On the Web
October 7, 2014
Videos Critique Active Stock Investing
This is the sixth video featured in a series of seven that are worth watching.
The new series, “How to Win the Loser’s Game,” takes viewers on an in-depth tour of the financial industry landscape while managing not to be dull. It includes a history of academic research in the finance field and examines the issue of paying high fees for active investment managers.
The big message in the above video has also been covered on this blog: it’s virtually impossible for active managers to consistently outperform the overall market’s return. The solution: buy passive mutual funds and diversify. The evidence presented in the videos, sometimes by academic giants in the field, is compelling.
Click here to watch the remaining videos, which are produced by sensibleinvesting.tv, a non-profit founded by a U.K. financial company.
Interestingly, I think that since “everyone knows” indexing is better, and with a change in attitude such as CalPERS recent decision to punt their hedge funds, we are close to a top.
Too many people are chasing indexes, which will work for a while as all the money pours in, but this will create even greater volatility going forward (and makes for crowded exits). If a majority of people index invest, then there will be fewer active people in the market making price swings greater, and therefore opening up more opportunities for active managers.
I am going to go out on a limb and guess that CalPERS basically top ticked passive investing for this current market cycle by eliminating strategies that hedge because the market has beaten them over the past 5 years. And I think people will be wishing they had hedges and alternatives in play in the next year or 2.
We will see – I have no problem being wrong but lets see if my theory works out in the next 2 years (I can’t be THAT good to pick the absolute point in time this happens but I think we’re close:)