A Quote by Burton Malkiel
I have become increasingly convinced that the past records of mutual fund managers are essentially worthless in predicting future success. The few examples of consistently superior performance occur no more frequently than can be expected by chance.
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Mutual fund managers are trapped in this rather deadly vicious circle: the more successful they are, the more money flows into their mutual fund. Then, it is more difficult for them to beat the market averages or even to match their own past performance.
In every mutual fund prospectus, in every sales promotional folder, and in every mutual fund advertisement (albeit in print almost too small to read), the following warning appears: "Past performance is no guarantee of future results."
Hedge fund managers charge so much more than mutual fund managers; alpha is even harder to come by. They end up selling a variety of things beyond mere outperformance.
The idea that a bell rings to signal when investors should get into or out of the stock market is simply not credible. After nearly fifty years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently. Yet market timing appears to be increasingly embraced by mutual fund investors and the professional managers of fund portfolios alike.
Mutual funds with superior performance records often falter.
There may be less of a chance of losing all the money you put into a mutual fund than there is of losing all the money you put into lottery tickets, but you're never going to win big in a mutual fund.
Fund investors are confident that they can easily select superior fund managers. They are wrong.
Millions of mutual-fund investors sleep well at night, serene in the belief that superior outcomes result from pooling funds with like-minded investors and engaging high-quality investment managers to provide professional insight. The conventional wisdom ends up hopelessly unwise, as evidence shows an overwhelming rate of failure by mutual funds to deliver on promises.
Success is created through the performance of a few small daily disciplines that stack up over time to produce achievements far beyond anything you could of ever planned for. Failure, on the other hand, is just as easy to slip into. Failure's is nothing more than the inevitable outcome of a few small acts of daily neglect performed consistently over time so that they take you past the point of no return.
I've become increasingly fascinated with social media to improve on traditional ways of preparing for and predicting the future.
A Financial Research Corporation study determined that the expense ratio is the only reliable predictor of future mutual fund performance.
The fund scandals shined the spotlight on the fact that mutual fund managers were putting their interests ahead of the fund shareholders who trusted them, which had much more substantial consequences in the form of excessive fees and the promotion - as the market moved into the stratosphere - of technology funds and new economy funds which were soon to collapse.
Among my greatest disappointments about the mutual fund industry - in addition to excessive costs and excessive focus on the short-term - is that fund managers have been passive participants in corporate governance.
I believe Washington should be a more active participant focusing on the issue of why corporate shareholders and mutual fund shareholders are not given fair treatment by corporate management and mutual fund management. We need to develop a national standard of fiduciary duty to ensure that these agents, if you will, are adequately representing the principles - pension beneficiaries and mutual fund shareholders - whom they are duty bound to serve.
After costs, only the top 3% of managers produce a return that indicates they have sufficient skill to just cover their costs, which means that going forward, and despite extraordinary past returns, even the top performers are expected to be only as good as a low-cost passive index fund. The other 97% can be expected to do worse.
If you don't like the idea that most of the money spent on lottery tickets supports government programs, you should know that most of the earnings from mutual funds support investment advisors' and mutual fund managers' retirement.
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