re: COLONEL - YOUR ANSWER

Amerstdam, I hate to keep nagging you about this, but I really want to know what your hypothesis is behind the debt restructuring end-of-the-world scenario.

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Spoiler alert: my number one objection with colonels blog is that he argues forcing bankruptcy and allowing those companies to reorganize. Unfortunately banks arent allowed to file ch.11, the FDIC steps in prior

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We went through this already in the other thread. It's irrelevant and symantec to the point; the substance of the idea is a debt restructuring. So if you would prefer the term "Ch. 11-like" or "prepack," that's perfectly fine. It does not change the concept at all, it just changes the words you choose to use.

Last page or two of the "Colonel I just went all in on BAC" thread. The Russian brought it up.

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Oh. Well, there is a subset of lucky funds that do outperform after fees. It's meaningless statistical noise.

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Exactly. Finding one actively managed fund that beats the averages isn't sufficient. If on average, actively managed funds beats indexes, that would be a different story.

Foshizzle,

We are talking about way more than one lucky fund. Lets do the math:

It has been stated that index funds beat 86% of actively managed funds.

That leaves 14% that do on an annual basis

14%of the outstanding funds in the fund universe would come to approx 2500 funds per year.

But, Im a long term guy and I am not concerned about annual outperformance. I want to know who can do it consistently, afterall any fund cam get lucky.

I will conservatively estimate that out of the group of 2500 funds that annually win, there are at LEAST 15% of those that are repeat offenders.
They are in the win column no matter when you look at them (1,5,10,15,20yrs...)

If Im right, and again I give this a conservative estimate, that leaves 375 funds that outperform on a regular basis.

By the numbers that means 375/18000 = 2% of actively managed funds can outperform on a consistent basis.

Even if im off the 375 number by a hundred that still gives the average investor more than enough options to choose from.

Every investor out there should be able to completely diversify the mutual fund portion of their portfolio with a selection of over 300 funds.

Thus brings me to my overall point, and negates yours which is: active management matters

Note: If you doubt my numbers go to Barrons ranking of mutual fund families, and look up funds in the top 10 families. You will easily find 50(or more) such funds in the top 10 alone

Let me make sure I understand....

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By the numbers that means 375/18000 = 2% of actively managed funds can outperform on a consistent basis.

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So you are saying 98% of the time a fund wont beat the index, therefore you should invest in funds. Unbelievable

I also like the fact you take your 2% into perpuity....

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So you are saying 98% of the time a fund wont beat the index, therefore you should invest in funds. Unbelievable

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He just knows the specific 2% that will beat the index funds. Simple--there's no reason to invest in index funds when you are guaranteed to beat their returns (by more than the associated fees) over any semi-long time period until the end of time!

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By the numbers that means 375/18000 = 2% of actively managed funds can outperform on a consistent basis.

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And if you can tell me which 2% they are in advance, more power to you. But with that kind of foreknowledge why pick a fund? You'd have been even better off investing heavily in oil futures. Hey, gold did really well too - so screw the funds ... right???

If you insist on looking at historical averages, take a look at the best actively managed funds as of 1999. Of that bunch, how many are still in the top list today? For that matter, what is the total return of the 1999 top group today? Those are far more relevant questions.

It so happens this matter was studied quite some time back and it turns out that usually the best-performing funds in any given period do *worse* than average in succeeding periods.

So one more time - this is not about a single lucky find. It is about the fact that a fund's previous results are not a reliable guide to how it will do in the future. If anything, they tend to be worse, not better. There's plenty of literature on this subject, just Google it.

But when you say "Hey, this fund has done really well for ten years, I'll invest in it" you're really saying that you believe that by the end it will have outperformed for 20, not 10. And historical numbers have demonstrated repeatedly that, yes, that's a bad bet.

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This idiot has got to be an alter. No way anyone could be this stupid.

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Nah I think he's real.... he's probably one of the top producing brokers at his branch as well!

As Billy Mays would say - "But wait ... there's more!"

I did a little Googling and found this gem - a list of funds recommended back in 1998 ( LINK.

I then picked one of these more or less at random (more or less because the first couple I couldn't get a complete price history for). The one I picked was FGRIX, Fidelity Growth and Income.

First I verified that my historical prices source (Yahoo Finance) agreed with the article over that period to be sure I had the right one. Then I grabbed year end prices over the next two 5-year periods, which brought us to 12/31/97. Over that period, FGRIX did in fact beat the S&P 500, though by a trifling amount (5.4% vs. 5.13% average annual return). However, it really did badly last year, losing slightly over half its value. The S&P didn't do quite that badly.

The net result was that since when the fund was recommended up to 12/31/2008, FGRIX lost 2.2% and the S&P lost 0.6%. The prices are adjusted for dividends, splits, and other distributions.

Of course, that is just one fund but anyone is welcome to look at others. The actively managed funds don't suck but they don't beat an index either.

That said, most customers don't know enough to even buy an index suitable for their retirement needs, so there is some value here.