Every once in a while I venture into enemy territory to defend my claims. The problem is, when you do this you are at the mercy of your foes and the rules of engagement that they abide by on their internet space (go ahead, call me a dork – I deserve it). For instance, I noticed that several people on the Bogleheads website accused me of having an “agenda” and selling “snake oil”. I actually have no idea what snake oil is, but it sounds bad so I figured they were accusing me of something terrible.
Anyhow, I wrote out a lengthy comment to post at the BogleHeads website explaining how I am disturbed by the growing number of high fee advisors selling their alternative form of active management as “passive indexing” and that I think the whole concept of “passive indexing” misconstrues the reality of asset allocation (which is, by necessity, an active endeavor equating to simple asset picking). My basic point was that everyone is an active investor because all asset allocation requires deviations from the global financial asset portfolio. That’s fine when it’s done in a low fee and tax efficient manner. It’s bad when it’s done in a high fee tax inefficient manner that promises market beating returns. But the idea of “passive investing” is mostly a false binary distinction in a gray area. The Boglehead people got all sensitive about this because they’ve invested most of their lives constructing “passive” narratives even though many of them are huge fans of factor tilts and other higher fee approaches….Basically, they don’t even see the contradictions in their own narratives because they’ve created this false black and white world where passive is good and active is bad. Reality is more complex than that and I won’t apologize for bringing terminological clarity to a debate that is muddled with marketing terms that oversimplify a fairly complex topic.
But the posts all got deleted or the threads were locked so I couldn’t comment because they didn’t like what I had to say since it disproved their narrative. Of course, the best way to pass off an ideology is to sell it using catchy terminology like “passive indexing”. But when that stops working because someone calls you out on it then it’s best just to silence your critics.
The problem is, the truth always gets out one way or another and people are guaranteed to realize, sooner or later, that the whole concept of “passive indexing” is just another sales pitch designed to help certain people and firms differentiate themselves from the competition.
- Pragmatic Capitalism: What Every Investor Needs to Know About Money and Finance
- Debunking some Common Investment Myths
- The “Allocation Matters Most Hypothesis”
- I Want to Crush the Efficient Market Hypothesis
- We Are All “Active” Investors
- It’s Time to Eliminate the Term “Passive Investing”
- Assessing the Performance of Passive Indexers
- Most Index Funds are Macro Funds
- Putting the “Underperformance” of Active Managers in Perspective
- Of Course 80% of Active Managers Underperform the Market!
- There’s no Such Thing as “Forecast Free” Investing
- The Importance of Understanding Your Implicit and Explicit Forecasts
- The Importance of Understanding Your General Portfolio Framework
- The Contradiction of “Passive” Index Fund Investing
- Is the Global Financial Asset Portfolio the Perfect Indexing Strategy? – Part 1
- Is the Global Financial Asset Portfolio the Perfect Indexing Strategy? – Part 2