Beating the markets

An interesting book that deconstructs the hype over fund managers and their well-thought strategies

- MADAN SABNAVIS

THERE ARE SEVERAL books on economists and their lives, starting with Adam Smith and all the way down to Paul Samuelson. But there are not too many tomes on a series of stock market gurus, especially those focusing on specific kinds of investing. Robin Wigglesworth of Financial Times brings out a rather interesting book called Trillions, which talks of passive investing through the use of index funds. But while explaining the worth of such funds, he takes us through the history of various fund managers and academicians who have made their contributions in this field. Interestingly, the value of funds in such passive investing is around $26 trillion, which is the size of the GDP of USA.

Warren Buffet is known to have wagered on passive investing through index funds and won substantial money on such bets. He had said that over 10 years such an approach would thrash an elite crew of hedge funds picked by Protégé Partners, a Wall Street investment firm. Simply put, if one invests in say the S&P 500 index or the Sensex in India, one can reap superior benefits in terms of rewards over a time horizon of 5-10 years. This also means that all the fund managers who have their techniques in investing in various stocks during this period cannot actually do better than the index. He showed how the free, “dumb index fund prevailed, returning 126% over the decade, while hedge funds made a more modest 36%.