In order to promote an actual discussion (which I didn't do in my first reply), what -possible- things would it take to "convince you" there's more out there than just indexes? If the answer is "nothing, my mind is made up" I'll accept that. But if you're open to new ideas/views, I'm happy to talk.
You present a false premise.
It isn't one or the other - my mind
is "made up"
based on what I know at this time. But I am open, and more than willing to be shown an alternative (who wouldn't want to consistently beat the market? I like money!)
But as just posted, and from other comments, "what it takes to convince me" is tricky. Not due to a closed mind (as some seem to infer), but because it
is tricky!.
Five [-]Four, Three[/-]
tough hurdles (probably all mentioned already, but I'll consolidate here):
1) If some fund manager has provided risk-adjusted market beating returns for some extended period, how can we know if that will continue? Even if it worked for a long time, markets change, will it work in the future?
2) That fund manager will retire or move on at some point - will the performance continue w/o him/her? Has a team been trained in the methodology to continue? Can they?
3) How do we know it wasn't also dependent on some luck? After all, the only way we can find the past winners is through a rear-view mirror, so we have applied "survivor-bias" to it. No way around that. Many, many, many funds just under-performed or dried up, or got absorbed.
4) If a team can be trained, that means there is a formulaic approach (which it really would need to be to be consistent/scientific, and not 'magic'). That means others can duplicate it. That will water down the approach if a significant amount of money is chasing the same investments. There's huge motivation to beat the market, it will be discovered.
5) And not only do they need to beat the market, they have to do it over and above their fees.
So even though there are never any guarantees, we are far from them with an active managed fund.
Counter that with the broad-based index fund:
1) We are
practically guaranteed to stay extremely close to market performance, minus some small tracking error and minus some small fees.
2) It isn't dependent on a manager.
3) No one can "steal their secret" - it's public knowledge!
4) There is no question that there is no luck involved with an index, it just "is". History shows good tracking, and because there isn't judgement/decision involved, there is no reason to think that tracking won't continue.
So if you want to try to find the rare beast that out-performs, and risk that it continues, that's your choice and good luck. I prefer to take what I see as a reasoned, solid, long term approach.
-ERD50