Zweig and Grant on the Pressure to Go Passive

On a recent episode of WealthTrack, Consuelo Mack interviewed financial journalists Jason Zweig and James Grant regarding the lagging performance of value stocks and the pressure to move to passive investing. Here are some highlights: According to Zweig, “The real utility of a value investing framework is that it helps modulate your emotions as a value investor.” Grant argues that the current cycle is likely to end badly due to: (1) the corruption of accounting… Read More

Passive Investing Could Cause Market Trouble

“A fundamental shift in market structure towards rules-based, passive investing over the past decade means a lot of trading is no longer based on fundamentals” and the shift could lead to a global market downturn, according to a recent article in the Financial Times. The concern has risen to the Fed, who will address the topic at this year’s economic symposium in Jackson Hole. Passive investments ignore fundamentals, the article says, citing the example of… Read More

Some Thoughts on Howard Marks’ Most Recent Memo

By Jack Forehand (@practicalquant) —   Howard Marks’ memos provide some of the deepest and most thought provoking insights in the investing world today. They are on par with Warren Buffett’s annual letters as one of the few must reads in investing today. Marks just recently posted a new memo, and the topics he covered were very close to home for me as someone who believes in quantitative and factor-based investment strategies.  The memo was titled Investing… Read More

Swedroe Addresses Indexing Concerns

In a recent article for, Larry Swedroe breaks down concerns regarding passive investing, including the notion that it has “become such a force that the market’s price discovery function is no longer working properly.” Swedroe, director of research for the BAM Alliance, makes the following points: A recent Vanguard study showed that, as of October 2017, $10 trillion was invested in index funds. “While a large figure,” Swedroe writes, “it represents less than 20%… Read More

Is Index Investing Still Passive?

Passive investing has grown to the point where “putting your money in an index-tracking fund is a move requiring an active decision,” say researchers at Sanford C Bernstein & Co. This according to a recent article in Bloomberg. The researchers reported: “Ultimately, this brings us to a bigger point, which is that there is, really, no such thing as passive investing.” The researchers based their findings on “the millions of indexes in existence, which far… Read More

Harvard Alumni Advise Endowment to Buy Index Funds

According to some Harvard University alumni– who have criticized the school’s endowment fund for underperforming the S&P 500 over the last decade—the school should use the savings it gets by moving half of its endowment fund to index funds to cover the cost of a new tax to be faced by some of the country’s wealthiest schools. This according to a recent article in Bloomberg. The suggestion by members of Harvard’s class of 1969 reads… Read More

Combining Active and Passive Investing Can “Smooth the Ride”

A “partnership” of both active and passive investing can help smooth out some rough patches in portfolio performance, according to a recent Vanguard article. “The addition of a reliable investment partner—a broadly diversified, passively managed investment—can theoretically narrow the range of outcomes, helping you stick with a plan that offers the potential for outperformance while limiting the chances of significant underperformance.” Even the most skilled active fund managers, the article points out, will suffer periods… Read More

Evaluating Luck or Skill in a Stock Picker

Investors choose fund managers based on their performance, says a recent article in The Wall Street Journal, but being able to evaluate stock picking skill is extremely tough. This is the argument presented by Elm Partners co-founder and chief executive Victor Haghani, an advocate of index investing who asserts that the degree of confidence people have in their ability to pick “super-talented” fund managers is “surprising.” Haghani, who co-founded the infamously defunct hedge fund Long… Read More

LTCM Partner Advocates for Indexing

Victor Hahgani, a founding partner of long-defunct Long-Term Capital Management, believes you should “think twice before trying to beat the market,” according to a recent article in The Wall Street Journal. Since 2011, Haghani has run Elm Partners Management LLC, which now manages approximately $550 million in assets, and has become something of an advocate for passive investing. “Using a simple algorithm,” the article explains, “the firm takes into account valuations and momentum to invest in… Read More

Asness of AQR Says Passive Growth Is Good for Industry

Cliff Asness, co-founder of AQR Capital Management, thinks the flow of money into passive investing has been a positive for the industry, according to a recent Bloomberg article. Per the article, Asness believes that active managers “have historically overcharged for scant returns and the shift toward questioning whether high fees are deserved is a healthy change.” The managing principal of Greenwich, Connecticut-based AQR (which oversees $208 billion in assets) argues that there are too many active… Read More