Today's WSJ: Old School Stock Picker Struggles w Index Craze

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Grt2bOutdoors
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Today's WSJ: Old School Stock Picker Struggles w Index Craze

Post by Grt2bOutdoors » Fri Jun 07, 2013 7:37 am

Front page of today's Wall Street Journal:

Needless to say, the pressure is building on active managers to compete with the indexes. This article is about Wally Weitz of Weitz Funds in Omaha, NE (the second oracle of Omaha besides Warren) whose actually outperformed the S&P 500 by 1 percentage point per year over the last 3 years. Investors aren't impressed, they pulled out $400 million more than they put in. :oops: Tsk, tsk, what a dilemma!
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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by Dianne » Fri Jun 07, 2013 8:48 am

I found that article very frustrating. The author kept focusing on the fact that index funds have lower expense ratios, and implying that investors are just too cheap to pay for quality investing services like that offered by Wally Weitz. Even when mentioning that only 38.5% of actively managed funds have beaten their indexes over the last five years, the author still doesn't consider the possibility that some investors may just think that indexing is better than active management, regardless of relative costs.

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by RadAudit » Fri Jun 07, 2013 8:58 am

Dianne wrote:Even when mentioning that only 38.5% of actively managed funds have beaten their indexes over the last five years, the author still doesn't consider the possibility that some investors may just think that indexing is better than active management, regardless of relative costs.
I thought that passive indexes were better than the average of active management, over time, primarily because of the relative costs.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by OverTheHill » Fri Jun 07, 2013 9:01 am

I guess poor Wally might have to sell one of his many vacation homes. Too bad, so sad.

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by Dianne » Fri Jun 07, 2013 9:24 am

RadAudit wrote:
Dianne wrote:Even when mentioning that only 38.5% of actively managed funds have beaten their indexes over the last five years, the author still doesn't consider the possibility that some investors may just think that indexing is better than active management, regardless of relative costs.
I thought that passive indexes were better than the average of active management, over time, primarily because of the relative costs.
Yes, but how do you make sure you choose an "average" active manager? Bernie Madoff probably appeared above-average to most of his clients.

I bought my current car at Carmax. I know I paid more than a good negotiator could have gotten at a traditional used car dealer, but I recognize that I'm not a good negotiator. I believe Carmax treated me a lot better than a traditional dealer would have, and I had greater confidence that the sales rep wasn't hiding a major flaw in the car. I was willing to pay a little extra for that. Similarly, if I had to pay a little more for an index fund, I might be willing to do so.

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by dlw322 » Fri Jun 07, 2013 10:27 am

This article just confirms that indexing is the way to go. In the beginning of the article it says that he has beat the S&P index by 1% per year for the last 3 years, then a few paragraphs later they mention the ER for the fund is 1.2%. Then it goes on to say this guy beat 90% of similar funds!!

Vanguard should put this in their advertisements!

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by barnaclebob » Fri Jun 07, 2013 10:30 am

nvm i misread...

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by FafnerMorell » Fri Jun 07, 2013 10:34 am

Oddly enough, it was precisely 68 million years ago today that the Denver Dino Journal ran an article about how tough it was for an Ornithomimus named Wally to find eggs to eat, with the craze of small mammals infringing on it's territory.

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by RadAudit » Fri Jun 07, 2013 11:32 am

Dianne wrote:Similarly, if I had to pay a little more for an index fund, I might be willing to do so.
You raise an interesting point. I'm sure that within the index universe, there is a fairly wide range of costs for this product.
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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by bertilak » Fri Jun 07, 2013 12:38 pm

This is not the first "craze." Here is an article from 1983 about the Mutual Fund Craze:
http://news.google.com/newspapers?nid=2 ... 49,2972244
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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by Rick Ferri » Fri Jun 07, 2013 12:53 pm

There is always strong survivorship bias in articles like this one. The journalist can only interview fund managers whose funds actually survived. This makes it sound as though picking a winning fund is easier than it is. There were 473 large cap value funds on Jan 1, 1997. By December 2011, only 261 were still in operation; 186 had merged with other funds and 26 liquidated. That's a death rate of 45%. Of those funds, 80% under-performed the average for the group before their death. The other 20% closed mainly due to fund company mergers.

