Active mutual funds are your hat rack?

https://assetbuilder.com/knowledge-c...s-in-your-home

"But that’s something Mark Hulbert might expect. In 2009, he published The Index Funds Win Again in The New York Times. He referenced a study by Mark Kritzman, the president and chief executive of Boston’s Windham Capital Management. The study compared pre-tax and post-tax returns for high-income investors in New York state. Hulbert says the typical actively managed fund, after taxes, underperformed its benchmark index by about 4.3 percent per year.

Those are big termites. Based on Morningstar’s after-tax estimates, the seven actively managed funds in Laura Split’s account underperformed their benchmark index funds by about 3.5 percent per year. If we add the 1.5 percent wrap fee that Laura paid her advisor, a portfolio of low-cost index funds would have beaten her account by about 5 percent per year."

The study you quoted used high income people living in New York investing outside a tax sheltered account. I wonder why he used only people from a state with high income taxes and only people in the highest tax bracket investing in non-retirement accounts?

/sarcasm

People often mention the high availability (and usage) of cheap credit, but if it were really an issue, wouldn't inflation be through the roof (expansion of monetary supply), which it is absolutely not?

That's where reality clashes with canned economic theory. People don't use credit to buy everyday items like bread and gas, which is used to measure inflation. They buy assets, e.g. houses, securities, and spend money tuition, and "inflation" is abundant in these areas.

Sent from my SAMSUNG-SM-G925A using Tapatalk

Assuming passive is defined as indexing, it is a fact and yes it does.

Market = Active + Passive
But passive investing is the market return
Therefore Market=Active
Since active management has higher fees than passive management, active management in total must underperform passive.

Your argument hinges on the opinion that passive managers aren't able to pick investments that will outperform the market/passive to the point that it will overcome the fees.

Huh? Passive managers don’t pick. They are the market return. And if they did pick and outperformed the market that would mean active managers would have to under perform by definition.

Sorry, please replace the first use of the term passive with active in my above post.

It is fairly simple math. I really can't understand the confusion.

Let's see who am I going to believe when it comes to active versus passive, John Bogle and Warren Buffet, or that guy blahblahmickey?

Ah ok. Yeah it is totally possible for some active managers to outperform but it is mathematically impossible for the whole active management industry to.

Why do you say that it is mathematical impossible?

Has buffet come out and said passive will outperform going forward or are you assuming he believes this because he thought passive would beat a hedge fund from '07-'17?

His bet was against a basket of hedge funds (opponents choice) and was to make the point that you couldn't pick future winners based on past winners.

That and he also said that his direction to wife's estate should he pass is 90% S&P 500 and 10% cash.

Plus some other stuff he's said.

Quick question on 529 plans

I have no plans to ever have a kid. I’m researching ways I can get the $$ out without being hit with the penalty. Seems like I can get away with a pretty broad range of school related activities - taking a language class, cooking, painting, etc all stuff I may want to do when I’m retired, who knows

Worst case scenario I don’t do anything educational and pay a 10% penalty but I assume my investment would have grown on a tax deferred basis for a long enough time to make it worth it (im 32). Am I off here?

Any thoughts on how to best utilize this for someone with no kids?

I already have a maxed out 401k HSA IRA so those aren’t options if that’s not obvious

Idk about using it for cooking classes or that other stuff. Culinary school, sure, but I think it has to be used to pay some form of higher education tuition. And yeah, maybe you'll want that later in life.

Another option is to use it on nieces, nephews, or other relatives.

That isn't his argument at all.

After rereading his post I think you are right, but he needs to support that argument.

It is math.

X is the market return and also the passive return.

For someone to have a return > X, someone else must have a return < X or else money actually grows on trees. Since those excess gains CANNOT come from passives, they must come from other actives, so, on average active gets the passive return. Then subtract out fees and you have less than X as the average active return.

Your post got me thinking: I wonder what proportion of trade volume is by professionals/funds/etc., in relation to non-professional individuals self-managing their own money?

All monies are fungible though. That $5k they used to pay tuition from borrowing is exactly the same as the $5k in CC/mtg/car bills they paid this month. Your argument doesn't fly.

Additionally, several millions of people buy groceries & gas on credit. Which they may pay off every month or not.

Obviously the vast, overwhelming majority is inst'l money. BLK alone is managing, what, $5 Trillion? Add VG, Fido, pension funds, et al.

Nobody really gives a flying eff about retail's effect on the market, except for trying to trade against it [they know you're not information arbitraging them].

Meh, just give all your risk assets to Will Danoff. [Or Joel Tillinghast].

/half-joking

But for the 'noobs should just index' crowd it's actually an interesting question.

Known star managers with 3 decades of alpha creation and tons of resources and best execution should certainly be considered. Unless you think only Buffett has skill and nobody else in the universe...

To avoid strawman comebacks, talk about these two managers if attempting to refute. We know alpha exists, not everyone can get it, but several people who have done tens of thousands of trades over the years would seem to have it and skill is persistent. Unskilled managers lose out to skilled managers.

Serious question, who's beaten the benchmarks for three decades with more than 1b AUM?

Klarman? Nygren? I think it's a really short list.

I think that to avoid making a strawman argument, you'd want to pick every long-term fund manager who looked great 10 years ago.

Neither one has been setting the world on fire in the past 10 years. FCNTX has outperformed by just under a half a percent annualized and FLPSX about 0.6% (underperformed by over 2% annualized over the past 5 years). If those two were possible to select 10 years ago from amongst the other long-term managers somehow, I'd love to hear the technique a novice investor would have used to choose.