [11]
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
Workers in UK could get right to request a compressed four-day week – Guardian [12]
UK house prices fall for first time since April, says Nationwide – Reuters [13]
One in three who contested their council tax reduced their bill last year – Which [14]
Steve Webb latest to warn the Budget may come for pension tax relief – This Is Money [15]
10,000 UK homes on ex-military bases were never built – BBC [16]
Graduates struggle in ‘insane’ UK jobs market – Guardian [17]
Crypto owners more likely to have psychopath traits, study finds – Bloomberg [18]
[19]
The Home Office has repeatedly spent far more than budgeted for asylum, border, visa and passport operations in recent years – IFS [20]
Products and services
Lloyds Bank raises borrowing limit for first-time buyers – Guardian [21]
Regular savings accounts explained – Be Clever With Your Cash [22]
The premium you’ll need to pay to buy a house near a top school – Which [23]
If Oasis cancels its concerts, will ticket buyers be reimbursed? – This Is Money [24]
Open an account with low-cost platform InvestEngine via our link [25] and get up to £50 when you invest at least £100 (T&Cs apply. Capital at risk) – InvestEngine [25]
Best student account perks and freebies – Which [26]
The ultimate guide to buying a mobile phone for kids – Guardian [27]
Get £100-£2,000 cashback when you open a SIPP with Interactive Investor [28] (T&Cs apply. Capital at risk) – Interactive Investor [28]
Eton warns VAT change will hike annual fees to £63,000 – Sky [29]
Homes for sale with bold interiors, in pictures – Guardian [30]
Comment and opinion
Money market funds are not a free lunch [US but relevant] – Oblivious Investor [31]
Inheritance tax: how to prepare for the Great Wealth Transfer [Search result] – FT [32]
Don’t let this common bias hurt your portfolio – Morningstar [33]
Why you shouldn’t invest like a billionaire – Axios [34]
Vanguard’s sheer size means it’s running into regulatory worries – Humble Dollar [35]
Mr. Market miscalculates – Howard Marks [36]
ISA millionaire status achieved – Fire V London [37]
Why people don’t save enough for retirement – A Wealth of Common Sense [38]
Profiles of couples with $20m or more – Financial Samurai [39]
Naughty corner: Active antics
Past performance is a public enemy – FT [40]
Activism at scale in Japan – Verdad [41]
Media giants are difficult investments these days – Hollywood Reporter [42]
A $557bn drop in office values eclipses a revival of US cities – Bloomberg [43]
Kindle book bargains
The Happy Index by James Timpson – £0.99 on Kindle [44]
Freakonomics by Steven D. Levitt – £1.99 on Kindle [45]
Smarter Investing by Tim Hale – £9.29 on Kindle [46] [£9.29! But rarely reduced]
Rebel Ideas: The Power of Diverse Thinking by Matthew Syed – £0.99 on Kindle [47]
Environmental factors
Have Swiss scientists made a chocolate breakthrough? – BBC [48]
How the heat is changing us – Slate [49]
Fall of the wild – Nature [50]
Home prices in an age of uncertain insurance – Abnormal Returns [51]
Robot overlord roundup
AI giants can learn a thing or two from Mark Zuckerberg – Bloomberg via A.P. [52]
Google AI Overviews rollout hits news publisher search visibility – Press Gazette [53]
Dating apps develop AI ‘wingmen’ to generate better chat-up lines – FT [54]
Aging mini-special
Weight-loss drug Ozempic could slow down ageing, researchers suggest – ITV [55]
Reflections on turning 6-Zero – A Teachable Moment [56]
The Blue Zone distraction – Cremieux Recueil [57]
Off our beat
Perplexing the web, one probability problem at a time – Quanta [58]
Maybe she’s tired, maybe it’s an undiagnosed iron deficiency – Undark [59]
Mr Beast is losing his edge – Sherwood [60]
The Covid-era tech that could reinvent cancer care [Search result] – FT [61]
People just won’t stop blowing up ATMs – Sherwood [62]
Joy – We’re Gonna Get Those Bastards [63]
And finally…
“Missing a train is only painful if you run after it! Likewise, not matching the idea of success others expect from you is only painful if that’s what you are seeking.”
– Nassim Taleb, The Black Swan [64]
Like these links? Subscribe [65] to get them every Friday. Note this article includes affiliate links, such as from Amazon [66] and Interactive Investor [67].