- Passively managed funds are extremely dangerous as their positive performance is self-reinforcing due to the huge positive net inflows.
- But don’t jump to actively managed funds as, on aggregate, they will always underperform the market in the long term because they are the market.
- The only solution is to invest like a business owner. You can do this by investing yourself or by finding an active manager who has the same principles.
A recent Wall Street Journal article described how BlackRock (NYSE: BLK) is switching to robots from using humans to improve its stock picking for its actively managed funds. BLK’s reasoning is that its stock picking unit lagged in performance and has had many withdrawals that cut assets under management to $275 billion from $317 billion in the last three years despite the S&P 500 surging 27% in the same period. The hope is that robots will perform better at lower cost. More →