Perpetuating the Psychic Myth

Once again, a recent New York Times article by Neil Irwin (September 30, 2014) has raised my real investing hackles. Writing about the recent “big news,” on the investing front, about the California Public Employees Retirement System (Calpers) getting out of hedge funds and the “brilliant” manager, Bill Gross leaving PIMCO funds, Mr. Irwin, once again, implies that “saavy” investors can predict the future (okay, he basically comes right out and says it). 

In this delusional piece, Irwin also confuses investing with gambling, stating that individuals can predict future hot stocks or rising markets and then “bet accordingly and make a fortune if you’re right.”

In his dissertation about Calpers decision to stop using hedge funds, Mr. Irwin states that “many” hedge funds cannot consistently beat the market. This statement dramatically understates the problem. The fact is that, after their egregious fees, very few hedge funds outperform even the S&P 500 (far from “the market”). 

In “The Hedge Fund Mirage,” Simon Lack stated that T-bills made twice the amount made by all of the money ever invested in hedge funds. There are no market psychics. No investor can possibly be “savvy about predicting the future” nor divine winning lotto numbers.

Investing is simple. Decide on your risk/reward tradeoff and properly allocate between asset classes using passive mutual fund portfolios charging a fraction of 1%. No need for a “team of people who constantly assess the risk and potential return.”

In a September 26th piece, fellow Times reporter, James Stewart gets to the real investing truth quoting advisor Timothy Keating, “How do returns on a simple 60-40 stock and bond allocation, using low-cost index funds, compare to what they’re doing now?”

The 10-year net return on Calpers hedge fund portfolio was under 5% annually. A 60% global equity - 40% bond portfolio, regularly rebalanced, would have returned over 2% more per year (figures from 

It appears that one Times reporter fails to recognize that real, simple, patient, diversified, low-cost investing has consistently made more people more money more often than has trying to outsmart the market. Thankfully, he has a number of colleagues (Mt. Stewart, Ron Lieber, Carl Richards, etc.) who fail to buy into the Wall Street myth of the superior, overpaid, predictive expert.

Read Neil Irwin's NYTimes Article

Read James Stewart's NYTimes Article

Don McDonaldComment