A common fallacy thrown out there by those supporting an active investment approach is that this approach can protect you better from bear markets.
Today I share some more practical evidence that this is just not the case. It has been published by The Inteliigent Investor newsletter. This is one of many investment newsletters that provides stock selection suggestions for its readership. I have to applaude them because each year they have their stock picking record audited to show just how much they have helped their readers. Unfortunately for them this has provided a lot of transparency to how they have performed. The following is an extract from the latest report of their results:
This Performance Report, our fourth, covers the past 7 1/2 years, from when Greg Hoffman took over as Research Director at issue 80 until issue 262.
The weighted annualised average return of 2.6% is a little behind the 5.5% average annual return from the benchmark All Ordinaries Accumulation Index over the same period.
Our conservative methodology punishes our returns in several ways, but there's no escaping the fact that 2008 was a very disappointing year for The Intelligent Investor's recommendations. Indeed, it reversed our previous string of market-beating results.
If you want to see this for your own eyes click here - Intelligent Investor Performance.
If you had followed their advice over the past 7.5 years you would have performed up to 2.9% worse than if you had simply invested in the All Ordinaries Accumulation Index. This is the bottom line. However it also does not take into account the extra worry and personal pressure that is added from taking on an active approach to investing. Struggling with knowing what is the next hot stock pick and when to sell out of current holdings.
I know what spaceI would much rather be in, sitting back investing in index based investments without the stress of having to be watching share prices each day every day and knowing that you will be beat more than 50% of other investors out there each year.