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Chuck Jaffe: Index Funds Killed The Mutual Fund Star: David Snowball Comments
Probably like most of you, there are financial writers I like and trust, and others I do not. Jaffe falls in the positive category, but not without reservations.
Some skepticism is a practical defensive device whenever accessing any financial opinions. I mostly find Jaffe’s columns informative, but buyer beware since there is a tendency to distort presentations to buttress a position.
Jaffe shows promise as a financial commentator. Proof of that is in this referenced column. He wisely chooses to close his assessment by liberally quoting MFO’s own David Snowball. Jaffe’s choice in this regard is spot on-target.
Congratulations to Professor Snowball. The reference to his perspective on this subject gives him a wider, more diversified audience exposure.
But care must be exercised when reading Jaffe’s documentation. It seems as if he is playing loose with statistics. Instead of measuring a manager’s performance over an integrated timeframe, Jaffe resorts to a far less meaningful measure of 8 consecutive years of outperformance to generate his position. He says: “just four actively managed funds …. have current streaks of eight consecutive calendar years of beating the S&P 500, according to Morningstar.”
So what? The meaningful measure should be the time integrated end portfolio value of active management over the entire selected timeframe; a given bad quarter or a substandard annual return is acceptable if recovery is in evidence. Also, why an 8 year period? That specific a timeframe has the unhealthy likelihood of data mining.
Understanding the reasons for making any investment decision is necessary for success.
Remember the infamous 1720 South Sea bubble when one absurd trading company attempted to sell its shares with the following goal: “For carrying on an undertaking of great advantage; but nobody to know what it is.”
History may not repeat itself, but many times it rhymes. For example, recall Speaker Nancy Pelosi’s quote: “We have to pass the Health Care Bill so you can find out what's in it”.
Even Isaac Newton fell victim to the lure of South Sea profits. He lost a ton of money. A brilliant mind is no guarantee of investment foresight.
So the cautionary lesson here is that financial articles, even those from writers who are mostly respected, must be carefully read and aggressively challenged to recognize nuances in the presentation, and biases in the perspective.
Comments
Probably like most of you, there are financial writers I like and trust, and others I do not. Jaffe falls in the positive category, but not without reservations.
Some skepticism is a practical defensive device whenever accessing any financial opinions. I mostly find Jaffe’s columns informative, but buyer beware since there is a tendency to distort presentations to buttress a position.
Jaffe shows promise as a financial commentator. Proof of that is in this referenced column. He wisely chooses to close his assessment by liberally quoting MFO’s own David Snowball. Jaffe’s choice in this regard is spot on-target.
Congratulations to Professor Snowball. The reference to his perspective on this subject gives him a wider, more diversified audience exposure.
But care must be exercised when reading Jaffe’s documentation. It seems as if he is playing loose with statistics. Instead of measuring a manager’s performance over an integrated timeframe, Jaffe resorts to a far less meaningful measure of 8 consecutive years of outperformance to generate his position. He says: “just four actively managed funds …. have current streaks of eight consecutive calendar years of beating the S&P 500, according to Morningstar.”
So what? The meaningful measure should be the time integrated end portfolio value of active management over the entire selected timeframe; a given bad quarter or a substandard annual return is acceptable if recovery is in evidence. Also, why an 8 year period? That specific a timeframe has the unhealthy likelihood of data mining.
Understanding the reasons for making any investment decision is necessary for success.
Remember the infamous 1720 South Sea bubble when one absurd trading company attempted to sell its shares with the following goal: “For carrying on an undertaking of great advantage; but nobody to know what it is.”
History may not repeat itself, but many times it rhymes. For example, recall Speaker Nancy Pelosi’s quote: “We have to pass the Health Care Bill so you can find out what's in it”.
Even Isaac Newton fell victim to the lure of South Sea profits. He lost a ton of money. A brilliant mind is no guarantee of investment foresight.
So the cautionary lesson here is that financial articles, even those from writers who are mostly respected, must be carefully read and aggressively challenged to recognize nuances in the presentation, and biases in the perspective.
Best Regards.