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Anyone needing to be convinced that index funds tend to outperform actively managed mutual funds needs to look no further than the Hulbert Financial Digest. In 1980, Mark Hulbert conceived the idea of ranking investment newsletters to help investors determine which of the solicitations cluttering up their mailboxes were worth anything.

By charting the actual recommendations and market moves advisers recommended for their readers, Hulbert managed to create a track record for each. The results were sobering as they differed wildly from the promises of any given letter’s promotional literature.

While it once tracked over 125 investment newsletters, the original digest was sold to CBS Marketwatch in 2002. The final letter was printed in 2016 and Hulbert has since moved on to become, among other things, a director of some of Vanguard’s mutual funds. Although his original digest is no longer produced, his firm still offers a database of performance information and maintains an honor roll of top-performing investment letters.

Thirty-six years of research draw us to Hulbert’s conclusion that “the hypothetical emotionless investor (assuming one exists) would always achieve better results by buying and holding an index fund.”

Hulbert states that real investors are “unable to hold an index fund through a bear market, and by selling near the bottom they fail to realize the theoretical long-term potential.” He observes that “real” investors (with emotions to deal with) are “likely to make more money by following strategies that are statistically inferior but which are psychologically superior.” This is because investors will follow their chosen newsletter rigorously.

Newsletters, in my experience, have pretty much fallen by the wayside anyway, but a growing army of investment advisers is upending the business model that has dominated the financial services industry for decades. The traditional retail brokerage firms have had to come to terms with customers’ inclinations to want to pay an advisory fee rather than brokerage sales commissions in return for the advice they feel they need.

Where Hulbert hits the nail on the head is in his assessment of how a newsletter or, in today’s equivalent, a fee-only adviser leads a typical investor to make better decisions in the face of market turmoil. This is arguably where an adviser creates a value-added service over an index fund or a do-it-yourself approach that an amateur investor might be attempting.

But who wants to pay an adviser if we can just train ourselves to become unemotional when it comes to investing? We could invest in an index fund and have at least the smug satisfaction of knowing that we did as well as the market — an objective most advisers fail to meet after fees. What remains of the Hulbert Digest today is an honor roll of the handful of advisers who have outperformed the field. But what does that mean?

The 20-year result of the 500 index as of June 30, 2018, showed the average annual result to be 6.49 percent. Whoa! What happened to our typical 10 percent that we have come to consider as a reasonable return over most rolling 10-year periods?

The answer offers another lesson of money management, which is timing. A 20-year period ending a month ago started in 1999 at the very height of the dot-com boom. Large Cap growth funds were up 60 percent that year. So, while many are always hesitant to do so, buying at the absolute top of the market still generated a 6.49 percent annual return given 20 years of time. Reviewing more periods such as 5, 10, 15, and 30-year periods, the returns settled in at more predictable rates of 13.41; 10.15; 9.34 and 10.36 respectively.

What remains of the Hulbert Digest offers a clearing house of investment information and is available at www.hulbertratings.com. Check it out. I, for one, have a soft spot in my heart for iconoclasts who maintain a jaundiced view of the financial services industry and for whom that perspective offers unbiased insight. I consider Mark Hulbert to be right there in a pantheon of heroes including Warren Buffett, John Bogle and other luminaries who tell it like it is.

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