RE: "I am specifically saying that past performance is no guarantee
of future results."
Well said, that is certainly true.
RE: "There is always the danger of these index funds driving a phenomenon similar to the "Nifty Fifty" stocks of the 1960's. When everyone was in those stocks (and decided to get out), then everyone realized they had a problem."
Yes, some index funds could lead to the Nifty Fifty phenomenon, notably funds that invest in the DJIA or, perhaps, the S&P 500. There are many other index funds for which the "Nifty Fifty" effect is not likely. For instance, the Russel 2000 index funds, Wilshire 5000 index funds, total market index funds, and other similar index funds are not likely to create the Nifty Fifty effect.
RE: "At some future point we will be in a bear market ... My point about index funds is that they are fully invested in the index stocks. If the index crashes your money crashes and the only way out is to sell the fund. ... Another equity fund has the option to get out and pick new stocks."
Yes, that is certainly true. However, just because the actively managed fund can get out of the market doesn't mean that he will outperform the index. It seems that many advisors give downgrades just as the market is about to bottom. Likewise, the advisors are bullish and giving upgrades as stocks reach their highs. My guess is that is just as likely as not that the active managers will sell their positions after a majority of the market drop has occured. Likewise, they will probably be late in getting back into the market.
All in all, there is a good possibility that the majority of actively managed funds will underperform the market, even during a bear market. Look at the Magellan Fund back in the 73/74 bear market. Even Peter Lynch, who was the hottest money manager around, could not beat the index during the bear market.
Best wishes,
I2 |
