Minggu, 18 Maret 2018

Sack all Fund Managers !

Here is uncontestable proof that all Fund Managers are a waste of time. They are (mostly) lavishly paid for nothing. If that sounds a radical statement, read on.

Its a well known saying in financial circles that you cannot beat the market in the long run. The sage of Omaha, Warren Buffett has been saying this for a long time. In 2007, he publicly laid a bet that the S&P 500 index would outperform hedge funds over a 10 year period. He wagered $500,000 on it to anybody who would take up the challenge, observing cheekily , " "After all, these managers urged others to bet billions on their abilities. Why should they fear putting a little of their own money on the line?"

Surprisingly only one person took up the bet (shame on you hedge fund industry). Protege Partners handpicked a  portfolio of hedge funds. And the wager was on - the S&P 500 against this handpicked pool of hedge funds.

Ten years ended on 31 Dec 2017. And guess who won ? The hedge fund pool gained 22% over 10 years. The S&P 500 rose 85%. No contest ! Buffet won a handsome amount and promptly donated it to the charity,  Girls Inc of Omaha.

There's a big lesson to everybody who is saving and investing. In the long run you cannot beat the market index. Repeat after me, In the long run you cannot beat the index. Repeat again, In the long run you cannot beat the index. Write it out 1000 times.

And yet, we listen to advice from friends. To tips. We hire investment managers. Fund Managers design all sort of esoteric funds and write research reports on how their funds are outperforming the market. A million online portals exist that cater to advice on investment. All of them charge a fee. All of them get handsomely paid.  

Instead follow the advice of Warren Buffet (for free; no fees charged). Simply invest in an index fund - the S&P 500 if you are in the US, the Footsie if you are in the UK, the Nifty if you are in India. A fund that will charge minimum fees to simply hold the basket of securities exactly mimicking the index. And then forget about it. Come back after 10 or 20 or 30 years. You would have made more money than anybody else. It's as simple as that.

There's only one slight problem. Warren Buffet has beaten the S&P Index handsomely in the 50 odd years he has been at the helm of Berkshire Hathaway !