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Thread: The dying business of picking stocks

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    Default The dying business of picking stocks

    Investors are giving up on stock picking.

    Pension funds, endowments, 401(k) retirement plans and retail investors are flooding into passive investment funds, which run on autopilot by tracking an index. Stock pickers, archetypes of 20th century Wall Street, are being pushed to the margins.

    Over the three years ended Aug. 31, investors added nearly $1.3 trillion to passive mutual funds and their brethren—passive exchange-traded funds—while draining more than a quarter trillion from active funds, according to Morningstar Inc.

    Advocates of passive funds have long cited their superior performance over time, lower fees and simplicity. Today, that credo has been effectively institutionalized, with government regulators, plaintiffs' lawyers and performance data pushing investors away from active stock picking.


    The internal index fund “is kind of like Pac-Man,” he said. “If it outperforms over time, eventually a capable administrative assistant might be able to run the entire investment department, and we’d be OK with that.”

    “What’s going on is a generational shift,” said John D. Skjervem, 54 years old, chief investment officer of the Oregon State Treasury, which oversees $90 billion in public assets and trust funds. “Guys like me are moving in, and we had education that was empirically more rigorous than the prior generation’s.”

    In times of low investment returns, it doesn't make much sense to gamble on an fund management fees, when most funds perform worse than the index. An interesting aspect is that even large state and public sector pensions are moving into index. I think there are still opportunities for private equity and large funds to beat the market through direct investing in projects, but just picking stocks seems a fools game today.

    An interesting implication is there really isn't much difference between a defined benefit or defined contribution plan anymore. I have a defined benefit plan, but I calculated that if the money I and my employer put into it each year, was instead invested in an index fund, I could easily buy an annuity paying out the benefit that is promised at the end. I guess defined benefit just takes a bit of hassle out.
    Last edited by moahunter; 17-10-2016 at 10:16 AM.


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