Active vs passive — a journalist's view
- Robin Powell
- May 19
- 3 min read
JONATHAN CLEMENTS is one of the best-known names in financial journalism. After starting his career writing glowing profiles of star fund managers, he began to see a pattern: most of them failed to deliver over the long run.
Raised and educated in England, Clements moved to the United States after graduating from Cambridge University. His early years at Forbes magazine left him sceptical about active management. Even when a fund manager looked like a sure bet, the success rarely lasted.
1. The illusion of expertise
Clements soon realised that most investment professionals made confident predictions about the future, but very few got it right. Traditional valuation tools also proved unreliable. Whether markets were cheap or expensive was, in practice, impossible to know.
2. The shift to passive
In 1994, after joining The Wall Street Journal, Clements got his own column. With it came the freedom to promote what he now believed in: long-term, low-cost investing through index funds. As more data became available, the case for passive investing grew stronger.
3. Why the media still favours active stories vs passive
Clements points out that the media needs constant novelty, and passive investing doesn’t offer much drama. It’s hard to sell headlines about buying and holding a diversified portfolio. So, even though index funds are the smart choice for most people, they rarely make the news.
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TRANSCRIPT
Robin Powell: Jonathan Clements is one of the most highly respected and outspoken investment journalists of recent times.
Raised and educated in England, he moved to the US after graduating from Cambridge University.
He started out at Forbes Magazine but soon began to question what he was actually writing about.
Jonathan Clements: So in those initial years, I was focused on essentially writing these heroic profiles of star mutual fund managers.
And one of the things I noticed about these guys was that even if they had a great story to tell at this particular moment and it seemed they had a great track record and it seemed like they were a great bet for the future. More often than not, they fell by the wayside.
RP: Something else that struck Jonathan early in his career is that the investment professionals he spoke to would typically have an opinion on whether the markets were about to go up or down.
But very few, if any, of them predicted future market movements with any accuracy.
JC: There is no way to objectively say whether the stock market is cheap or expensive. All these valuation yardsticks. These grumpy old men used to talk about, price to book value, you know, price to earnings, dividend yield, price to cash flow. All of them have not proven to be reliable ways to know whether stocks are expensive or cheap.
RP: Eventually Jonathan joined the Wall Street Journal.
It was at the Journal that he became a consistent advocate for long-term, low-cost, passive investing.
JC: In 1994, when I got my own column, this was my chance. And I started focusing relentlessly on index funds, pounding away at their virtues.
Meanwhile, more and more index funds were becoming available so people could actually build a globally diversified portfolio using index funds, data is becoming more readily available.
We could see how much better index funds were doing compared to the typical actually managed funds. And if you followed the numbers and you followed the logic, there was only one place to go, which was you should be indexing.
RP: There are a few other investment journalists, like Jonathan Clements, who champion indexing.
The problem is, index funds generally don’t make for exciting stories.
JC: If you're in the media, you need a new story every publication. If it's a TV station, you need one for every hour.
If you're a newspaper, you need one for every day. You need change. And, you know, the things that you and I favour, Rob, in your indexing, buy and hold and so on. That ain't going to fill many monthly magazines. Instead, you need to have something where there's some action.
RP: The financial media can be a useful source of information for investors.
But just be aware that the sorts of funds you should be using usually aren’t the ones that journalists are writing about.
