 |
| Source: Richard Scarry |
The article goes on to say that this is "understandable" because funds are underperforming today. JPMorgan Chase found that 47% of 2,808 funds they track trailed their benchmark by more than 2.5% this year.
This underperformance is not news to the readers of this blog. I, along with many other bloggers, constantly preach the folly of investing in actively managed funds and constantly report on their underperformance, after all fees and costs, over the long run. Depending on the time period studied, 75% to 90% of actively managed funds underperform over the long run. Furthermore, it is impossible to pick the superior performers.
 |
| Source: Bloomberg Businessweek 9/12 - 9/18, p, 47 |
The American Funds fund is the largest fund in the country. The Fairholme Fund is managed by Bruce Berkowitz, who was named "domestic stock fund manager of the decade" in January 2010 by Morningstar. By contrast to these stalwart funds, the index is the equivalent of "the lowly worm" in the picture books by Richard Scarry my kids enjoyed as infants.
The full picture can be seen in the graphic:
 |
| Source: Bloomberg Businessweek 9/12 - 9/18, p, 47 |
CLICK IMAGE TO ENLARGE The negative view of markets by so many young people is disheartening on 2 counts. First, one of the main tenets of attaining a decent retirement is to start investing early. In the "haven't we seen this movie before" category, you can bet if the Dow rose 2,000 points over the next 12 months the very same Gen-Yers would be jumping in.
Secondly, in the view of many long time observers of the market, young people shouldn't even be considering high-priced active funds. Minimize cost and index the market. Hold on for the long term. Embrace falling prices. You are interested in where prices will be 30 years from now!
Long Term Market Outlook
Gen-Yers face the same hurdle as most investors: they have a hard time seeing ahead. Like many, they look in the rear view mirror. Like many, they focus on the problems. Suffice it to say that, over the past 30 years, there have just about always been very good reasons not to invest, including the S&L crisis, corporate governance problems, the East Asian crisis, the need to bail out the largest hedge fund in the country, the dot.com crash, 9/11, etc., etc.
But go back to 8/6/1991. This was when Tim Berners-Lee created the first web site. First cell phone? In 1994, the first cell phone weighed 2 pounds and cost almost $4,000. My first calculator was a Bowmar Brain that cost $110 and was equivalent to what you can get today for $12. And so it goes with flat screen tvs, medical technologies, online courses in education, online banking, and on and on. These are the things that make the world completely different from 30 years ago and are made by companies who prosper.
These were the changes we couldn't see. These were the changes that drove stock prices sharply higher.
