{"id":4745,"date":"2014-09-24T05:25:52","date_gmt":"2014-09-24T12:25:52","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=4745"},"modified":"2014-09-24T05:25:52","modified_gmt":"2014-09-24T12:25:52","slug":"miracle-saves-active-investment-management","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/investing\/miracle-saves-active-investment-management\/","title":{"rendered":"Miracle Saves Active Investment Management"},"content":{"rendered":"

\"Miracle<\/a><\/p>\n

\u201cMove to passive likely to build more steam\u201d is a front page story in the September 15 issue of Pensions & Investments<\/em><\/strong><\/a>, the newspaper for pension consultants and fiduciaries.\u00a0 The sub-heading for the article reads \u201cBut any paradigm shift is seen as a long way off.\u201d In other words, active investment management is dying a slow death, and for good reasons. In this blog, I explore the shortcomings of active investment management and offer a miracle that could save it. It\u2019s not too late.<\/p>\n

Why Active Management Deserves to Die
\n<\/strong><\/p>\n

Numerous studies by S&P<\/a>, Vanguard<\/a>, Morningstar<\/a> and others prove that active investment management fails to outperform passive, especially after fees and expenses. Furthermore it is now well understood that, in the hierarchy of performance sources, asset allocation is king, explaining more than 100% of actual performance<\/a> results. The other aspects of performance, namely timing and manager selection, tend to subtract value.<\/p>\n

Bottom line, studies show that investment portfolios perform better when all underlying assets are passive. This result is attributed to efficient markets. It\u2019s very difficult to beat the consensus, the market, especially a market that is dominated by professionals.<\/p>\n

Why Active Management Has Survived (At least so far)<\/strong><\/p>\n

In his popular book, What Investors Really Want<\/em><\/strong><\/a>,<\/em><\/strong> Professor Meir Statman, a behavioral scientist, tells us that investors like and want the entertainment and bragging rights that come with active management. He compares the choice between active and passive to the choice between fine dining in restaurants and eating health food at home. Fine dining is more fun, but not so good for our health. \u00a0Investors want to play the investment game, and they want to win. They believe their investment advisor can make that happen.<\/p>\n

Some investors know that the odds of winning are less than 50\/50 \u2013 the odds are against them.\u00a0 But they believe that, together with their advisor, they can outwit everyone else. Just as fancy restaurants don\u2019t discourage patrons, advisors don\u2019t discourage active management, even though it would take a miracle to actually deliver skillful management.<\/p>\n

\"Hallelujah\"<\/a>The Miracle<\/strong><\/p>\n

Hunter S Thompson, author, says \u201cAnything worth doing is worth doing right<\/em>.\u201d The miracle that could save active investment management is contemporary due diligence that actually identifies skill<\/a>, even though it is much more work than the antiquated approaches advisors have used for the past 40 years. Indexes and peer groups do not work \u2013 never have and never will. Consequently, investors hire losers, and are constantly disappointed. \u201cAlways change a losing game<\/em>\u201d advises Dr. David Posen, speaker and author.<\/p>\n

Active managers should pray for this miracle but they fear what it might show. Advisors won\u2019t accept the miracle until clients become frustrated enough to fire them.\u00a0 Change comes hard<\/a>, but clients deserve better.<\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cMove to passive likely to build more steam\u201d is a front page story in the September 15 issue of Pensions & Investments, the newspaper for pension consultants and fiduciaries.\u00a0 The sub-heading for the article reads \u201cBut any paradigm shift is seen as a long way off.\u201d In other words, active investment management is dying a slow death, and for good reasons. In this blog, I explore the shortcomings of active<\/p>\n","protected":false},"author":40,"featured_media":4749,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[395],"tags":[],"class_list":["post-4745","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing"],"yoast_head":"\nMiracle Saves Active Investment Management<\/title>\n<meta name=\"description\" content=\"Active investment management is dying a slow death. 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I will explore the shortcomings of active investment management and offer a miracle that could save it.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.paladinregistry.com\/blog\/investing\/miracle-saves-active-investment-management\/\" \/>\n<meta property=\"og:site_name\" content=\"Paladin Registry Blog\" \/>\n<meta property=\"article:published_time\" content=\"2014-09-24T12:25:52+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.paladinregistry.com\/blog\/wp-content\/uploads\/2014\/09\/Miracle-saves-active-investment-management.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"620\" \/>\n\t<meta property=\"og:image:height\" content=\"360\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Ron Surz\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@RonSurz\" \/>\n<meta name=\"twitter:site\" content=\"@PaladinRegistry\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Ron Surz\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/investing\/miracle-saves-active-investment-management\/\",\"url\":\"https:\/\/www.paladinregistry.com\/blog\/investing\/miracle-saves-active-investment-management\/\",\"name\":\"Miracle Saves Active Investment Management\",\"isPartOf\":{\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/investing\/miracle-saves-active-investment-management\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/investing\/miracle-saves-active-investment-management\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.paladinregistry.com\/blog\/wp-content\/uploads\/2014\/09\/Miracle-saves-active-investment-management.jpg\",\"datePublished\":\"2014-09-24T12:25:52+00:00\",\"dateModified\":\"2014-09-24T12:25:52+00:00\",\"author\":{\"@id\":\"https:\/\/www.paladinregistry.com\/blog\/#\/schema\/person\/6bf0c2620b3323d78eb421dbf27faf88\"},\"description\":\"Active investment management is dying a slow death. 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