Barry Ritholtz has a great post up about the number of active managers that have been beating the S&P 500 this decade as mega caps, which dominate the index, have been relatively poor performers.
This is generally something I have written about before. The mega caps will eventually rotate back into favor. In the late 90's small caps were given up on and now they are on one of their longest winning streaks ever (maybe ending though?).
In trying to take a long term view of your portfolio, perhaps you have had success beating the SPX as well. If so, that is probably attributable to being diversified and owning asset classes that have done better than the mega caps. Don't let this fool you into thinking you are smarter than you really are, this includes professionals.
I write all the time that you only need to stay relatively close to the market to get your portfolio to where you need it to be. Over time there will be years that you lag the market, which is OK. Focus on staying close. The next time the SPX is up 30% in a year (and there will be a next time) it is OK if you are only up 24% or 25%, you are still capturing most of the effect and that is the important thing.
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5 comments:
When you write "stay close to the market" do you define the market as the S&P 500?
Then the answer is to put all your equity money in SPY or the equivalent.
By any other definition, SPY (i.e. the S&P 500) is a Large Cap Index Fund, that represents only part of a diversified "market".
OG
OG,
Your point is correct. Take my comments as an effort to keep things simple also it is the S&P 500 that averages about 10% over long periods of time.
My point is that people that have saved properly can get where they need to be if they are close to the 10% figure annually over longer periods of time.
Obviosuly I beleive in constructing and maintaining diversified portfolios but SPX is a simple, albeit flawed, benchmark.
Folks loved the cap-weighted SP500 when the big caps were roarin' in the 90's. Ol' MSFT isn't helping that index out much these days!
I think folks do get too hooked up on performance compared to something else, instead of just focusing on whether or not their doing what it takes to meet their longterm investment goals.
muckdog's point is valid but on a bigger scale that i think he means.
many investors care about the wrong things. for example caring more about where a stock has been than where it is going.
John Hussman did a calculation that showed that in order to earn the "average" 10% return on the SPX would require the long term investment period to be 52 years. Based on the current (at the time of the study) level of the SPX.
I will admit, John is not the most bullish fund manager out there, but he seems real smart to me.
I think anyone in the "middle-age and up" group needs to consider entry point risk (i.e. "timing or tilting" one's portfolio) despite the "Sell Side" advice not to time.
If, on the other hand, your 13 years old and funding your pension, you can probably stay with the SPX.
OG
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