The Investment Evidence is Compelling

How compelling does the evidence need to be, for you to act upon it?

Through the 5 years ending June 30, 2014, 87% of large-cap stock fund managers under-performed their benchmark, the S&P 500.**

Through the 5 years ending June 30, 2014, 74% of US stock fund managers under-performed their respective benchmarks.

The same trend follows for international stock fund managers. 70% of international stock fund managers failed to beat their benchmarks and 68% of emerging markets stock fund managers under-performed their benchmarks, over the same 5 year period.

Do you know how your mutual funds have performed versus their benchmarks over the last five years?

What does this evidence tell you?

This is more convincing evidence that our investment philosophy is the best long term approach for an overall successful investment experience.

What is our approach?  We believe in following the evidence, the academic research and information such as above. This means that in general, we do not recommend using active stock managers. By “active” managers, this means money managers and stock funds that do research and try to pick which stocks will do the best.

The evidence shows that most active managers under-perform their benchmarks over long time periods. The reasons may vary, such as their inability to consistently make correct picks over a long time period and their expenses and trading costs are too high.

We follow a different approach. We generally use a variation of indexing, called passive or evidence-based investing. If the “passive” funds we recommend beat or equal their benchmarks over time, our clients will be ahead of most “active” money managers. If the vast majority of active investment managers cannot outperform their respective benchmarks, then our strategy is logical and makes sense.

“Active management has never been in worse repute. This is the darkest of days,” says John Rekenthaler, vice-president of research at Morningstar, an independent evaluator of mutual funds.

This evidence should give our clients further confidence in our long term stock investment strategy.  Since we began as a firm, we have adhered to the principle of being globally diversified by recommending very low cost, passively managed mutual funds. We do not plan to change this philosophy, as long as the very strong evidence supports it.


** Data from WSJ, 11/4/2104, from S&P Dow Jones Indices, Article: “Investors Flee Active Stock Managers”

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