The New York Times’s personal finance section gets a the jump on a State Street applied research report coming out Monday on investor habits and behavior. I’ll spare you the suspense – they find that people, pros and amateurs alike, are obsessed with finding alpha no matter what the cost and worry more about benchmarks or the performance of others versus their own personal goals (which are barely formed or quantified).
It’s the same conclusion reached by everyone who commissions a study of the industry. How many times do you need to read this or do I need to write it?
Partly, it’s the fault of human behavior and emotions., which can only be tamed for a little while in the aggregate but will always revert to insanity – their resting state. Partly, it’s the fault of an industry that feeds on fear, greed, envy and stupidity – it’s practically the most critical input for the entire fund complex.
Amongst the details in the article, this one stood out to me:
Yet the financial industry continues to search for alpha as if it were a great white whale. The study found that financial services firms spent 60 percent of their capital expenditures on resources to help generate short-term high performance. It is not for nothing: Active, as opposed to passive, money managers received $600 billion in fees in 2014, according to estimates State Street made from Boston Consulting Group’s Global Asset Management 2014 report. That amount is nearly equal to the gross domestic product of Switzerland.
That’s an awful lot of money going to an industry in which only 18% of actively managed mutual funds are beating their benchmarks this year (vs 30% in a typical year) and the hedge fund index is doing something like 3% so far in 2014 – 70 basis points behind US stock market or so.
I’m a New York City-based financial advisor at Ritholtz Wealth Management LLC. I help people invest and manage portfolios for them. For disclosure information please see here.
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[…] The active management industry takes in more money per year than the Swiss economy. (Reformed Broker) […]
RT @ReformedBroker: If active managers’ fees were a country, it would have the GDP of Switzerland http://t.co/b1aP6B00tm
RT @ReformedBroker: If active managers’ fees were a country, it would have the GDP of Switzerland http://t.co/b1aP6B00tm
RT @ReformedBroker: If active managers’ fees were a country, it would have the GDP of Switzerland
http://t.co/oPRokWFpLe
RT @Noahpinion: The amount of $$ Americans pay active money managers is equal to the GDP of Switzerland. Few of them beat the market. http:…
RT @FredPGabriel: If active managers’ fees were a country, it would have the GDP of Switzerland http://t.co/TXGWHdYgSo
RT @ReformedBroker: If active managers’ fees were a country, it would have the GDP of Switzerland
http://t.co/oPRokWFpLe
RT @ReformedBroker: If active managers’ fees were a country, it would have the GDP of Switzerland
http://t.co/oPRokWFpLe
RT ReformedBroker If active managers’ fees were a country, it would have the GDP of Switzerland http://t.co/sgrCVqA6Rm
RT @ReformedBroker: If active managers’ fees were a country, it would have the GDP of Switzerland
http://t.co/oPRokWFpLe
RT @ReformedBroker: If active managers’ fees were a country, it would have the GDP of Switzerland
http://t.co/oPRokWFpLe
If active managers’ fees were a country, it would have the GDP of Switzerland
http://t.co/sZINmUGD1f
RT @ReformedBroker: If active managers’ fees were a country, it would have the GDP of Switzerland http://t.co/b1aP6B00tm
If active managers’ fees were a country it would have the #GDP of #Switzerland @ReformedBroker http://t.co/USce2WMxqI #APR360 @AliyaSBizHelp
Remember investors, most active managers are redundant & get paid an obscene amount. Go to Index funds & cut them of…http://t.co/SOwW5bl7JZ