After accurately predicting the Global Financial Crisis in 2008, Robert Rodriguez and Peter Schiff quickly came to be viewed as investment gurus who could provide shelter from the storm. Investors eagerly followed their advice in anticipation of the fortunes certain to follow. How did they fare?
With enormous resources at their disposal, institutional investors—the so-called “smart money”—should have an advantage in identifying tomorrow’s winning fund managers…but do they?
At nearly half a trillion in assets, the Norwegian Government Pension Fund has a lot going for it: 249 highly-skilled investment managers, no taxes and management fees that are next to nothing. With every advantage an investor could hope for, why couldn’t they outperform a simple index fund?
Research by M.I.T. instructor, Mark Kritzman, revealed that even with higher gross returns, actively managed mutual funds and hedge funds, net of all expenses—fees, trading costs and taxes—leave less in your pocket than a simple index fund.
Q: I heard an investment joke the other day, and it seems to be a valid critique of index fund investing. I’d like your response. The joke goes something like this, “A stock picker and an index fund investor are walking down the street. The stock picker suddenly stops, points to the sidewalk below, and says ‘Hey, look, there’s a $20 bill.’ As he bends over to scoop up the found money, the index investor says, ‘Don’t bother. If that were a real $20 bill, someone would have picked it up already.’” What is your response?