An investing icon just unloaded on a strategy he says is 'like looking for a needle in a haystack' - and his comments should strike fear in stock pickers everywhere
- Passive investing always beats actively-managed strategies, investing icon Burton Malkiel said in a Wednesday television appearance.
- 'The evidence is that active is getting worse relative to indexing,' the Princeton economics professor and best-selling author said on Bloomberg TV.
- Despite Vanguard founder Jack Bogle's worries about index investing getting too large, Malkiel said the strategy could be 90% of the market and not cause problems.
Investing icon Burton Malkiel is doubling down on his argument for passive investing.
The Princeton economics professor, who has long championed index investing, reiterated in a recent television interview that investors have better performance from funds tied to indexes than they do from picking individual stocks.
"I cannot think of one" situation in which active beats passive, Malkiel said on Bloomberg TV on Wednesday.
Malkiel is famous for a vivid metaphor in "A Random Walk Down Wall Street," in which he wrote that "a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as carefully selected by experts."
Now, "I believe in it more than ever," he said, citing Standard & Poor's research that over 15 years, 90% of active managers are outperformed by the S&P 500 index. "The evidence is that active is getting worse relative to indexing."
"One of the things I'm pleased about is the evidence just gets stronger and stronger," Malkiel said. "It's not that nobody outperforms, but it's like looking for a needle in a haystack, and I say more than ever, buy the haystack instead."
Even though asset managers make less on fees for passive products than they do for active products, Malkiel said he is not concerned with profitability.
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"I'm not worried about the industry. The industry will do fine," he said. "There are plenty of other ways of making money."
He also countered one of Vanguard founder Jack Bogle's assertions in his new book that the growth of indexing could hurt corporate governance by concentrating stock ownership in a few passive managers' funds. Bogle noted that US index mutual funds have grown from 4.5% of the US stock market value in 2002 to more than 17% last year.
"When people ask me is there too much indexing, I say there still isn't enough indexing," Malkiel said.
The professor - who spent 28 years as a member of Vanguard's board of directors - said index investing could be 90% of the market "and there would still be more than enough active managers to make the market efficient." He called concerns around concentration "one of the least worries" for financial markets.