2.
Eugene F. Fama Jr.
Vice President
Dimensional
Fund Advisors
"The
EMH does not claim markets are always perfectly rational or
that the information reflected in prices is always correct.
The consensus view of investors can temporarily result in
prices well above or well below stock's intrinsic value. The
only condition efficient markets require is that a disproportionate
number of market participants does not consistently profit
over other participants. |
|
| After
taking risk into account, do more managers than you'd see by
chance outperform with persistence? Virtually every economist
who studied this question answers with a resounding "no."
Mike Jensen in the Sixties and Mark Carhart in the Nineties
both conduct exhaustive studies of professional investors. They
each conclude that in general a manager's fee, and not his skill,
plays the biggest role in performance. Since mutual funds report
performance after deducting fees, the bigger the fee, the worse
the performance. Aside from that, expert investors with nearly
unlimited resources working around the clock can't seem to out
predict the market." |
| Markets
Don't Have to be Right. | What
Makes an Asset Class?
Sometimes NASDAQ is referred to as an asset class,
but it's not. It's an exchange that contains several asset classes. A partial
index of NASDAQ stocks might proxy for a tech stock "asset class"—but
there's little theoretical reason to think tech stocks are an asset class either.
 | | The
New Face of Indexing
Old
school indexers claim the market portfolio is the only legitimate stock investment.
Tilting a portfolio toward a particular piece of the market like small company
stocks or value stocks is seen as stock picking, which in turn is seen as gambling
(see the June 20, 2000, Wall Street Journal article by Jonathan Clements:
"Don`t Use Index Funds as Sector Bets")
. |
3.
Science vs. Art in the investment arena:
Index
Funds Advisors Inc. explains how investors can relax and make more money
By Ken Garner
Buy low, sell high, pick a winner ... the mantra of the active investor.
Investing as art, at best, and fortune-telling at worst.
But it doesn't`t have to be that way,
according to one online investment advisor. Index Funds Advisors
Inc. (IFA), based in Newport Beach, Calif., has created a web site
to spread the gospel of index funds investing, which has been scientifically
proven to outperform active investing. IFA President Mark Hebner
has developed a 12-Step Program, "Active Investors Anonymous™," to
help investors understand how they can earn better returns on their
investments by trusting the market, not the managers. More...
5. The Trillion Dollar Bet Transcript
This is the story of risk
and returns in the stock market, with a central focus on the failure of the Long
Term Capital investment firm. Source: Nova
6.
7.
The Man Your Fund Manager Hates
Burton
Malkiel has been saying since 1973 that professional money managers can`t beat
the market. Today his words are accepted wisdom. But a few questions remain. Like:
how come international stock pickers are whipping their indexes?
Anna
Bernasek interviews Burton Malkiel Text Bites:
FORTUNE:
Most fund investors have learned the hard way that the past tells you nothing
about the future. Why are you so sure that index funds will continue to outperform?
Malkiel:
Here`s why. All investors as a group have to own all the stocks in the market.
As a group, they can`t have a gross return different from the market`s, because
they have to own the market. Now, the average mutual fund charges expenses of
1.5% per year, while low-cost index funds charge 0.18%. If all investors are going
to have the same gross rate of return as the index fund, no better and no worse,
the expense ratio difference is going to give index funds an advantage year after
year. And let
me give you a second reason: the tax advantages. The index fund just buys and
holds, while a regular fund turns over its portfolio as much as once a year. As
long as there is an upward trend in the market, you`ll have to pay more tax with
a regular fund. And that`s why I`m convinced indexing is going to continue to
be a winning strategy. It`s logical.
8.
THE INDEXER
Interview with Patricia Dunn
Chairman, Barclays
Global Investors ($689 Billion of primarily Index Funds under management), one
of the world`s largest investment firms.
By Suzanne Woolley
Text Bites:
She`d rather bet on an
index than on a coin toss.
"BGI believes that good investing, most of
the time and for most people, is more about engineering than intuition," she says.
"Our products are linked by a philosophy that science rather than art is best
for investing." Q.
Under what circumstances might active managers as a group top the index?
A.
"When small stocks perform better than big stocks, the active manager will
almost certainly outperform the S&P 500 and we`ll see headlines like "Indexing
Is Dead." But that misses the point, because the S&P 500 reflects only one part
of the market--large-cap stocks. When small-caps start doing well, you`ll want
to be in either a broad market index or a small-cap index. They will have the
same advantage over active managers as an S&P 500 index has over large-cap managers."
"...the more you know about how markets work, the more compelling the case
for indexing becomes."
|
Articles
For a 20 minute video taped interview ,
click 
