Bogle slams new index funds

[Bailing-Bob]

http://www.forbes.com/2007/05/10/va...nds-in_jb_0510funds_inl.html?partner=yahootix

 

[F-One]

Good article, Thanks.

Looks like fund companies are trying to "sell" new funds to make themselves more money off people following general advice for investing in index funds.

 

[FinanceDude]

Classic cranky Bogle. I thought imitation was the most sincere form of flattery.................

 

[teejayevans]

But they are precious few in number--over the past 36 years, just three funds out of 355 have consistently distinguished themselves.

Anybody verify this statistic, if true, you can call him anything you want,
but also call him correct.
tj

 

[cute fuzzy bunny]

Its absolutely true. Of the 355 funds available in 1970, only Fidelitys contrafund, franklins mutualshares and davis new york venture beat the indexes by a significant measure and continue to produce a decent return. Six other funds also beat the indexes over the same time period, but they havent had decent returns since the 80's and are, I suppose, therefore 'undistinguished'...

 

[FinanceDude]

Its absolutely true. Of the 355 funds available in 1970, only Fidelitys contrafund, franklins mutualshares and davis new york venture beat the indexes by a significant measure and continue to produce a decent return. Six other funds also beat the indexes over the same time period, but they havent had decent returns since the 80's and are, I suppose, therefore 'undistinguished'...

He shoudl change the year to 1975, since that was the FIRST time an index fund was available for sale, and right after the govt deregulated commissions for advisors.........

I wonder if the numbers would change, as 74 and 75 were two of the WORST years in the histiry of the stock market...............

 

[cute fuzzy bunny]

Eh, you cant mine the data too much. You cut out 74/75, maybe ya need to stop the data set at 1995 before the ridiculous big run up. While index funds werent for sale at the time, the indexes themselves are calculable back further than 1970. Using that 1970-current period seems pretty fair to me. Couple of bad pockets, couple of good ones. High inflation, low inflation. Good stock market periods, good bond market periods. Couple of wars. Rise and fall of several superpowers. Lots of economic turmoil. If theres something particularly good, bad or unusual that wasnt in that mix, I dont know what it might be.

I did read up on the three 'index beaters'. Looks great if you dont mind paying sales charges and high expense fees. And at less than 1% of the total fund base, perhaps its just good coin flipping luck.

 

[d]

I did read up on the three 'index beaters'. Looks great if you dont mind paying sales charges and high expense fees.

Contra's best days might be behind it, as it's rather bloated, but it is no-load and the e.r. is not excessive (.89%); NYVenture has a virtual clone in Selected American Shares, no-load, class D share e.r. of .58%. had you the foresight, you'd now be holding Mutual Shares, class Z no-load, e.r. of .81%. Granted, these are not Vanguard level expense ratios, but are certainly moderate when compared to the majority of funds.

 

[cute fuzzy bunny]

I'm spoiled. Anything over .30 looks ridiculously spendy to me at this point.

 

[Gone4Good]

He shoudl change the year to 1975, since that was the FIRST time an index fund was available for sale, and right after the govt deregulated commissions for advisors.........

I wonder if the numbers would change, as 74 and 75 were two of the WORST years in the histiry of the stock market...............

Study after study, after study, after study . . .

has concluded the same thing. That actively managed funds underperform a properly constructed benchmark over long periods of time. In aggregate that underperformance is highly correlated to fund expenses (including things like transaction costs that can be as high or higher than the stated expenses).

 

[Gone4Good]

Rather than weighting the individual stock holdings by market cap, they use a combination of factors, such as corporate revenues, cash flows, profits or dividends.

I can't believe otherwise intelligent people actually buy this strategy. So I'm supposed to buy an "index" fund that weights the portfolio according to the very same simplistic measures of fundamental value that active managers have used for decades with startling little success? Notwithstanding active manager's inability to produce excess returns employing the very same fundamental tools, fear not, these new breed of funds has added the word "index" to their title and, as everyone knows, indexes outperform active managers. I guess by the time the fool investor works through this circular logic, he is likely already parted from his money - or such is the hope.