#SFTW: Why avoid active funds? It’s simple arithmetic

Posted by Robin Powell on October 30, 2015



Of all the charges levelled against those of us who advocate an evidence-based approach to investing, perhaps the most inapt is that we’re dogmatic. Zealots, fanatics, militants — those are some of the more polite terms I’ve seen used to describe us.

Evidence-based investing is surely the antithesis of dogma. It’s an approach that’s based on more than 60 years of independent, peer-reviewed and time-tested evidence. Nor is it set in stone; this is a living body of evidence that continues to grow and that’s being constantly refined and re-evaluated by academics around the world.

Some refer to this evidence as science, or the science of the capital markets, although interestingly, this is a point on which even those of us who broadly agree have differing views. When, for instance, during filming for How to Win the Loser’s Game, I raised the issue with Kenneth French, he was much less comfortable with the idea of his work being scientific as his colleague Eugene Fama was.

For me, the is-it-science-or-not? debate is irrelevant. Something that French and Fama do agree on is that the case for avoiding the high-fee, actively managed funds that the investing industry overwhelmingly wants to sell us is ultimately based on mathematics. No, not complicated mathematics, but arithmetic so basic that even I, a dunderhead at maths at school, can easily get my head around it.

Read the full article here


What you may have missed..

The most important advice to investors? Get out of your own way

European fund managers are about as bad at outperforming as American ones

Why make investing simple when we make it fiendishly complicated?

Just because they’re on TV it doesn’t mean they’re a stockpicking genius

A fund that beats the market and reduces risk? Don’t you believe it

What would Seth say about moral dilemma facing Britain’s Investment Association?


What I’ve been reading..

Hedge funds have no excuses for 5 years of disastrous performance (Mark Harrison)

When presented with data, it often makes sense to dig a little deeper (Michael Batnick)

Compound interest & time are the nitro & glycerin of personal finance (Monevator)

Why fund fees are just part of the cost you pay for active management (Chief Investment Officer)

Do these five things and your adviser will love you (Ben Carlson)

Warning — brokers and wealth advisors are two very different things (Dan Solin)

Don’t ask your adviser for stock tips. He doesn’t have any (Josh Brown)

With advisers, fee-only doesn’t necessarily man unconflicted (Allan Roth)

The problem of retirement inequality is getting worse (Barry Ritholtz)


Ideas for content..

I’m always on the lookout for topics to feature on The Evidence-Based Investor, particularly new research. Please let me know if you have any suggestions.



.. to Paul Gibson at Carbon Financial, who has just been named Financial Planner of the Year 2015 by Money Management Magazine. Carbon is a first-rate advisory firm and a real champion of unconflicted financial advice and of evidence-based investing in Scotland. We at Regis Media are proud to be working with Carbon and we’re delighted by Paul’s much-deserved success.


And remember..

We have a range of pre-produced content — videos, blogs and infographics — that can be customised for advisory firms looking to attract, retain and educate clients. For further information, contact Sam Willet on +44 (0)121 285 2585 or at s.willet@regismedia.com


Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.


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