Friday, 22 August 2014

Exit Stock Pickers

It seems longer ago than a mere two months, but time flies when there's a World Cup. Back in June, I wrote about my long-term financial investing philosophy of investing in a bunch of low-cost index funds rather than try to pick higher cost managed funds or even individual stocks. For the record, I do have some individual stocks, but most of my investments are in index tracking funds.

Emp disagreed at the time, but it seems I am not alone. After Warren Buffett wrote earlier this year that he had advised his trustee to "put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.)", investors poured $5.5 billion into the Vanguard fund over the next five months, "or about three times more than during the same period the previous year".

An article in yesterday's Wall Street Journal is worth reading.
The public during this bull market are overwhelmingly favouring low-cost, index-tracking mutual funds rather than those that try to beat the market averages.
The company [Vanguard] is a pioneer in the accelerating shift toward so-called passively managed products like index funds and exchange-traded funds that track baskets of stocks or other assets. These funds typically promise diversification and are relatively inexpensive compared to traditional mutual funds.
It is "a trend that I see continuing on, probably forever," said David Barse, chief executive officer at New York-based Third Avenue Management, which manages $13.5 billion. He said the challenge for active managers, like his firm, is to identify overlooked investments that don't merely track the broad market.
But he acknowledged that is increasingly a tougher sell, particularly to retail investors.
While investors hang on every word that the Sage of Omaha comes out with, it would have been nice for the WSJ to have given this blog a mention.

1 comment:

Prabhat said...

I still disagree, though to a limited extent you are correct in that for the vast majority of the public it is best to invest in index funds (but that's only because they are incompetent, indisciplined and unskilled).

It's also worth noting that it's exactly in these sorts of market conditions that low-cost index funds are best off relative to other approaches. When you are in the middle of one of the longest bull-markets in history, it's unsurprising that this strategy does well.

Finally, most funds are tailored to maximize asset collection rather than performance. My disagreement wasn't that the average person should invest in index funds, but rather with the idea that extraordinary out-performance is not possible.