Trying to Beat the Market? Don't Bother

Index Universe - a great resource for ETF and mutual fund investors - just put out an analysis of the latest Standard & Poor's Index Versus Active Fund Scorecard and the results aren't pretty. According to Index Universe,

The new report shows that 71.9% of actively managed large-cap funds trailed the S&P 500; 75.9% of actively managed mid-cap funds trailed the S&P MidCap 400; and a stunning 85.5% of actively managed small-cap funds trailed the S&P SmallCap 600.

S&P says the results were consistent with the previous five-year cycle, from 1999 to 2003.

The article goes on to describe what can really only be described as pathetic performance of active mutual funds across various market cap sizes, global funds (including emerging markets where the performance of actively managed funds was especially attrocious compared to their index peers) and the bond market. One notable exception to the general rule of underperformance came in the high yield bond market. Other than that, the performance of actively managed funds vs. their passively indexed peers was either bad or awful.

Which leads me to wonder: Why does anyone bother trying to beat the market? Or to focus that, it's one thing for the pros to try - they have to believe they do what they do because they're really good at it (even if that's clearly not true year in and out). But why do individual, amateur investors try to beat the market? It seems like an excersize in futility at best and more likely than not, a surefire way to underperform the markets.

The bottom line is this: the average retail investor would be much better served buying the right mix of assets through low priced ETFs (expense ratios are the one factor most investors can - and often fail to - control). In addition to the added free time they'll gain (don't they say that time is money), they can rest assured they won't be underperforming the markets. Then they can spend their time evaluating what level of risk they can tolerate - something which came as a shock to many who thought it was much higher than it really was during the recent downturn. Switching into low-risk bonds when they Dow fell below 10,000 would have been a much more fruitful strategy for most than trying to outmaneuver a sinking ship of a market over the last year and a half.

Obama Goes 3 for 3

Three different pieces of seemingly unconnected news struck me as promising on the foreign policy front today.

First, this editorial by Halil M. Karaveli in the Jerusalem Post notes an interesting and surprising change in Obama's approach to radical Islam. As I know from spending nearly a month in Turkey during the summer of 2004, the secular-religious divide in that country is particularly fierce. Karaveli outlines how Bush's approach to contending with radical Islam was to hold up the 'relative' moderate Turkish Islamist ruling party as an example for the Muslim world. This had the effect of placing Turkey's avid secularists into a bind.

On his recent trip to Ankara, where Obama addressed Turkey's parliament, Obama reached out to secularists by speaking about "secular democracy" as "the greatest monument to Atatürk's life." According to the author:

Obama's tributes to the secularist revolutionary were not bows dictated by diplomatic etiquette to the founding father of a host country, but politically charged interventions in the ongoing debate about secularism and Islam. Indeed, his words were near-affronts to the belief held by Islamic conservatives and liberals - the alliance which dominates Turkish public discourse - that the introduction of secularist reforms was a traumatic event.

So much for Republican hysteria that Obama would be the 'great champion of Islam'.

The other two pieces to catch my eye came from Bloomberg. The first refers to the President's refusal to lift the embargo on Cuba despite internal pressure to do so. It should be noted Obama has loosened many of the regulations barring commerce between the U.S. and the Communist dictatorship to our south. But this doesn't mean he's ready for a full normalization of relations. As the article states:

Any further thaw in relations will depend on what Cuban President Raul Castro does to provide greater economic and civil rights for Cubans, according to the administration.

“Actions speak louder than words,” White House press secretary Robert Gibbs said.

Finally, there was this piece outlining the U.S.'s decision to boycott the sham Durban II conference 'against' racism. Despite some 'improvements' in the draft document, the State Dept. felt not nearly enough progress was made to justify U.S. involvement. As the Department's Robert Wood pointed out:

“The DDPA singles out one particular conflict and prejudges key issues that can only be resolved in negotiations between the Israelis and Palestinians,” acting U.S. State Department spokesman Robert A. Wood said in a statement. “The United States also has concerns with relatively new additions to the text regarding ‘incitement,’ that run counter to the U.S. commitment to unfettered free speech.”

In all three instances, Obama has shown his dedication to the values of secular democracy, regardless of the region or religion involved and how his actions could be perceived by the U.S.'s critics and bashers abroad. He has shows impressive moral clarity thus far, offering olive branches when possible but holding firm to America's (and clearly his own) core values. Far from being some post-modernist aberration, he has made a serious effort to return American prestige to the global stage without compromising America's vital interests. It leaves me rather hopeful he will deal with both Iran and the Israeli-Palestinian conflict in a similar fashion, diverging from his predecessor when he smells the chance at progress, but without compromising either American or Israeli vital interests.

Blessing the Sun... Jahruzalem Stylee

So Birkat Hachama (the blessing on the sun) is just once every 28 years - I was one the last time it took place. I caught it on the Tayelet overlooking the old city of Jerusalem. There were literally hundreds of people there with guitars and drums singing and dancing at 7:15 a.m. - quite a site to behold.

Here's a great article on the miscalculations over the actual date and the deep significance of the event nonetheless. Birkat Hachama is an event that the Common Sensorium particularly likes as there's no ideology involved and no hidden agenda - just a recognition of a natural, if slightly miscalculated, phenomenon without which life on earth would be utterly impossible.

This is the view we had from the tayelet, more or less, though about a kilometer further back.
Overlooking the sun-like dome of the mosque on the temple mount gave the event a special significance. It's sun-like features gave my prayers a point of reference - an earthly orb to face and mirror the heavenly one just to my right. I find it ironic that Muslims turn their back to the Dome of the Rock when praying.

Also, it occurred to me that our newly born daughter was named Zohara (shining - in the talmud (according to Jastrow) a variation is 'Zaharei Chama' meaning the 'rays of the sun') in part because she was born so close to this extremely rare ritual (Simone always says names are part prophecy).

Here's the playlist I'm listening to in honor of international 'sun day'. Note it has 28 tracks - one for each year of the cycle (plus the 29th track 'Here Comes the Night' as a nice epilogue).

click to enlarge

Enjoy and cherish the sun - in a few million (or is that billion) years, we won't have it anymore!