Welcome! Please Log In
Go
Essentials Popular Topics
My Favorite Forums Join Discuss to setup a list of your favorite forums.
Re: Did something cgaros  07-04-2008, 5:53 PM | Post #2535610
0  

Tim -

Let me give you a poker analogy.  Let's say my field-beating Texas-Hold-Em poker strategy is to bet without looking at my cards.  And let's say I keep turning over AA or KK at an unlikely rate, and when I have 7-2 I hit the 7-7-7-2-2 full house against a guy with AA.  Am I a great poker player?  Was my poker strategy wise? 

The problem with your thinking is that it is results-oriented thinking over a tiny sample size.  In the whole history of investing, with all the outcomes that have happened and could have happened, you have chosen your investment in one fund over a short 10-year period to decide that actively managed funds are generally more effective than index funds.  Now, I could just as well tell a story about how I invested in the Vanguard S&P 500 index fund in 1983 and outperformed XYZ actively managed funds (untrue, but possible).  These stories are irrelevant. 

We have a lot of data about stock market returns, and they tell us that in the whole and in the long run actively managed funds only occasionally perform better than index funds, that this outperformance is minor and unpredictable, and that successful funds tend to revert to the mean in future years (this is all standard Bogle stuff, but he's got good evidence for it).  The index argument is not that my index fund will do better than your managed fund in the next 5 minutes, 1 year, or 25 years.  The argument is that probability is on my side, and we don't really know what will happen with much certainty, so we should probably take the higher-expectation choice - indexing.       

Topics bogle Funds Indexing S&P 500 Vanguard View Complete Thread
 
© Copyright 2008 Morningstar, Inc. All rights reserved. Please read our Terms of Use and Privacy Policy.
Quotes for NASDAQ are 15 minutes delayed. All other exchanges are delayed 20 minutes.