In December 2006, this article appeared in the San Francisco Chronicle Magazine typifying the kind of journalism that surrounds the "active versus passive" debate.
The article recounts the education of "hundreds of impetuous young multimillionaires" at Google who were given lectures on the superiority of index investing from Bill Sharpe, Burton Malkiel, and John Bogle prior to the IPO of GOOG in 2004. Entitled "The Best Investment Advice You'll Never Get," the author suggested that any form of active management amounts to "get-even-richer investment schemes" and that the main reason everyone in the country is not investing solely in index funds is that "putting investors into index funds is simply not in the interest of the industry that sells securities."
In fact, as we outline in The Emperor's New Index Fund, there is a steadily-growing portion of "the industry that sells securities" that is doing very well indeed "putting investors into index funds."
The real question that should be asked in that article is how those "hundreds of impetuous young multimillionaires" became multimillionaires in the first place. The answer is the exact same answer that we outline in this post entitled The Classic Growth Stock Investing Philosophy, and the same method that has made most of the big fortunes in this country not only in the 1980s, 1990s, and this decade, but for the past two hundred years: through ownership of shares in a growing company.
Do you think new employees at Google would prefer to receive employee stock options that are tied to actual Google stock, or to the S&P 500? If Google's management truly believes that buying indexes is actually better than owning shares of exceptional companies, then maybe they should incent employees using S&P options rather than Google options.
Trying to own good companies makes sense -- in spite of the fact that most of the press now takes it as an established fact that trying to buy companies that are better than the average is foolhardy or somehow unsavory. Don't be taken in so easily.
for later blog posts dealing with this same subject, see also:
The article recounts the education of "hundreds of impetuous young multimillionaires" at Google who were given lectures on the superiority of index investing from Bill Sharpe, Burton Malkiel, and John Bogle prior to the IPO of GOOG in 2004. Entitled "The Best Investment Advice You'll Never Get," the author suggested that any form of active management amounts to "get-even-richer investment schemes" and that the main reason everyone in the country is not investing solely in index funds is that "putting investors into index funds is simply not in the interest of the industry that sells securities."
In fact, as we outline in The Emperor's New Index Fund, there is a steadily-growing portion of "the industry that sells securities" that is doing very well indeed "putting investors into index funds."
The real question that should be asked in that article is how those "hundreds of impetuous young multimillionaires" became multimillionaires in the first place. The answer is the exact same answer that we outline in this post entitled The Classic Growth Stock Investing Philosophy, and the same method that has made most of the big fortunes in this country not only in the 1980s, 1990s, and this decade, but for the past two hundred years: through ownership of shares in a growing company.
Do you think new employees at Google would prefer to receive employee stock options that are tied to actual Google stock, or to the S&P 500? If Google's management truly believes that buying indexes is actually better than owning shares of exceptional companies, then maybe they should incent employees using S&P options rather than Google options.
Trying to own good companies makes sense -- in spite of the fact that most of the press now takes it as an established fact that trying to buy companies that are better than the average is foolhardy or somehow unsavory. Don't be taken in so easily.
for later blog posts dealing with this same subject, see also:
- "The further you are from owning individual companies . . ." 12/10/2007
- "A twenty-year perspective for the recent market turbulence" 01/23/2008
- "The active vs. passive debate" 05/22/2008
- "The zero-sum connection" 06/02/2008
- "Invest like Mr. Howell" 05/18/2009.
- "If Rip Van Winkle took a one-year nap before September 15, 2008" 09/14/2009.
- "S&P takes aim at active management" 10/07/2009.
- "Composite performance through 12/31/2009" 01/11/2010.
- "Free markets, free enterprise, Friedrich Hayek, and active allocation of investment capital" 07/13/2010.
- "The growth theory of investment works" 01/14/2011.
- "Don't confuse free enterprise with a questionable theory about securities markets" 01/19/2011.
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