Stock Pickers Market?

Just getting back from the Dimensional Fund Advisors (DFA) conference in Austin. Other than 104 degree temperatures, it was a great conference.

Anyways, I got to meet and talk to Eugene Fama and Kenneth French. They will probably win a Nobel Prize at some point for their ground breaking research on which our portfolios are based. They are some big brains!

I’d like to share with you a little of what French had to say. I love the consistency of his message. He doesn’t change with the wind. Based on his extensive research, he knows what works and he sticks with it through all market cycles. He only has ONE message.

He points out that the aggregate of everyone’s portfolio is the market. Together everyone is the market. So the total return of everyone’s portfolio minus fees and expenses equals the net market return. By using low cost passive index funds, you’re fees will be lower than actively traded funds. French points out, therefore, by using the lower cost passive approach for once you can be certain to be better than average. It’s just simple math…. your lower fees, reduced turnover will give you higher returns. You can be certain to beat the aggregate every year without exception. This is brilliant in its simplicity and a fact that gets overlooked by most investors.

Why is that? Why do not most investors take advantage of this? Most investors think they can pick only the winning managers so they’ll win and the rules of logic don’t apply to them. Fact of the matter is though, there is no evidence that anybody can consistently pick these winning managers. Are you willing to spend your hard earned dollars to find these elusive money managers? The fact that the debate goes on about being able to pick winning managers is really proof that it can’t be done.

If some of the smartest guys around don’t think they can beat the market or pick winning managers what makes us thing we can? Here’s a video from 2008 with Ken French talking about stock picking versus indexing so you can hear for yourselves. Hope you enjoy it.‘Stock-Picker’s-Market’-Keep-Dreaming?tickers=%5Egspc,%5Edji,%5Eixic

About Paul Nichols

Paul is the founder of Financial Abundance, a Registered Investor Advisory firm and EDI, an Estate Planning Firm with offices in State College and Lewisburg. He has been working with individuals, families and businesses for over twenty years, including many Fortune 500 companies. He has educated tens of thousands of people through seminars, workshops and various international speaking engagements where he shared the stage with many notable individuals such as Ronald Reagan, Robert Kiyosaki (author of Rich Dad, Poor Dad), Mike Ditka, General Schwarzkopf, and Newt Gingrich to name a few.

In 2000, after many years of traveling to consult companies and individuals, Paul decided to relocate from Colorado to State College, PA (his wife’s hometown) to develop a local advisory firm.

Paul operates under the core belief that education plus understanding leads to clarity and confidence; resulting in peace of mind. He is a proud father of three and devoted husband of 20 plus years.

Some of Paul’s accomplishments:
Regular contributor to the Centre Daily Times, via the “It’s Your Money” blog
Featured in the movie Navigating the Fog of Investing
Regular contributor to Town & Gown as the publications Investor Coach
Host of the weekly iTunes Podcast, It’s Your Money
Member of the Western PA Better Business Bureau
Member of the Centre County Chamber of Business and Industry