Duelling Fools: Should You Try And Beat The Market?

Stuart Watson

By

Stuart Watson

Published in Investing on 19 August 2009

Are trackers for losers, or is it just too difficult to beat the market?

In this week's Duelling Fools we look at one of investment's fundamental questions. 

The vast majority of funds and individual investors (somewhere in the region of 80% to 90% depending on which piece of research you prefer) fail to the beat the market. So are we better off not trying to pick individual shares and just opting for an index tracker instead?

Don't forget to vote!

So should you try and beat the market? Let us know what you think -- vote in our poll.

Last week's result

We asked should the typical private investor short shares? 60% of you said no, it's too risky, while 39% reckoned shorting is worthwhile. 

Share & subscribe

Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

JohnCarlyle 19 Aug 2009 , 1:02pm

Do not underestimate the psychological benefit of a tracker. You will never have the stress of knowing you invested in the wrong thing or fear that you might have. You will know you have beaten the majority even before reflecting the fees you would otherwise have paid.

If you have to have some fun, have a core tracker holding and play with a proportion of your wealth.

Finally, you can successively combine approaches by reinvesting into a tracker any profits you make on an individual share.

sackchap 19 Aug 2009 , 2:53pm

Not usually a linguistic pedant but 'should you try AND beat the market' is really poor use of English in a headline.

LARFIELD 19 Aug 2009 , 2:54pm

I have been trying to find a tracker that includes the divis paid by the constituent index. Is there such an animal out there?
HstG.

gordonbanks42 19 Aug 2009 , 9:11pm

@LARFIELD: Yes - they all do, one way or another. Either the tracker pays a divi itself (which is the aggregate of the divis it receives, less its charges) or it reinvests them and that is then reflected by an uplift in the capital value of the tracker's units/shares. The former are called income units and the latter are called accumulation units. Some operators will give you the choice of accumulation units or income units.

They're just like active funds in that respect.

LARFIELD 20 Aug 2009 , 1:05pm

Thanks Gordonbanks42. Most helpfull. (I cannot recall ever seeing the distinguishing description you refer to ie 'income units/accumulation units', so i will look out for these.)
Just a couple of follow-up queries:
1) The accumulation trackers must significantly 'outperform' the returns of all income trackers &, given that most people are not looking for an income from their tracker - my guess is that the accumulation trackers are by far the most popular. Is this actaully the case?
2) I had been led to believe that (investment trusts apart) a large number of trackers did not actually buy the index but simply took out derivative options - which obviously only follow the capital adjustments. If this is also correct(?) then how do the 'managers' of these trackers generate the divi. income?
3) Presumably the 'tracking error' has to reflect the divis. generated by the appropriate index; which seems complicated to both calculate (& for the investor to check) particularly given the sporadic nature of divi. payments?
4) If we take a somewhat generous average divi of 3%pa for the ftse 100 over the last 10 years then the much quoted 'flat return' would actually be a much more healthy 134%. I wonder why this figure never seems to be quoted?
HstG

JustFisk 21 Aug 2009 , 1:54am

Hi LARFIELD, i guess you mean "the much quoted 'flat return' would actually be a much more healthy 34%" At 3% pa over 10 years.....?
thanks,
JF

LARFIELD 21 Aug 2009 , 4:46pm

Looks like you could be correct JF - Can you help with my queries?
HstG

JustFisk 23 Aug 2009 , 1:51pm

HstG,
These are really great queries. The Discussion forums are the best places to get the best answers.
As these are regarding trackers, perhaps you can post your questions on the index tracker forum at the link below where more experienced Fools can answer and debate the issues:
http://boards.fool.co.uk/Messages.asp?bid=50072

thanks JF

LARFIELD 25 Aug 2009 , 11:15am

Thx JF - I will give it a go.
HstG

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as http://www.fool.co.uk as opposed to www.fool.co.uk.

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.

More articles in this section

Beta

Tags for this article

Duelling Fools
Trackers

Login or register to add tags.

Beta

Related content