Thanksgiving is a time for turkey, pumpkin spice everything, and – most importantly – reflection on what we are thankful for. This is also the time of year for the cliché awkward family argument, whether it’s about politics, bitcoin, or jockeying for who still has to sit at the kids’ table. The most controversial topic at my house revolved around cranberry sauce, but in the world of financial advice, the active versus passive investment debate is still in full swing.
We at Fairway see the debate as settled: active management is hobbled by fees, performance generally lags benchmarks, and persistence of performance is minimal.
In 2010, Morningstar nominated five US stock managers for fund manager of the decade, based on their performance over the previous decade. Over the subsequent ten years, none of them outperformed their benchmark. In fact, they underperformed by an average of 5% per year. The winner of the fund manager of the decade underperformed by 8% per year.
It’s hard to pick stocks, but it’s also hard to pick stock pickers!