Vanguard Reseach - The mutual fund graveyard: An analysis of dead funds

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by rmelvey » Fri Jun 07, 2013 1:21 pm

Personally, I think that active managers play a crucial role in keeping the markets sane. I especially respect value investors, who IMO, help the markets function as they are supposed to.

With that said, I index because it makes sense from a cost perspective. When you index, you basically have all of the active managers working for you, weighted by how much influence they have on market prices. I don't like demonizing active managers, I just like making them do all the work and not paying them a dime :D

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by Rick Ferri » Fri Jun 07, 2013 1:32 pm

Active management is what makes indexing work.

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by EyeYield » Fri Jun 07, 2013 1:33 pm

Craze? That takes me back to my all time favorite craze.
http://www.nytstore.com/Hula-Hoop-Craze ... _4790.html

That was the year the Dow started off at 439.27; lovely memories.
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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by rmelvey » Fri Jun 07, 2013 1:48 pm

Rick Ferri wrote:Active management is what makes indexing work.

Rick Ferri
Hah, much more succinct than my post :)

There are few arbitrage opportunities because people think that there are arbitrage opportunities. Contrarily, if everyone thought that there were no arbitrage opportunities, they would be plentiful. To me, this is the eternal riddle of markets. The thing that prevents them from ever being truly mastered. :D

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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by ruralavalon » Fri Jun 07, 2013 2:30 pm

Grt2bOutdoors wrote:Front page of today's Wall Street Journal:

Needless to say, the pressure is building on active managers to compete with the indexes. This article is about Wally Weitz of Weitz Funds in Omaha, NE (the second oracle of Omaha besides Warren) whose actually outperformed the S&P 500 by 1 percentage point per year over the last 3 years. Investors aren't impressed, they pulled out $400 million more than they put in. :oops: Tsk, tsk, what a dilemma!
Outperformed the S&P 500 by 01% per year over the the years 2009 -2011 :) .

But in the crisis year of 2008, underperformed the S&P 500 by 04% :( . And over the last 10 years growth of $10k lags the S&P 500 $17.7k vs $20.1k, Growth of 10K WVALX . Also, the expense ratio is 1.20%.
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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by Grt2bOutdoors » Fri Jun 07, 2013 2:35 pm

ruralavalon wrote:
Grt2bOutdoors wrote:Front page of today's Wall Street Journal:

Needless to say, the pressure is building on active managers to compete with the indexes. This article is about Wally Weitz of Weitz Funds in Omaha, NE (the second oracle of Omaha besides Warren) whose actually outperformed the S&P 500 by 1 percentage point per year over the last 3 years. Investors aren't impressed, they pulled out $400 million more than they put in. :oops: Tsk, tsk, what a dilemma!
Outperformed the S&P 500 by 01% per year over the the years 2009 -2011 :) .

But in the crisis year of 2008, underperformed the S&P 500 by 04% :( . And over the last 10 years growth of $10k lags the S&P 500 $17.7k vs $20.1k, Growth of 10K WVALX . Also, the expense ratio is 1.20%.
It must be expensive living in Omaha to require a 1.20% expense ratio. Here I thought, NYC was expensive to do business in.
Last edited by Grt2bOutdoors on Fri Jun 07, 2013 9:20 pm, edited 1 time in total.
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Re: Today's WSJ: Old School Stock Picker Struggles w Index C

Post by entyrii » Fri Jun 07, 2013 2:37 pm

bertilak wrote:This is not the first "craze." Here is an article from 1983 about the Mutual Fund Craze:
http://news.google.com/newspapers?nid=2 ... 49,2972244
Interesting article. I became curious about the Westergaard Fund that was mentioned here. According to Wikipedia (http://en.wikipedia.org/wiki/John_Westergaard):
In the 1980s, Westergaard founded the Westergaard Fund, a mutual fund that focused on finding emerging companies. However, the firm was not as successful as stocks of small companies generally lagged the market during the bull market of the early and mid-1980s. Westergaard funds closed during November 1987.
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