Friday 23 September 2016

Quick Friday Thought on Active Investment

I came across an article on LinkedIn called "The Professor Who Was Right About Index Funds All Along". The article is about Burton Malkiel and how he was right about the success of index funds many years before they became mainstream. I paused on an excerpt from his book, "A Random Walk Down Wall Street":
“a blindfolded monkey throwing darts at the stock listings could select a portfolio that would do just as well as one selected by the experts.”
Malkiel's quote made me chuckle as it is probably true that a blindfolded monkey can do just as well as the experts. And a blindfolded monkey doesn't charge 1.5% to 2% a year to do so! I find it amazing that in this day and age, investment houses continue to insist on building large research terms to find "alpha". It amazes me that such highly qualified and intelligent people can kid themselves on the value a big active investment team adds.

My point is this: While I am not really interested in debating the merits of full-blown active investing, I don't think the cost of most active investments is worth it. All you are doing is making someone else rich at your expense. I believe by investing a couple of hours a week in your own investment portfolio you can save yourself some money (a lot of money over the long-term) and do just as well as any so-called expert in the field.

Written by: Geoff Noble
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