Investing: The Evidence - A leading documentary on evidence-based investing from rockwealth
In this video, we explore the world of evidence-based investing and its benefits. You'll see how a disciplined approach to investing can lead to better long-term results. Join us as we dive into the research and data that support this approach. Don't miss out on this informative and eye-opening documentary from rockwealth. #Investing #EvidenceBasedInvesting
Learn more at: www.rock-wealth.co.uk/evidenc...
Investing for the Future:
- Investing is important to prepare for major expenses such as housing, weddings, funerals, operations, holidays, children's education, cars and most importantly retirement.
- People are living longer and spending 20 years or more in retirement without a regular salary.
- Historically owning shares in companies or equities has provided the biggest investment returns over the long term.
01:33 Investing in Equities:
The speaker discusses how equities have historically provided higher returns than cash or bonds.
Performance of Different Asset Classes
- A team from London Business School found that over the long term shares are the runaway winner in terms of investment returns.
- Between 1900 and 2016 cash delivered an annualised real return of 1%, bonds returned 1.8% but shares produced an average annual return of 5.5%.
- The annualised real return on UK equities between 1967 and 2016 was even higher at 6.9%.
03:56 Active vs Passive Investing:
The speaker explains active investing versus passive investing and why active investing can be a bad idea.
Active Investing:
- Active investing involves trying to beat a market by engaging in different strategies such as picking stocks, timing the market or selecting managers who will do one of those things.
- Only a tiny proportion of active managers outperform over the long term after costs according to a study conducted by Professor David Blake at the Pensions Institute.
Passive Investing:
- Passive investing involves tracking the whole market rather than trying to beat it through active management.
- Closet trackers are funds that claim to be actively managed but broadly track the whole market and are almost guaranteed to underperform after costs.
- Active managers have to show conviction but they're just as likely to be wrong as they are to be right.
06:43 The Problem with Active Fund Management:
In this section, the speaker discusses how most funds are just closeted trackers and how active management is a zero-sum game.
Closeted Trackers:
- About 70% of funds are just closeted trackers.
- Only about 20% of fund managers could do better than them.
- Skilled managers are extremely rare to find.
07:30 Zero-Sum Game:
- Active management is a zero-sum game where for one manager to win, another has to lose.
- It's become increasingly difficult for a single manager to outperform his peers consistently due to the mushrooming size of the fund industry.
08:43 Why Investors Continue to Use Actively Managed Funds:
In this section, the speaker explains why investors continue to use actively managed funds despite evidence that only a tiny number of them actually beat the market.
- The active fund industry is extremely lucrative and firms have huge budgets to spend on PR and advertising.
- Financial intermediaries have done very well out of active management and therefore have little incentive to point out what a poor deal investors receive from it.
The Rise of Passive Investing:
- In this section, the speaker discusses passive investing as an alternative to active management and explains why it's becoming more popular among investors.
10:36 Passive Investing vs. Active Management:
- Instead of paying for active management, investors are increasingly opting for index funds which aim to capture the returns of an entire market by tracking an index.
- Passive investing should be called smart investing as it minimises the moving parts, decisions, and costs while maximising the chance of getting returns from capitalism.
11:27 - The Case for Passive Investing:
- The random walk hypothesis and efficient market hypothesis support the case for passive investing.
- A passive portfolio can go down just as well as it can go up, but smart investing is about minimising risks and maximising returns.
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