We believe passionately in the importance and value of what we do. The “war “we wage is the fight for lifetime financial independence and we go into battle standing alongside our clients. We can’t win the war alone-we need their active cooperation and participation in order to be successful. We mean to inspire them to believe as we believe. That is ultimately our “why”.

This is indeed a “war” because most of what constitutes financial media places the focus entirely on the wrong component. To believe what is on TV, the internet,magazines etc. , the sole and solitary issue is investment return. In reality, returns are of minor importance in the financial independence calculus but it serves both the media (advertisers of course) and their allies (financial services firms like insurance companies, brokerage firms, etc.) to make returns all that one needs to know. The result are millions of people chasing the illusory objective of investment returns while continuing to make poor decisions in every other aspect of their financial lives. This is not a formula for success.

Sure, you have to have returns and we know what financial science tells us about how to obtain them. We also know that our value is mainly in keeping clients invested for the long term and away from behavioral mistakes that can mortally wound the quest for financial independence.

Over time, the evidence in favor of passive/index investing is convincing to the point of being over-whelming. Despite this, Wall Street continues to preach the idea that their particular managers or their particular funds can do what so many others have been unable to do…best the market on a consistent basis. The math, the data are certainly not in their favor and they know it. Even worse, human emotions, the mental aspect, make the prospects even bleaker.

The cycle of emotions that investors deal with range from euphoria to despondency . Controlling the urge to capitulate just at the wrong time is often a difficult task for many investors. Using the passive/index approach instead and understanding the need to STAY invested even in rough times stacks the odds in your favor. In the end, it is much more mental than it is math.

The paper’s title “False Discoveries in Mutual Fund Performance by Barras,Scaillet, and Wermers tells the tale. Many investors, aiming to outperform the broad markets are , in reality, asking the wrong question. Instead of asking “how can we beat the market” the correct question would be “how can we accrue what the market freely provides?” As is often the case, if you ask the wrong question then you get the wrong answer .

This new research looks at the role of luck (chance) in achieving what is known as “alpha” (positive risk-adjusted performance). Simply put the paper looks at over 2000 mutual funds and then puts them into 3 broad categories: those that underperform (unskilled); those that roughly match the market (zero alpha); and those that beat the market (skilled).

The research found that almost 24% of the fund managers were unskilled; 75% matched the market ;and about 1% outperformed. The number that exhibited “skill” is close to what would be expected by luck/chance. As Larry Swedroe puts it “why do people keep playing a game where only 1% of the players win and 24% lose?” That indeed is the right question.