1.Fortune
Magazine bears down on Active Management 10/11/99 Issue |
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Where Have All the Geniuses Gone?
The brilliant mutual fund managers of yore are nearly
extinct. The less brilliant are in danger of losing their jobs.
Because in today`s hot market, index funds are golden.
by David Whitford
Text Bite:
"Where once we saw wizards, artists, financial Michelangelos,
now all we see are charlatans." |
2.
Darts
and Dow Jones A
review of the 1992 20/20 Program (read
transcript ), that was way ahead of it`s time.
By Ken Garner
3.
Merrrill Lynch & Co. fined $ 750,000, but broker loses $36.3 MILLION
for clients!! 5/16/2000 (more scandals)
4.
 |
Live
from the Fourth Annual Superbowl of Indexing, Phoenix, AZ
Dateline:
12-5-99
|
Text
Bite: from
John Bogle In John
Bogle`s Keynote Speech here on Sunday night, he noted next year`s
25th Anniversary of the "First Index Investment Trust",
which was incorporated on Dec 31, 1975.
On November
16, 1999 the Vanguard 500 Index Fund crossed the $100 Billion milestone,
after starting with $11 million. A remarkable compounded growth
rate of 50% per year. It is now only $1 Billion away from taking
the Total Asset Crown away from Fidelity`s Magellan Fund.
"The
search to identify, in advance, the few winning funds is like looking
for a needle in a haystack. Why bother looking for the needle, when
you can own the haystack?"
"The
fact is that indexers always win.... that is in any financial market-and
in any segment of any financial market-indexers owning all of the
securities in that market at low cost must provide better returns
than the other investors in the market in the aggregate."
"And
when the day comes that active managers seem to win, remember that
it is only because the data either fails to capture the results
of all active managers; or because of statistical errors, such as
ignoring survivor bias, sales charges, taxes or data anomalies,
of which the most notable is calculating fund returns based on the
number of funds rather than assets of funds.
"So,
fellow indexers, be of stout heart: Active managers as a group never
win"
"...in
the stock market casino, it is the croupiers who win"
"Nobel
Laureate Paul Samuelson said that indexing is trivially obvious
and remarkably sweeping. The secret of success in investing is an
obvious one; The Haystack trumps the Needle, almost every time."
Your Roving
Index Reporter, Mark Hebner
5.
In the End, Stock Funds Just Don`t Measure Up
(no link available, unless you subscribe to Interactive WSJ)
Wall Street Journal, 10/5/99, by Jonathan Clements
Text
Bite:
It`s time to settle the question once and for all.
Should you buy actively managed
stock funds in an effort to earn market-beating returns, or should
you abandon this quest and instead plunk your money in
market-tracking index funds? It`s a question that goes to
the heart of stock-fund investing.
To get at the
answer, I turned to Ira Weiss, an accounting professor at Columbia
Business School. Mr. Weiss, in turn, tapped into a database maintained
by the Center for Research in Security Prices at the University
of Chicago`s Graduate School of Business.
......The bottom
line? After adjusting for size and survivorship bias, Mr. Weiss
found that funds trailed the S&P 500 by some 1.4 percentage
points a year. As it happens, that is what diversified U.S. stock
funds currently charge in average annual expenses.
......Moreover,
in his calculations, Mr. Weiss ignored both fund sales commissions
and taxes, which would have made fund returns seem even more bleak.
Historically, funds have been far less tax efficient than index
funds, which don`t trade actively but instead simply buy and hold
the stocks that constitute a market index.
......"If
you earn 11.6% for 36 years, a dollar grows to $52," Mr. Bogle
notes. "If you earn 10.2%, the dollar grows to $33. Which would
you rather have, $52 or $33? To ask the question is to answer it."
6.
