Most modern investors cannot beat an index consistently. This much is apparent. Most people cannot find a good manager and, even if they do, they will eventually dismiss that manager at the first sign of material underperformance. Therefore, it follows that, if possible, most people should be invested in a broadly diversified index like the S&P 500, or perhaps the Wilshire 5000.
Unfortunately, indexation as presented and advised at the current time is not to buy and hold broadly based indexes. It is asset-gathering, marketing, and fee enhancement at its finest. It bears much more similarity to consumer marketing than to investing. In fact, it is more or less what the active managers were doing when they had the upper hand.
The studies of managers proceed from the incorrect assumption that the active manager of the past was a well-intentioned Homo Economicus trying to find the best investment. Rather, though, Homo Economicus was trying to raise the maximum amount of assets and, ultimately, this impacted the stock selection decision. That led to the underperformance. The index manager of today is behaving precisely like the active manager of the past, and will soon exhibit the same outcome.Read More >