12-month periods. One important caveat regarding the use of rolling periods is that a single monthly return may be counted in any number of rolling periods, depending on where it occurs in the overall period. Figure 9-6 charts the comparison of the performance of various equity indexes from 1928 through 2013 using this SPIE analysis. For example, the chart illustrates in the bottom left quadrant that over 1,021 1-year (12 months) monthly rolling periods, a simulated passive investor in a large growth index beat a simulated passive investor in a large value index 44% of the time, causing investors to think it might be a toss-up between large growth and large value. Compounded by the financial media touting the benefits of large growth companies, investors tend to believe that large growth can perhaps be a better investment. But in 793 20-year monthly rolling periods, the large value index beat the large growth index 88% of the time. Over short periods, volatility and price swings confuse investors as to which indexes are better long-term investments, but the picture becomes clearer when longer periods are considered. Figure 9-7 tracks large, small, value, blend, and growth indexes from around the world. For U.S. markets, more than 86 years of data are shown. For non-U.S. developed markets, 39 years of data is available, and there are 25 years of data for emerging markets. In each case, it is worthwhile to note the lackluster annualized returns of both large and growth indexes, relative to the strong annualized returns delivered by all of the indexes labeled small or value.
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...