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The Nobel laureate known as one of the founders of passive investing lets loose on active management.
Active management is a fallacy, and it’s completely unnecessary for markets to be truly efficient, Eugene Fama, best known for the efficient markets hypothesis, told a crowded room of investors, advisors and ETF issuers in Chicago today. True to form, Fama argued that passive investing is the only sensible way to go.
More and more investors are turning to predominantly passive index funds and ETFs, and Fama summed up that ongoing shift in investments in a single word: “Finally.” Consider that the ETF market has broken through $1.9 trillion in assets in the U.S. alone this year, boasting more than 1,600 funds. Of all those assets, less than $18 billion are tied to actively managed ETFs, according to ETF.com data.
“There’s this fallacy that people believe that we need active managers for the market to be efficient,” Fama said at the Morningstar ETF conference taking place in Chicago this week. “That’s only true if they are well-informed active managers, otherwise they just make the market more inefficient.”
“When is active management good? The answer is ‘never,’” Fama said. “It’s always a zero-sum game. But it’s a really difficult perspective for people to accept.”
Fama is a Efficient Market Guru and articulates that for one manager to win another has to lose and that equals a zero sum game and when you factor in costs it is a negative sum game. However what about individuals and their decisions on funds within that universe of Efficient Markets
So why invest in the fund and pay the expense ratio?.
1. Because very few people will execute this successfully. 2. You still have to pay your broker something, so it's not completely free unless you somehow have a lot of free trades available to you.
do they have actively managed etf's? id like the opportunity to outperform the index and the tax advantages of the etf. fidelity said on their site that they have actively managed etf's but they were just for bonds/income type stuff. im looking to beat the s&p.
This is an interesting thread. I pretty much stick to index funds because I like the low costs and because there are an overwhelming amount of managed funds out there that, frankly, I wouldn't know where to start. With my 401k, the managed fund options (all that was offered) were limited but the Op has the whole wide world of funds to consider. Pretty overwhelming. So it's good to get reviews from other people like this. Even if you aren't interested in them, it's good to read and learn about them.
I am just curious as to what you are going to do OP as far as how you invest as soon as you pick a fund because it's something I am asking myself. In a few months, I am getting a chunk of money. Not $50k, but about half that much. I know what I am buying (roughly, I am trying to decide between two), but I am trying to figure out if I should buy it all at once or slowly buy it over time, a little bit once a month when I think things are on the low end. What do you plan on doing or what would others who chimed in do?
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