Active vs. Passive Investing

Somehow a simple active portfolio is beating out passive one in my random experiment below.

I think allocation is very important. If I keep #of funds in active portfolio small, I can hope that fund manager will shift "styles" to give better returns. But market beating returns of fund managers is not sustainable in long terms. Academia says that its Extremely rarely fund managers "always" beat underlying indexes! So it will become "picking fund managers" game and you might falter Once and loose all advantage.

									Ticker $ Current Price Allocation % Total Return 1 Week % Total Return 1 Month % Total Return 3 Month % Total Return YTD % Total Return 12 Month % Total Return 3 Year % Total Return 5 Year AGG 104.17 20% 0.05 0.8 0.58 1.26 6.6 6.11 4.81 EEM 37.93 20% -3.73 -12.19 -6.55 -8.6 65.28 1.71 12.22 EFA 51.72 20% -3.79 -9.65 -7.22 -6.43 37.7 -8.92 2.09 SPY 107.01 20% -2.56 -6.59 -1.83 -3.97 31.59 -7.39 -0.21 VBR 52.31 20% -2.62 -6.98 1.67 -3.98 44.16 -8.55 0.51 active_vs_passive 0 -2.53 -6.922 -2.67 -4.344 37.066 -3.408 3.884 DODFX 29.98 40% -4.73 -8.98 -5.74 -5.87 56.12 -6.95 4.12 FSICX 10.75 20% -0.92 -1.34 1.69 -0.03 30.12 6.99 6.41 VPCCX 11.59 40% -2.6 -6.45 0 -4.29 35.33 -2.07 4.26 -3.116 -6.44 -1.958 -4.07 42.604 -2.21 4.634 TRRDX 14.48 -2.68 -7.06 -2.27 -4.42 40.39 -5.25 2.04

Hedge Fund Salaries

2008:

NAME            FUND                         2008 INCOME   STYLE

JAMES SIMONS    RENAISSANCE TECHNOLOGIES    $2.5 BILLION   QUANT

JOHN PAULSON    PAULSON & CO.                 $2 BILLION   STOCKS

JOHN ARNOLD     CENTAURUS ENERGY            $1.5 BILLION   COMMODITIES

GEORGE SOROS    SOROS FUND MANAGEMENT       $1.1 BILLION   CURRENCIES

RAYMOND DALIO   BRIDGEWATER ASSOCIATES      $780 MILLION   CURRENCIES

Long term historical returns

1926-2004:
Microcap = 13.1%
Large Cap = 10.4%

1927-2005:
Small value = 14.4%
Small growth = 9.3%
Large value = 11.4%
Large growth = 9.4%

IWD Chart (Large Value)