I am reminded of Sally Field’s acceptance speech at the 1984 Oscars for her award for Best Actress in a Leading Role. She won the award for her role as Edna Spaulding in Places in the Heart. Not convinced of her popularity after her first Oscar in 1979 for Norma Rae, Sally exclaimed in her 1984 acceptance speech, “you like me, you really like me.”
Why am I reminded of Sally’s famous and much mimicked exclamation? Because of this Bloomberg article about record cash flows into Vanguard mutual funds. People are getting it!!! Active management is a loser’s game! In his shareholder letter about a year ago, Warren Buffett stated that the average investor should invest in Index Funds, such as those offered by Vanguard, and stay away from actively managed mutual funds.
Clearly, people are feeling more comfortable with the stock market. That is a story within itself about market timing. But as it relates to investors’ thinking and actions in 2014, Passive Investing, or Indexing, is gaining the favor of many investors. They like it! They really like it!
Next time I will explore market timing in detail. For now, here is a sketch by Carl Richards, author of The Behavior Gap, that illustrates the fallacy of market timing and the behavior of the average investor.