Tom Gardner – Active Rules

We have been receiving many emails from viewers about the merits of passive versus active investing, a topic we have been covering over the years, but more frequently recently as more research comes in.

A lot of people threw in the towel on active when they heard the results of the latest SPIVA U.S. Scorecard report from S&P Dow Jones Indices.  It presents the 15-year track record for domestic equity funds – and the report notes: “The longer time horizon provides a complete market cycle to measure effectiveness of managers across all categories.”

The figures were stark:  92% of large-cap U.S. stock fund managers, 95% of mid-cap, and 93% of small-cap managers trailed their respective benchmarks.

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The comparisons didn’t improve when you traveled overseas either. The majority of managers across all international equity categories underperformed their benchmarks as well.

Another stunning trend was how many funds disappeared over the 15-year period. More than 58% of domestic equity funds were either merged or liquidated and almost 52% of global/international equity funds were.

Is the case now closed? Does passive win?  This week’s WEALTHTRACK guest, Tom Gardner, is a successful active manager who believes passive is best for most, but active rules for some, especially those attracted to The Motley Fool investing community.  Gardner is CEO and Co-Founder (with his older brother David), of The Motley Fool which they started as a small printed newsletter for family and friends in 1993.  They turned it into a website, the in 1994.  Now it is an international multi-media network offering financial services to millions of individuals through its website, podcasts, books, newsletters, columns, and wealth management services.

Their flagship Stock Advisor portfolio, which they write about in their monthly newsletter, Motley Fool Stock Advisor, has crushed the S&P 500 since its 2002 inception with 17.8% annualized total returns vs. the market’s 7%. It combines Tom’s more conservative value approach and David’s swing for the fences growth approach. Both brothers believe in investing in great businesses with strong financials, managements and cultures. Motley Fool itself was ranked the number one place to work in the U.S. for small and medium sized companies in 2014 and 2015.

Before discussing how he identifies individual companies to invest in for years, I will ask Gardner why his first piece of advice for new Motley Fool investors is “Buy an index fund!”

As always, if you miss the show on Public Television, you can watch it at your convenience on our website.  You’ll also find my weekly Action Points there, plus our guests’ “One Investment” ideas.  Also, in his EXTRA interview on our website, Gardner explains why he thinks the future of financial advice will come from apps, not humans.

My best wishes to all of you for a happy Mother’s Day weekend!  Thank you for watching, and make the week ahead a profitable and a productive one.

Best regards,