Active V Passive Investing

Ceri Shepherd

12/6/2021 1 min read

Bit of a hot potato this one!

The view at Trendinvestor is very simple, an active manager has to be able to beat the S&P 500 by at least the amount of his fees, if he can consistently do this, then this active manager is worth paying.

We started in 1995 and we have kept records ever since we started as to how the S&P 500 has performed how Warren Buffett at Berkshire Hathaway has performed and how the average Hedge Fund as per the Credit Suisse Hedge Fund Index has performed.

S&P 500 averaged                                             11.25%

Warren Buffett averaged                                    11.62% 

Credit Suisse Hedge Fund Index averaged         8.09%

The Hedge Fund index results are nett of all fees. These results encompass a 26 year period and show clearly that it would have been best to buy Warren Buffetts, Berkshire Hathaway stock, followed by the S&P 500 itself and lastly invest in the average Hedge Fund.

I am positive that Warren Buffett would say that the average Hedge Fund has actually performed similar to himself, the difference is that the large fees of these Hedge Funds have reduced the nett gain quite substantially. Warren Buffett has always maintained that if his results cannot beat the S&P 500 then any investor would be better to sell their Berkshire Hathaway stock and simply purchase the S&P 500. Over the last 26 years, you would have been better off to stick with Warren, but only just.

So what about Trendinvestor?

We have averaged 42.75% per year over the same period, however our results are not nett of our fees, which are 25% so this reduces our results to 32.06%. So after paying our fees, over the last 26 years it would easily have been the best decision you could have made to invest with Trendinvestor.    

If the manager you have can beat the S&P 500 over a long period of time then stay Active, if the manager cannot then go Passive, or seek out a manager who can.
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