2. By day we write about Six Funds to Buy now. By night, we invest in sensible index funds. Unfortunately, pro-index fund stories donât sell magazines.
3. Statisticians will tell you that you need 20 years worth of data thatâs right, two full decades to draw statistically meaningful conclusions. Anything less, they say, and you have little to hang your hat on. But hereâs the problem for fund investors: After 20 successful years of managing a mutual fund, most managers are ready to retire. In fact, only 22 U.S. stock funds have had the same manager on board for at least two decades.
4. There is one final problem in selecting a winning manager. According to Richard A. Brealey, you probably need at least 25 years of fund performance to distinguish at the 95% significance level whether a manager has above average competence. Another commentator accepted the 25-year time frame, but only if the pension executive is using the perfect benchmark for that manager. Using a less than perfect benchmark may increase the observation time to 80 years.
5. Former Oakmark Fund manager Bob Sanborn, Yackman Fundâs Don Yackman, and former Internet Fund manager Ryan Jacob; these oncerevered fund managers have fallen to earth.
6. People exaggerate their own skills. They are overoptimistic about their prospects and overconfident about their guesses, including which managers to pick.
7. Studies show either that most managers cannot outperform passive strategies, or that if there is a margin of superiority, it is small. It will take Joe Dartâs entire working career to get to the point where statistics will confirm his true ability. In the end, it is likely that the margin of superiority that any professional manager can add is so slight that the statistician will not easily be able to detect it.
8. Most depressing of all, the superstar fund managers in the early 1990s had a disconcerting habit of fading from supernova to black hole: Rod Linafelter, Roger Engemann, Richard Fontaine, John Hartwell, John Kaweske, Heiko Thieme. If you thought they were great, you had only to wait a year and look again: Now they were terrible.
9. Yet even the smartest, most determined fund-picker canât escape a host of nasty surprises. Next time youâre tempted to buy anything other than an index fund, remember this and think again.
10. None of us is as smart as all of us. After twenty years of watching investment practitioners dance around the fire shaking their feathered sticks, observe that far too many of their patients die and that the turnover of medicine men is rather high. There must be a better way.
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Keywords: earth 6, fund investors, fund managers, fund performance, index fund, index funds, internet fund, legions
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