Kittens Love Index Investing

Finance star, Nobel prize winner, and author of the Efficient Market Hypothesis calls active management a "zero-sum game"

This book is not intended to be another piece of paper that crosses your desk and tempts you with the next greatest way to win "the investment game".This book will not tell you how to double your money in a year or guarantee out-performance of all other money investment managers year in and year out.What you will discover are some time tested and academically backed truths of building investment portfolios that work.

The debate between index fund investing and active fund investing is decades old. It really isn't much of a debate, if you ask me. Historical data from Vanguard and S& P Dow Jones Indices shows that index funds have outperformed actively managed funds in every investment category over the long-term.

When I was growing up, the shopping authority in my family was Consumer Reports. As we shopped for cars, washing machines, or cassette players with Dolby stereo, we'd wield the magazine like a talisman to protect us from lemons.

Back in August, Stephen Gandel, senior editor of Fortune, reported on the 1975 Buffett memo that saved WaPo's pension: One of the (many) things that surprised people about the recent $250 million sale of the Washington Post to Amazon (AMZN) founder Jeff Bezos was the health of the Washington Post's pension plan.

Making money on the stock market is easy in principle. Just buy companies when their price is low and sell when the value of your shares goes up. Simple, right? Many people have made oodles of money off of explaining their unique (or in many cases - not so unique) strategy for accomplishing that simple ...

It's a story that gets trotted out every few years by mutual fund managers and the brokers who sell them. "It's a stock-pickers market!" They'll then go on to talk about "falling stock correlations" and how they will now be able to beat the market.

Norman Rothery is the value investor for Globe Investor's Strategy Lab . Follow his contributions here and view his model portfolio here . There is a myth going around that most fund managers are bad stock pickers. It is undoubtedly true that some are, but it turns out that most beat their benchmarks over the long term.

Hedge-fund king Ray Dalio says the the average retail investor should stop thinking about trying to beat the pros, i.e. him, and focus on balancing his portfolio while getting used to a world in which the Federal Reserve is going to maintain ultra-low interest rates and annual stock returns are going to come in at around 4% for years to come.

Getting into the Grinchy side of the Christmas spirit, I thought I'd take a look at how both income taxes and mutual fund fees affect TFSA savings. The effects of these costs will vary considerably from one person to another, so we'll just look at one particular case.

I had dinner with a friend who works with advisory clients just like I do but he's at one of the big wirehouses. His entire book of business is allocated toward active strategies - SMAs, mutual funds, in-house wrap accounts, hedge funds, funds of hedge funds, etc.

Stay out of debt and buy index funds

As index investing has gained popularity, it is also attracted its share of scorn. The latest example is an unintentionally amusing blog post called Index funds are parasites and are going to kill the market, which appeared last week on the UK site Stockopedia.

It used to be I was surrounded by proponents of both passive and active management and the discussions in the office and at bars and coffee shops would rage on forever. These debates were evanescent with fresh facts, every twist and turn in the markets brought a renewed vigor to the back-and-forth.

CXO Advisory Group has been collecting data from market forecasters since 1998. The firm has tracked and graded thousands of market forecasts made by dozens of popular gurus over the years. The overall results are not good. CXO has concluded that the market experts accurately predicted market direction only 48 percent of the time.

When two competing investment theories are presented with no definitive proof of which is better, the simpler one is better. There are two competing investment theories - efficient markets and inefficient markets. The first proposes that financial markets efficiently price securities and that trying to beat the markets does not work in the long-term.

Harbouring year-end reviews and final accounts, the last weeks of December are infused with nostalgia. In this seasonal spirit, I'd like to draw your attention to an under-celebrated piece of work, completed in the year that Katharine Hepburn, Cary Grant and Shirley Temple saw their debuts on the silver screen.

In my past professional life I led research and analysis for a $600 million Colorado-based Registered Investment Advisor. I was primarily responsible for the ongoing due diligence and research of actively-managed mutual funds and separately managed accounts for recommendation to our clients.

As the market continues its bull run to record highs, investors are inundated with advice. Most of it focuses on whether they should buy stocks and participate in the upside, or "take their profits off the table" to avoid what some believe is an imminent market crash.

Responding to a recent article on mutual funds by Rob Carrick, a Globe and Mail reader rehashed a common refrain: "Perhaps mutual funds were once a great way for 'average Canadians' to invest, but they have been totally subverted by the greed and mediocrity of the financial institutions who dominate the field ...

It's the big lie. Active management wins in inefficient markets (such as small or emerging market stocks). Active management wins in bear markets. And now, thanks to Yahoo Finance's Aaron Task, we can add to that list active management wins because indexing has become too popular.

Low fees are likely to be the best predictor of a mutual fund's future success, according to a new study by Morningstar Inc. The study, to be released Monday, shows that using low fees as a guide would give investors better results than even Morningstar's own star-rating system, which looks at past risk- and load-adjusted returns.

I've long believed the most difficult part of being a Couch Potato investor is resisting temptation. Index investors are asked to be content with market returns, but they are bombarded daily by fund companies, advisers and market gurus who promise more.