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Subject:  Re: new article on active vs passive debate Date:  12/29/2002  11:39 AM
Author:  TheBreeze Number:  88011 of 888931

Apparently. SP 500 has outperformed active managed large cap 63%. This is a dip from 80% figure usually mentioned. Perhaps an indivdual has greater chance to beat index in bear markets? What do you all think?

I think that managed funds held cash, which was not in any of the stock indexes. They hold cash to meet redemptions and because it may take a while to find stocks where the manager wants to put new money or money from selling stocks (s)he doesn't want to hold any more.

That cash drags down performance when stocks advance, and bouys performance when stocks decline.

I own one managed fund outside of tax-advantaged 401ks and IRAs. It declined in 2000, but I was hit with capital gains (some short term!) on which I had to pay taxes...even though it lost money. So, for people investing outside of tax-advantaged accounts, their after tax returns might not be as good as the raw numbers reported, because of short-term gains (higher tax rate) an having to pay those taxes each year on funds that churn stocks.

Hey--my savings bonds have beat 95% of all managed stock funds and stock index funds...over the last 2.5 years. If we want to pick certain time frames to compare, we can come up with all sorts of forced comparisons. If ya' really get selective on the time periods, you could beat stocks handily by investing in collectible postage stamps and fine art. You could also make a case for lottery tickets, by picking only those weeks in which you win and neglecting the weeks where you lose.
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