Index Funds Display Enormous Influence , (no link available)
by Bridget O`Brian, Wall Street Journal, 10/4/99
Text
Bite:
New money flowing into index funds for this year through
Aug. 30 hit $44.59 billion, according to Financial Research of Boston;
that`s already ahead of such sales for all of 1998, when index funds
attracted $42.47 billion. And this year`s sales numbers show that
37.6% of all net new money is going into index funds -- that`s nearly
$4 of every $10 invested, twice the rate in 1998. A decade ago,
only 2.1% of fund sales landed in index portfolios.
5 year performance:
Average Index Fund = 24.45% annualized returns
Avg. Dvsfd. Stock Fund = 17.85% annual returns
Source: Lipper, Financial Research Corp.
7. Twenty-Five Years of
Indexing This study by PricewaterhouseCoopers confirms the value of
indexing; August 1998 Twenty-Five
Years of Indexing
8.
Barclay Global Investors Predict Market Could be 70-80% Indexed
; March, 1998
9.
The Guide to Ultimate Indexing , Cover Story,
To
make the most of a growing array of index investments, you need to
look beyond the obvious. (requires subscription)
By
Daniel McGinn, September 1999, Bloomberg Personal FinanceBy
Daniel McGinn, September 1999, Bloomberg Personal Finance
Text Bite:
...But whatever is drawing people in, many will stay put even if the
market slides, other experts say. "My guess is that indexing
will have a larger role if you call me 10 years from now than it does
now," says MIT economist and Nobel laureate Paul Samuelson, an
early fan of the technique. "But it will still be a minority
mode of investing. "Why? "There`s something in people, you
might even call it a little bit of a gambling instinct," Samuelson
says. "They want to be interested in the process of investing,"
and it`s traditionally been difficult to get too jazzed up about indexing.
"I tell people [investing] should be dull. It shouldn`t be exciting.
Investing should be more like watching paint dry or watching grass
grow," he says. "If you want excitement, take $800 and go
to Las Vegas."...But whatever is drawing people in, many will
stay put even if the market slides, other experts say. "My guess
is that indexing will have a larger role if you call me 10 years from
now than it does now," says MIT economist and Nobel laureate
Paul Samuelson, an early fan of the technique. "But it will still
be a minority mode of investing. "Why? "There`s something
in people, you might even call it a little bit of a gambling
instinct," Samuelson says. "They want to be interested
in the process of investing," and it`s traditionally been difficult
to get too jazzed up about indexing. "I tell people [investing]
should be dull. It shouldn`t be exciting. Investing should be more
like watching paint dry or watching grass grow," he says. "If
you want excitement, take $800 and go to Las Vegas."
10.
LA Times Article on Indexing 9/26/99
Text Bite:
...today, indexing is one of the few "hot" segments of a
tepid fund industry. In July, nearly one of every two new dollars
invested in stock and bond funds went into an index fund, according
to Financial Research Corp. in Boston.
.....A Blossoming of Index Funds: Indexing is surging in popularity,
as evidenced by the proliferation of funds that track all sorts of
market benchmarks, from the Standard & Poor`s 500 index of blue
chip stocks to the Internet.com index of Net shares.
11.
12.
Academic Research from the University of Chicago (advanced reading)
The Center
for Research in Security Prices maintains the most comprehensive
and accurate databases of standard and derived historical data for
NYSE, AMEX and Nasdaq common stocks, Indices data, US Treasury data,
and Mutual Fund data. CRSP also provides Proxy Graphs for 10K SEC
Filing, and custom data sets.
Key Strengths
of Stock Data
Extensive
Name History
We trace changes in company name, CUSIP, ticker, SIC code, exchange,
share class and code. This allows for seamless time-series analysis.
Complete
Corporate Actions
We record distributions, mergers, acquisitions, spin-offs, and
splits.
Accurate
Prices and Total Returns
Since 1960, we have had a hands-on approach to research which
is reflected in the high quality of our data.
Depth of
History
Our month-end data begins in December 1925 for NYSE. Our end-of-day
data begins in 1962 for NYSE and AMEX and 1972 for Nasdaq.
