I think everybody here is all familiar with Buffett's bet, in which 10 years ago he challenged some fund managers to beat a cheap S&P500 index. The index absolutely crushed every single manager, and the Oracle of Omaha was right once again.
To this observation we could add stories such as the monkey fund, which in 2000 outperformed the market by just having monkeys throw darts. Or the fact that studies show people with brain injuries are likely to outperform. Anyway, those could be anomalies or lucky instances, but they do pose interesting questions.
To this I will add one more element. In late 2015/early 2016, before I knew anything about investing (not even what a P/E ratio was! or anything about the current state of the market), I opened a virtual portfolio, including companies I knew, liked or thought had a moat (not based on any research, didn't even know what a moat was). I did not do ANY research at all. Here are the results: https://imgur.com/a/C77RD
I swear I did not fake this, or remove any company. Most positions are up 50% or more (average +58%). And this is slightly outperforming the market. I literally created this portfolio in 5 minutes.
Now, let's compare with fund managers. Those from Buffett's bet, as he explained, were the best and brightest and employed thousands of people to do some research, directly or indirectly.
This all begs the question: what makes a fund manager like Peter Lynch be so consistently good (+30% annually on Fidelity Magellan), when Buffett's bet clearly shows that most funds are trash?
And I think we can also safely say that some degree of ignorance is clearly preferable when investing. Of course, that means investing in solid companies, not penny stocks or risky bets. But this explains the index, the monkeys, and the brain damaged people. As opposed to funds, which are constantly rearranging their positions.
One last question, that I can't find a way to answer. Given the poor performance and the fees, why would anyone infest in a mutual fund!?
Submitted March 03, 2018 at 06:36AM by Dotald_Trump http://ift.tt/2tegz36
