Index Investing Advocate Changes His Mind – Why?

Burton Malkiel wrote A Random Walk Down Wall Street in which he advocated investing in index funds. He’s maintained that position since, issuing many revised editions of the book and serving on Vanguard’s board. Now, he’s on the board of a new firm and advocates its active investing style. Read the details here.

“Even though Burt Malkiel was never a die-hard efficient market person, he was pretty staunchly in that camp,” Mr. Arnott said. “He has acknowledged there may be some market inefficiencies, but any advantage from trading on them got eaten up in fees. Now the approach has become so cost-effective that even a skeptic like him is acknowledging it can add value.”

A large and growing body of academic research suggests there are market anomalies that can be exploited to beat a strict index approach. Some of that research has been recognized with Nobels in economic science — William F. Sharpe in 1990 and Eugene F. Fama in 2013.