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Biased against trackers

Some widespread errors of judgement give investors a bias against holding tracker funds
January 25, 2018

Passive investing beats active. That’s the inference to draw from the fact that Warren Buffett won his bet against hedge fund Protégé Partners. Back in 2007 he bet that an S&P 500 tracker fund would outperform its selection of hedge funds up to the end of 2017. It did so so handsomely that Protégé Partners conceded defeat months ago.

This poses the question. If passive investing is so good why don’t more people do it?

There are legitimate reasons. At least two strategies – momentum and defensive investing – do beat passive investing on average over the long run. And when smaller stocks do well, most shares outperform market indices weighted by shares’ market capitalisation, with the result that anyone picking stocks at random with average luck will beat the market.

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