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Ted, thanks for the reminder that Standard and Poors has released their 2012 SPIVA update.
The comparative passive/active outcomes remain relatively consistent year over year, but amazingly so over three and five year time horizons. Certainly the one=year data sets are of some interest, but the really meaningful comparisons are those reported for the longer timeframes.
The SPIVA data once again demonstrate the general futility of active management to outgun the passive Index performance. Certainly there are a few exceptions like in the actively managed international small capitalization equity arena and in some bond market segments, but the pickings are slim indeed. The odds are not promising.
For those who are committed to seeking Alpha, SPIVA provides some potentially fruitful search categories.
The overarching take-away from the current SPIVA is that the active individual investor’s triple whammy is still intact. In racehorse parlance, it’s a negative trifecta.
From the portfolio design of an individual investor’s perspective, the triple bogy is constructed by electing to hire active fund managers, to hire active managers in multiple investment categories, and to hire/fire these managers far too frequently.
Research institutions like DALBAR, Morningstar, and academia consistently conclude that private investors choose losing stock and fund entry/exit points such that we only capture about 35 % of overall equity rewards. SPIVA scorecards consistently establish that perhaps only 40 % of active managers deliver above market returns, yet only 15 % of our portfolios are composed of passively managed products. Since most of our portfolios are collections of actively managed units we are tripling down on these very poor odds.
Our prospects of securing market-like returns are not bright given this triple whammy.
Although even superior fund managers suffer from the market’s regression-to-the-mean tendencies, we private investors seem to be either oblivious or immune to the relevant assembled history. We stay loyal to our commitment to seek the golden egg.
Consider that adventure could be a costly and end wealth robbing mistake.
Best Wishes that we can overcome these challenging and depressing odds. Underdogs do win occasionally = but rarely do so.
Comments
Ted, thanks for the reminder that Standard and Poors has released their 2012 SPIVA update.
The comparative passive/active outcomes remain relatively consistent year over year, but amazingly so over three and five year time horizons. Certainly the one=year data sets are of some interest, but the really meaningful comparisons are those reported for the longer timeframes.
The SPIVA data once again demonstrate the general futility of active management to outgun the passive Index performance. Certainly there are a few exceptions like in the actively managed international small capitalization equity arena and in some bond market segments, but the pickings are slim indeed. The odds are not promising.
For those who are committed to seeking Alpha, SPIVA provides some potentially fruitful search categories.
The overarching take-away from the current SPIVA is that the active individual investor’s triple whammy is still intact. In racehorse parlance, it’s a negative trifecta.
From the portfolio design of an individual investor’s perspective, the triple bogy is constructed by electing to hire active fund managers, to hire active managers in multiple investment categories, and to hire/fire these managers far too frequently.
Research institutions like DALBAR, Morningstar, and academia consistently conclude that private investors choose losing stock and fund entry/exit points such that we only capture about 35 % of overall equity rewards. SPIVA scorecards consistently establish that perhaps only 40 % of active managers deliver above market returns, yet only 15 % of our portfolios are composed of passively managed products. Since most of our portfolios are collections of actively managed units we are tripling down on these very poor odds.
Our prospects of securing market-like returns are not bright given this triple whammy.
Although even superior fund managers suffer from the market’s regression-to-the-mean tendencies, we private investors seem to be either oblivious or immune to the relevant assembled history. We stay loyal to our commitment to seek the golden egg.
Consider that adventure could be a costly and end wealth robbing mistake.
Best Wishes that we can overcome these challenging and depressing odds. Underdogs do win occasionally = but rarely do so.