A Quote by William J. Bernstein
The deeper one delves, the worse things look for actively managed funds.
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Even fans of actively managed funds often concede that most other investors would be better off in index funds. But buoyed by abundant self-confidence, these folks aren't about to give up on actively managed funds themselves. A tad delusional? I think so. Picking the best-performing funds is 'like trying to predict the dice before you roll them down the craps table,' says an investment adviser in Boca Raton, FL. 'I can't do it. The public can't do it.'
With actively managed funds, people have big behavior problems. With funds that have done well, they put their money in, and when it has done bad, they want to take it out.
While it is probably a poor idea to own actively managed funds in general, it is truly a terrible idea to own them in taxable accounts... taxes are a drag on performance of up to 4 percentage points each year... many index funds allow your capital gains to grow largely undisturbed until you sell... For the taxable investor, indexing means never having to say you're sorry.
Most investors are pretty smart. Yet most investors also remain heavily invested in actively managed stock funds. This is puzzling. The temptation, of course, is to dismiss these folks as ignorant fools. But I suspect these folks know the odds are stacked against them, and yet they are more than happy to take their chances.
Trust is maintained when values and beliefs are actively managed. If companies do not actively work to keep clarity, discipline and consistency in balance, then trust starts to break down.
There are worse things than having behaved foolishly in public. There are worse things than these miniature betrayals, committed or endured or suspected; there are worse things than not being able to sleep for thinking about them. It is 5 a.m. All the worse things come stalking in and stand icily about the bed looking worse and worse and worse.
In actuality, no one ever sank so deep that he could not sink deeper, and there may be one or many who sank deeper. So it is always possible to be happy and grateful that things are not worse!
I have never been a fan of bond funds. Unlike a direct investment in an individual bond that you can hold to maturity and be assured you will get your principal back (assuming no default), a fund has no finite maturity date and most funds are actively traded.
Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement.
The surest way to find an actively managed fund that will have top-quartile returns is to look for a fund that has bottom-quartile expenses.
Plenty of funds have fine long-term returns despite being tax-inefficient and generally costly. But a dirty secret is this: Average, no-load fund investors do much worse than the funds - or the market.
We are seeing more managed money and, to an extent, institutional money entering the space. Anecdotally speaking, I know of many people who are working at hedge funds or other investment managers who are trading cryptocurrency personally, the question is, when do people start doing it with their firms and funds?
Managed funds are astonishingly tax-inefficient.
Obsessive devotion to creating can spark that which is called 'genius.' Smarter or more gifted? The 'madness' is the insatiable drive to discover, achieve and create. Monomania can develop into 'genius,' as the individual delves deeper into the process leaving normal parameters behind.
Still, I figure we shouldn't' discourage fans of actively managed funds. With all their buying and selling, active investors ensure the market is reasonably efficient. That makes it possible for the rest of us to do the sensible thing, which is to index. Want to join me in this parasitic behavior? To build a well-diversified portfolio, you might stash 70 percent of your stock portfolio into a Wilshire 5000-index fund and the remaining 30 percent in an international-index fund.
In general, the hedge funds were clobbered by the 1969 bear market, ending up in many cases with records that were worse than those put together by aggressive mutual funds denied the luxury of short sales.
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