A Massive Missed Opportunity

by Dan Solin, 1/9/19


Photo by Paul Skorupskas on Unsplash

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For those of us who have been writing about the benefits of passive management for over a decade, recent developments have been heartening. I have never seen so many articles debating whether active management is or isn’t “dead.”

Yet, competition for AUM remains fierce. The asset management industry is not going to surrender easily. It has a massive advertising budget, political clout, and most of the financial media disseminates information that reinforces its business model.

Here are some recent headlines plucked randomly from the website of CNBC:

· Cramer: How to know when it pays to sell in a sell-off.

· Cramer explains the market volatility and why another Great Recession is not in the cards.

· Nearly half of the S&P 500 is in a bear market. Here's where to hide out.

· Wall Street's top analysts are sticking by these tech stocks amid the market correction.

It’s sad that some investors rely on the unsupported claims in those articles and implement the “advice” they offer. It’s unlikely they will use RIA fiduciaries (much less evidence-based advisors) to plan on their behalf.

The current strategy

Evidence-based advisors are confronting a well-armed adversary and responding with a water pistol.

The current strategy involves publishing academic articles intended to demonstrate the folly (or “zero sum game”) of active management. These articles are generally well-written. They reach a tiny segment of the investing public but are consumed primarily by other advisors. When this occurs, the authors are simply “preaching to the choir.”