Indexing

Abstract

Oyster begins by pointing out how most large cap US equity stock-picking funds fail to outperform the S&P 500 Index, making the point that passively investing in a low-cost market-wide index fund can prove effective. Although many statistics show that the average stock-picking mutual fund has underperformed the market over time, even those percentages may be artificially positive if not adjusted for survivorship bias. Oyster provides a Monte Carlo simulation that shows that if the performance of all active stock-picking investment funds in the United States was completely random, more funds would outperform than actually do. He also points out the growth in assets flowing into indexed products including exchanged traded funds and talks about various indexing methodologies.