13. Other academic papers for advanced reading:
Cowles
Foundation for Research in Economics
Glucksman
Institute for Research in Securities Markets
UC Davis, Terrance
Odean
The
Top Achievements, Challenges, and Failures of Finance
by Ivo
Welsh also see here.
Welsh is also the recepient of the Fama-DFA
Award.
Comprehensive
Finance Web Sites List from Ohio State
Social
Science Electronic Publishing Database of 20,000 authors. This
is the most comprehensive database of academic studies.
Finance
Professor.com Interesting academic site.
Online
Trading: Dream vs. Reality
The
History of Economic Thought
The
Historical Behavior of Asset Returns
14.
CHARACTERISTICS, COVARIANCES, AND AVERAGE RETURNS: 1929-97
James
L. Davis, Eugene F. Fama, and Kenneth R. French
A draft of an
upublished research paper (February 1999) discussing the statistics
of average returns. The authors continue the development, begun
by various authors in earlier papers, of the three-factor risk model
that is the foundation for the analysis of return/risk ratios for
index fund investment portfolios. This paper is for readers with
some knowledge of statistics and especially the statistics of investing.
AUTHOR`S ABSTRACT:
The value premium in U.S. stock returns is robust. The positive
relation between average return and book-to-market equity is as
strong for the period 1929-63 as it is for the period 1963-97 studied
in earlier papers. A three-factor risk model explains the value
premium better than the hypothesis that the book-to-market characteristic
is compensated irrespective of risk loadings.
The document
is in Adobe Acrobat® (PDF) format and the Acrobat Reader is required
to view it. If you do not have the free Acrobat Viewer, it may be
downloaded from the Adobe
Website .
15.
AN INTRODUCTION TO INVESTMENT THEORY
William N. Goetzmann
This hyper-text
book introduces the foundations of investment decision-making. Beginning
with portfolio theory and the tradeoff between risk and return,
it shows how the definition of investor risk depends crucially upon
diversification. It explains modern asset pricing models currently
used to determine the expected rate of return on investments and
finally it presents evidence about what information can be used
for strategic investment advantage. The book is designed for use
in a four-week teaching module for master`s students studying introductory
Finance. It assumes some knowledge of statistics and a familiarity
with the concepts of net present value.
16. For academic
articles on finance, see this site. Search on "Eugene Fama"
to see his papers.
Journal
of Financial Economics
Sample Abstract:
Journal Of Financial Economics Vol. 33 (1) pp. 3-56
© Elsevier Science B.V.
Common risk
factors in the returns on stocks and bonds
E.F. Fama
K.R. French, University of Chicago, Chicago, IL 60637, USA
Received 1 July
1992; Revised 1 September 1992
Abstract
This paper identifies
five common risk factors in the returns on stocks and bonds. There
are three stock-market factors: an overall market factor and factors
related to firm size and book-to-market equity. There are two bond-market
factors, related to maturity and default risks. Stock returns have
shared variation due to the stock-market factors, and they are linked
to bond returns through shared variation in the bond-market factors.
Except for low-grade corporates, the bond-market factors capture
the common variation in bond returns. Most important, the five factors
seem to explain average returns on stocks and bonds.
17.
Performance of UK Equity Unit Trusts
Evidence that indexing works even better in International and International
Small Cap markets.
More
evidence indexing works in Australia.
18.
The Arithmetic of Active Management, William Sharpe
19.
STOCKS, HORSES, CHAOS AND EFFICIENT MARKETS
20.
Dot Coms Shut Downs, Low cost of capital companies
21. U.S.
House of Representatives Committee on Financial Services Subcommittee
on Capital Markets, Insurance and Government Sponsored Enterprises
Hearing on "Analyzing
the Analysts: Are Investors Getting Unbiased Research from Wall
Street?" June 14, 2001
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