There are a myriad of financial talking heads crowding the airwaves with baseless predictions. How do we find the few worth heeding? We look for intellectual curiosity – a thirst for understanding what is right and true, regardless of where it may lead. Inside of Hill Investment Group, we savor the voices who stand out in this way. We point you, our tribe who are committed to Take the Long View®, to AQR Capital Management’s new podcast channel “The Curious Investor.” We are especially impressed by its third episode, “Active versus Passive,” featuring a conversation between Vanguard founder John “Jack” Bogle and AQR managing and founding principal Cliff Asness. As the father of the world’s first publicly available index fund, Bogle personifies passive investing like nobody else can. In contrast, Asness has structured AQR on the premise that he and his team can add value to investors’ portfolios by identifying opportunities to apply evidence-based methodology. He’s our modern “active” aficionado, as we’ve described in earlier posts. You’d think the podcast would be a vigorous debate between these two legends. Instead, it exemplifies the considerable common ground and respect they share. Bogle explains:

“We do things very differently from an investment standpoint – to which I would say: So what? … [W]hat I’ve always admired about Cliff is his intellectual soundness. … I’ve always admired that in anybody. And it doesn’t matter whether their intellectual ideas align with my own or not.”

See what I mean? Especially when it comes to the science of investing, nobody has everything figured out. Even if we did, markets evolve over time, generating new insights, possibilities and questions – new subjects to debate. That’s one of the reasons I love what we do. PS: Here’s the iTunes Podcast channel link, if you’d like to “App it.”

“Recency” is one of the most insidious behavioral biases that can impact an investor’s ability to Take the Long View® with their investments. The name alone suggests it’s the opposite of what we’re about here at Hill Investment Group.

Those ruled by recency will disregard decades of data, and instead allow only the latest, relatively random data points to skew their view. A prime example occurs whenever purveyors of traditional active investing revisit a perennially misleading script that goes something like this: “If too many investors invest in index funds (i.e., if the market is left to run on auto-pilot), there will be nobody left to set proper pricing. Investors should revert to an active investment strategy, before it’s too late.”

Again, the argument is nothing new; if index funds were the only investment available, markets would indeed stop functioning. But with every new season, the traditional active camp seems to come up with a fresh batch of stats that supposedly signal that the end of index investing is nigh.

Recently, the focus has been on index investing inflows – or, more accurately, their reduced volume. So far this year, the deluge of dollars mostly heading out of active investing and into index/passive funds has decreased to a more orderly flow compared to 2017.

Is index investing on the wane? In this related piece, we share a quibble we do have with index investing, and why we typically favor a similar, but more direct approach for capturing scientific sources of expected return. But before anyone concludes it’s time to get more active at timing and selecting specific stock picks, here are three, recency-dispelling reads we suggest:

“Index Funds Are Going to Be Just Fine,” Barry Ritholtz, ThinkAdvisor

Our favorite excerpt: “Why must we complicate what is otherwise a simple explanation? Investors have become a little more financially literate; indexing is maturing as an investment style. Those who are hoping for a major reversal of a trend that has been 40 years in the making are very likely to be disappointed.”

“Indexing Fuss Unwarranted,” Larry Swedroe, ETF.com

Our favorite excerpt: “While it’s certainly possible that, at some point, passive investing could reach such a dominant share that price discovery would be limited, clearly, we are nowhere near that level, and almost certainly won’t be there for a very long time.”

“The growth of index investing has not made the markets less efficient,” The Economist

Our favorite excerpt: “Perhaps the growth of indexing has robbed the world of outstanding stockpickers. But it seems more likely that it has put a lot of bad managers out of business … And it is not as if the buying and selling of stocks by informed investors with opinions has ceased. The turnover of stocks has actually increased over time. Active investors are more active than ever.”

I’m obsessed with tennis. It’s mostly a healthy obsession, but this time of year, I start to slip. Why? Wimbledon, the finest tennis tournament in the world, is about to begin. It’s steeped in tradition, and yet its host, the All England Lawn and Tennis Club, isn’t afraid of innovation and science.

Whenever there’s a way to combine statistical analysis, tennis, and investing, I’m all over it. That’s why my life was transformed nearly 20 years ago, when Larry Swedroe did exactly that in the brilliant introduction to his first book (emphasis mine):

“After making what I thought was a great shot, a forehand that landed right in the backhand corner of my opponent, my teaching pro said, ‘That shot will be your worst enemy.’ While it was an exceptional shot, he explained, it was not a high percentage shot for a good ‘weekend player.’ Remembering how good that shot felt, I would try to repeat it. Unfortunately, I would be successful on a very infrequent basis. The pro asked me if I wanted to make great shots or would I rather win matches? (I thought that one was the cause of the other.)”

Playing the winner’s game is what the pro was getting at as he cautioned Larry about falling in love with his special and rare shot. Winning calls for consistent and disciplined play. When players go for shots beyond their skills, they’re playing a loser’s game. This decades-old analogy goes back to a book by Dr. Simon Ramo, Extraordinary Tennis for the Ordinary Player.

With this background, you’ll know why the following ad is so meaningful to our firm. As a minor sponsor for the April 2018 Men’s Clay Court Championship, Hill Investment Group was proud to support an event that has been in play for more than a century – and held near our Houston office since 2001. As our sponsorship ad expressed, we enjoy helping investors play a winning game, by embracing a “long view” game plan.