Why Investors Are Now Giving Uphttp://www.fool.com/investing/mutual-funds/2009/05/06/why-investors-are-now-giving-up.aspx Amanda B. Kish, CFA
May 6, 2009
After the market rout of the past year and a half, countless investors are re-thinking some of their most cherished maxims: Are stocks really a good long-term vehicle for creating wealth? Is buy-and-hold dead? Should I just stuff my retirement money under my mattress?
Some discouraged investors have decided to take the path of least resistance -- they've thrown in the towel and resigned themselves to never beating the market.
Content to be average
And who can blame them? Many actively-managed funds have done a dismal job of keeping pace with the market during this most recent downturn, losing more ground than some benchmark indices. Some fund shops were caught flatfooted by the crisis in the financial arena and lost big on names like Citigroup (NYSE: C ) and Fannie Mae (NYSE: FNM ) .
Furthermore, it's absolutely true that the vast majority of active mutual funds don't beat the market. It leads one to wonder why you should pay for the advice of a fund manager if you're just going to lag the market anyway. Why not just throw your money in an index fund and be done with it?
Diamonds in the rough
It's true that most such funds simply can't beat the broader market over the long-run, but there are a select number of exceptionally skilled managers who do manage to trounce the market. The problem lies in finding these needles in a haystack of competitors. Fortunately, there are a few easily identifiable features that almost all top-notch funds have in common.
In the Winners' Circle