Have you heard of the book, “Good to AVERAGE” by Jim Collins?

By /
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Or

“The 7 habits of AVERAGELY successful people” By Stephen Covey

You haven’t?

Of course not, HIGHLY successful people want GREAT, not AVERAGE

Who doesn’t want to be a WONDERFUL partner, a SUPERB friend, a FANTASTIC parent, or an AMAZING co-worker at a GREAT company?

All of us, right?

So why are we happy to accept AVERAGE when it comes to our investment returns?

In a LinkedIn discussion the other day about hashtag#passiveinvesting, I received the comment

“On average active managers will not outperform the index. Some will outperform and some will underperform and on average they will underperform the index by their fees. This is a matter of simple arithmetic.”

Average average average

Who’s looking for an average active manager?

Anyway, the average manager underperforms by their fees partly because they “hug” the index (low Active Share)

Ahh but

“I do not profess to have the wisdom to be able to choose an active manager that will perform in the future and I would suggest that nobody does.”

Oh, so it’s difficult and therefore the answer is to give up and accept average?

Well, I didn’t see that title on the best-seller book list..!

I did a quick Bloomberg search and found 22,000 equity funds with more than $50m in AUM

Now Excel has 1m rows so why not start by eliminating the underperformers with low active share?

How many footballers are in the world?

Google says 250m, so it’s much harder finding the next Messi / Ronaldo

but I don’t see all the football scouts and clubs giving up

Why, because the spoils of finding the next Harland are too great

So they search on, refusing to accept the average

Statista tells me there are 46k actors in the UK and 64k in the USA

Can’t be easy finding the next Oscar winner

But the driven agents and talent scouts search on

In the past 14 years, the S&P500 is UP more than 9.5% in 10 of those years

but only DOWN double digits in 1 year (2022)

One!

and the hashtag#AI bubble quickly took that “pain” away

Meaning accepting Average i.e. Benchmark returns over this period has been great

BUT don’t forget the market

fell 10% in 2000 and then
fell 13% in 2001 and then
fell 23% in 2002

Meaning your $100 was worth $60 by the end of that run,

How good do you think that “average” felt?

Even by 2008, your 10-year return on the S&P500 was – 27%

So maybe we should all stop fussing so much about the average i.e the benchmark,

We don’t live in the benchmark and we can’t have a better-than-average retirement on -27% returns

BUT

We can retire on Real Returns

And it’ll be a better-than-average one too!

So if YOU don’t have the skills or wisdom to find a fund that can deliver real returns or beat the average

Give your money to a top fund of funds manager, DFM, or advisor who does

Because unless you accept average in every other aspect of life

Don’t accept AVERAGE with your savings