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Index vs Active debate using one chart

Discussion in 'Investing Strategies' started by MJRoss, 14th Jan, 2008.

  1. MJRoss

    MJRoss Member

    10th Jan, 2008
    Melbourne, VIC
    Hi all,

    I'm preparing a presentation on financial planning and part of the presentation discusses the concept of passive/index managed funds vs active managed funds.

    Time is of the essence so we only have one slide to dedicate to this topic.

    We have a number of graphics which we could use for however I wanted to see if anyone in these forums had a graph, chart, article, piece of research which they thought explained the concept clearly and simply that the lay man could comprehend.

    I have attached three resources that we may rely upon, but really only have one. If you don't have any resources, but recognise what any of the following charts are illustrating then I'd be interested in your vote as to which one you would use!

    I hope the attachments have worked!

    Attached Files:

  2. rowande

    rowande Member

    22nd Dec, 2007
    I love the pdf with the normal distribution. It really shows that although some managers outperform the index their success was just as likely to happen by chance. Statistically speaking it appears there is only a few percent of managers who have outperformed the index using more than just good luck. It also shows it is more likely for a manager to under perform the index than outperform.
    To me it really makes the case for using passive funds.
  3. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    Hi MJRoss,

    I'd use the last one, it's pretty easy to understand.

    Before using it I would go back to DFA and ask them for a newer copy as that one is from March 1997, also the other graphs were a bit old so a 2006 or 2007 version would be a bit more up to date (I imagine the actual data wouldn't change that much). It'll show a bit more credibility as your not "fishing" for the data to suit your story, your showing up to date actual data without any bias.


  4. Bantam Roosta

    Bantam Roosta Well-Known Member

    7th Feb, 2007
    Canberra, ACT
    I agree with the previous comments about the last one (the pdf). Explains the concept that Fund Managers are generally a bunch of gits really well (but then so do the other two, but the last is prettier). :D

  5. Tronc

    Tronc Active Member

    9th Jan, 2008
    Hi MJRoss

    Depends on your audience, if they are truly a lay man or novice audience, I don't think they will understand terms such as t(alpha), multifactor, fat-tailed, repeat, statistical significance. Which may mean on a ppoint slide you spend more time explaining details rather than the overall concept/context of your message.

    Can you describe what this slide is representing in a single paragraph. I can deduce the context from the title, but not the picture. I can't see what the picture is trying to show me. Why are some in blue?

    Just my quick thoughts?
  6. Insight

    Insight Brisbane Buyers Agent

    24th Sep, 2006
    Learn About Index Funds

    I've been struggling with active trading for three years now. The single most amazing thing I have discovered is how difficult consistent alpha creation is and how few understand that.

    It's not even a debate in my opinion, go an 80/20 core satelite or just 100% indexed and enjoy your life, it's already too short.