Mutual Fund Winners Don’t Stay Ahead for Long

Don’t try to beat the stock market.

That, briefly, is the gospel according to Jack Bogle, the founder of Vanguard. He added that the best approach for the great majority of investors was to hold stocks and bonds in broadly diversified, low-cost index funds that mirror the market and to forget about picking individual stocks.

Many investors, including Warren Buffett, have accepted those principles. Basically, even in the middle of a pandemic and a tumultuous election season, I do too.

That belief has been reaffirmed by a new Yale study, which, as I’ll explain in a moment, suggests that it is even more difficult for successful fund managers to stay ahead of the market than is commonly understood.

Obviously, it is possible to outperform the stock market. Mr. Buffett beat it for years at Berkshire Hathaway, though he hasn’t managed to consistently outperform the S&P 500 lately, and he says most people shouldn’t even try.

Still, people try every day, and some generate fabulous returns.

For example, buying only Apple stock and nothing else would have put you leagues ahead of the S&P 500 over the 20 years through July 30, with an annualized return of 27.5 percent for Apple versus 6.3 percent for the index.

That would have been a dangerous bet, however. Imagine if the iPhone had faltered, or the Apple Watch had bombed. Your shares would have plummeted in value. Wagering all of your money on one stock — or even 20 of them — is much riskier than an investment in the entire market.

Few people manage to beat the overall market steadily and

Keep reading this article on The New York Times Business.

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