Just a few posts back you were dismissing my point by saying 10 years was too short to conclude anything...galawdawg wrote: ↑Sun Jun 06, 2021 6:48 pmAssuming that you are correct and that active trading has improved, let's do what an average investor might do who is hearing that "active funds are the way to go." I ran a Google search for "top active mutual funds" with a search period of 2010. The first result: Kiplinger's 2010 Mutual Fund Rankings (https://www.kiplinger.com/article/inves ... kings.html) So using that article, I'll use as an example, the first subsection, Large Company Stock Funds, and look at the "proven" Large Cap funds they picked as winners: FCNTX, LLPFX, YACKX and FAIRX. What were the ten year annual average returns of each of these funds as of December 2020, ten years after the article was published?Independent George wrote: ↑Sun Jun 06, 2021 5:48 pm Here's the thing that often gets missed by BHs - active trading has, in fact, improved dramatically over time; the kind of analysis that gets done today is far, far superior to the kind of trading that was done even just a decade ago, let alone a century ago. The problem is that everybody is doing it - it's a game of PhD quant vs PhD quant setting the market price. The absolute level of trading "skill" is undoubtedly higher than it was in the past... it's just the relative level is necessarily always going to end up at the same place: the market clearing price.
There are two rather large caveats to this, though:
1. The winners & losers do not necessarily have to follow a normal distribution - it's entirely possible (and I'd say likely) that very small portion of traders to do extremely well, while the rest of the market is slightly below average. The net of all active trades nets to the market price, but most traders actually performed below average.
2. The Grossman-Stiglitz paradox remains true - if markets everyone were to start investing passively, markets will become less efficient because no information is being exchanged on the marketplace. But once people start trading to take advantage of that inefficiency, they will eventually arbitrage out their advantage until the market becomes efficient again.
FCNTX 15.53%
LLPFX 7.32%
YACKX 11.5%
FAIRX 8.15%
And the S&P 500 in that same time? 13.83%.
So of the four top-ranked large-cap funds that Kiplinger's recommended in 2010, only one (FCNTX) outperformed Vanguard S&P 500 Index and that was by less than 2%. The other three would have resulted in returns significantly lower for those who invested in those funds versus VFIAX. So an investor choosing from those funds vs. the S&P500 index had a 25% chance of outperforming the S&P 500 and a 75% chance of underperforming the S&P 500. I'd say the odds do not favor active investing over passive investing.
Here are the CAGRs of those active funds since their inception through May 2021, compared against the S&P:
FCNTX 13.7%
S&P 11.5%
(Since 1976)
LLPFX 10.3%
S&P 10.5%
(Since 1987)
YACKX 10.9%
S&P 10.4%
(Since 1992)
FAIRX 10.5%
S&P 7.0%
(Since 2000)
Let me give you three more:
RYPNX 13.2%
S&P 9.2%
(Since 1996)
POAGX 14.5%
S&P 10.4%
(Since 2004)
PSLDX 16.7%
S&P 10.1%
(Since 2007)
Someone with more time than me can run the better analysis of comparing different starting points (I.e. every year since inception) through May 2021. I suspect the active funds will still win >50% of the starting dates.