A couple of months ago, there was a dust-up in the financial press when a Bloomberg journalist reported that brokerage firm AllianceBernstein had published a client note entitled “The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism.” The journalist excerpted from AllianceBernstein’s private letter: “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active market led capital management.”
The suggestion that passive investing is akin to Marxism was quickly and widely panned by the thinking public. For example, in his review of the note, Morningstar’s John Rekenthaler commented, “Whenever active investment managers write about indexing, the suspicion arises that they arrived at the conclusion first, then searched for their reasons later. This AllianceBernstein paper does nothing to change that view.”
Perhaps AllianceBernstein’s opening shot across the bow was a signal that “passive” investing has become so pervasive, that those who have not yet embraced its essential tenets are having to resort to desperate measures to defend their costly status quo … costly to investors, that is.
The evidence continues to build that investors have had enough of a line of logic that is more likely to line their broker’s pockets than their own. In mid-October, The Wall Street Journal launched an entire series of articles dedicated to what they entitled “The ‘Do-Nothing’ Investment Revolution of the Passivists.” The series – 19 articles and counting – fired their opening salvo with an aptly named article, “The Dying Business of Picking Stocks.”
While there are some differences between purely passive investing (indexing) versus the evidence-based strategy we have adopted at SageBroadview, our commonalities are significant enough that we are proud to be among the ranks of the “passivists.” Indeed, The Wall Street Journal series is covering a range of strategies that may vary in precise execution yet share a strong common belief we’ve expressed ourselves here:
Being a better investor doesn’t mean you must have an advanced degree in financial economics, or that you have to be smarter, faster or luckier than the rest of the market.
Being a better investor does mean:
- Knowing and heeding the insights available from those who do have advanced degrees in financial economics
- Structuring your portfolio so that you’re playing with rather than against the market and its expected returns
- Avoiding your own most dangerous behaviors – ingrained through eons of evolution – that tempt you to make the worst financial decisions at all the wrong times
These are messages we’ve long embraced and shared in our own work. We were pleased to see like-minded evidence-based fund manager Dimensional Fund Advisors featured in one of the series posts, “Making Billions With One Belief: The Markets Can’t Be Beat,” by Jason Zweig.
In short, if the passivist movement is under way in force, we’re happy to help lead the charge toward fewer charges and more efficient investing for all. Give us a call if we can lend you a helping hand.
SAGE Serendipity: Now that Halloween is over, can we begin suggesting holiday gift ideas without being obnoxious? Or is that not until after Thanksgiving? Either way, we thought these items featured in The Week were interesting, even if you’re not yet in the buying mood. You never know when you will be lost on a hike without cell service, or perhaps you want to fix that pesky wifi dead zone called the basement. No Wi-Fi? No problem. The 5 best grid extenders.