INDEXING IS KING, SAYS BURTON MALKIEL

In his interview with The Wall Street Journal, Burton Malkiel wants us to take away this: indexing works—and it can pay off for you too.

Burton Malkiel, author of ‘A Random Walk Down Wall Street’, is an ardent advocate of indexing. He argues that, more often than not, active management underperforms and beating the index is a feat both rare and unsustainable. In conversation with Daniel Akst, he speaks plainly of the realities—and discrepancies—between the performance of active fund managers and the S&P500 index, citing a direct comparison: “over a 10-year period, roughly 90 per cent of domestic stock funds are outperformed by the index.”

On the matter of buying individual stocks, he echoes Warren Buffett, arguing that the bulk of one’s investable dollars should be indexed, with room for experimentation at the margins.

“As long as your core retirement portfolio is indexed, you can play around on the margins without much harm.”

Critically, Malkiel highlights that we are all deprived of all the information we need to outperform the market. He says: “there are no arbitrage opportunities, no easy way to make money, without taking on a good deal of risk. The result is that markets become very, very hard for any investor to beat.

“There are no arbitrage opportunities, no easy way to make money, without taking on a good deal of risk. The result is that markets become very, very hard for any investor to beat.”

Read Malkiel’s complete interview with WSJ here.

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