BGR, To be practical, you do not need to check my accounts. Had I not beaten whichever market I was competing against when I managed money, I would not have accumulated enough money to retire before I was 40. Today, lots of managers are overpaid for underperforming. That was not the case in the 1970s and early 1980s when I ran the big bucks. I have certainly outperformed since I left the business, though you have no way of checking that. Of course, I have done so by using a lot of options and futures which an MPT type might say is overly risky. I disagree, but that is a legitimate argument against my investment style. It is also more complex than buying an index. Much more difficult for the avg investor to understand.
The answer about why mutual funds underperform indices is so simple that I am surprised you raise the issue. Stated simply, mutual funds are now so large that they basically ARE the market. And on average, they will perform very closely to the market, less expenses and friction costs. So, the point to mutual fund ownership has never been, "have mutual funds outperformed the market over any meaningful period of time?" But, rather, "has the mutual fund I own outperformed the market, and, importantly, while I've owned it?" MPT says to give up on outperforming and accept average. I disagree. Just because the average mutual fund is below average relative to the market does not mean that you have to buy the average mutual fund. Or any mutual fund, for that matter.
To put it simply, average will always be average less fees and friction costs. But nobody is forcing us to accept average. If you cannot perform above the average in up and down markets, either on your own or by selecting funds, then, by all means, throw in the towel and become an indexer. <g>
MB |
