The Rebalance tried-and-true adage remains the same, echoed by this NYTs columnist: it is nearly impossible to beat the stock market. The most prudent long-term investing strategy is to “own” the entire stock market through low-cost, broad exposure index funds.
Source: The New York Times April 14, 2023.
With the Odds on Their Side, They Still Couldn’t Beat the Market
In 2022, conditions were heavily in stock pickers’ favor, but most trailed the market. This year looks worse, our columnist says.
By Jeff Sommer
The classic 60-40 investment strategy is working again after a disastrous 2022.
It’s awfully hard to beat the stock market consistently. In 2022, despite many advantages, most mutual funds couldn’t do it. There are important lessons in that failure for this year and beyond.
Recall that the S&P 500 declined 19.4 percent last year. It was a miserable time for just about anyone who held stocks, including those who merely tried to match the overall market, as I do, using broadly diversified, low-cost index funds.
But beneath the market’s surface last year, there were plenty of opportunities that should have given active stock pickers a competitive advantage over index funds. That’s because the average stock did better than the overall market, which was heavily influenced by a relative handful of “megacap” tech stocks like Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft, Nvidia and Tesla. These giants declined sharply, but the rest of the market did markedly better.
That meant the odds actually favored stock pickers last year. They had plenty of companies to choose from, any one of which would have given them a better performance than the overall market. And, in fact, as a group, actively managed mutual funds fared better against the overall market average than they have since 2009.
Even so, the average actively managed stock mutual fund failed to beat the S&P 500. In an interview, Anu R. Ganti, senior director of index investment strategy at S&P Dow Jones Indices, summarized that mediocre performance this way. “Actively managed funds underperformed less badly in 2022 than they have in most years,” she said. “But they still underperformed.”
To continue reading, view the full article on the New York Times website here: https://www.nytimes.com/2023/04/14/business/stock-market-2022.html
