003 – Don’t Try to Outguess the Market
On the quest to pursue a better investment experience Scott goes beyond the idea of embracing market pricing and stresses to listeners not to try and outsmart the market. Scott provides evidence of how and why it is so difficult to try to beat the market with conventional investing.
The market’s pricing power works against mutual fund managers who try to outsmart other participants through stock picking or market timing.
Many fund managers believe they can identify “mispriced” securities and convert that knowledge into higher returns. But fair market pricing works against such efforts, as indicated by the large proportion of mutual funds that have underperformed their benchmarks.
In this chart, the gray box represents the number of US-domiciled equity funds in operation during the past 15 years. These funds compose the beginning universe of that period. The striped area shows the proportion of funds that survived the 15-year period through the end of 2014. The survival rate was 42%. The blue-shaded area shows that only 19% of the equity funds survived and outperformed their respective benchmarks during the period.
Over both short and long time horizons, the deck is stacked against mutual funds that attempt to outguess the market.
As evidence, only 19% of US equity mutual funds have survived and outperformed their benchmarks over the past 15 years.
About the author, Scott Wellens
Scott Wellens, CFP® is an investment advisor and founder of Fortress Planning Group. After earning his Bachelor of Science degree from the University of Wisconsin-Oshkosh, Scott quickly ascended to become a Vice President of North American Sales at a major regional provider of telecommunications infrastructure. While financially successful in this role, Scott searched for ways to pursue his passion related to financial literacy and providing financial freedom for both his own family and others. During his search, Scott became curious about the significant gap he found in the financial services sector: he was unable to find a comprehensive financial planner that maintained a family stewardship lens without being attached to financial products. Scott decided to fill that gap by creating his own planning firm that maintains a strong passion for comprehensive, unbiased wealth planning that is genuinely client-centered.
Scott resides in Menomonee Falls, WI with his family. He is the father of three active and independent daughters who keep him on his toes. Scott is an active community member, serving on the Hamilton Education Foundation Board, serves as a Dave Ramsey Financial Peace facilitator and leads the All Pro Dad’s group at their local elementary school. Scott enjoys spending his free time visiting state parks with his family, reading, and watching the Milwaukee Bucks and the Green Bay Packers win ball games.