[ad_1] Each week, Cut the Crap Investing founder Dale Roberts shares financial headlines and offers context for Canadian investors. Is beating the market a thing of the past? There are many reasons why it gets harder and harder to beat the market. Even for the likes of Berkshire Hathaway’s Warren Buffett. That’s the conclusion of “The Incredible Shrinking Alpha,” newly updated in August 2020 by Larry Swedroe, chief research officer for St. Louis, Mo.-based wealth management firm Buckingham Wealth Partners, and Andrew Berkin, head of research at Bridgeway Capital, a wealth management firm based in Houston. S&P Dow Jones Indices have studied active managers for many years. Last year, they noted that after 10 years, 85% of large fund managers underperform their benchmark (using the S&P 500), and after 15 years, that underperformance reaches 92% of managers. Why has it become tougher each year and decade to beat that passive benchmark? The competition is getting tougher. There are so many active managers evaluating and pricing the individual stocks. It’s almost impossible to get an informational advantage. With more individual investors moving to passive investment products such as ETFs and index funds, there’s less “dumb money” for institutional investors to exploit. This chart shows how Warren Buffett, widely considered to be the one of the world’s greatest investors, has fared versus the market from January of 2001 (iShares IVV inception date) to the end of August 2020: Table courtesy of portfoliovisualizer.com I had the pleasure of chatting with Larry Swedroe, and he offered that the continued move to passive investing is great for the typical investor who discovers the cost effectiveness of passive funds and ETFs. Fees have fallen in the ETF sector, and that will continue to put price pressure on mutual funds and on advisory firms. They have to compete with the lower-fee options. Swedroe suggests that the move away from active management will continue to remove the poor managers from the industry. What we will be left with is a smaller number of active managers, but it will be a smarter pool of active managers. “Given the size of the industry, we could remove another 90% of those managers and still have enough active managers to effectively price the stocks,” Swedroe says. “But we don’t want everyone to become passive, because through their price discovery efforts active managers keep markets efficient.” I have a copy of The Incredible Shrinking Alpha. I’ll report back in this space, and I’ll review that book on my site. The average Canadian stock “outperforms” the average U.S. stock In The Globe and Mail, Tim Shufelt notes… “It might not feel like it, but the average Canadian stock is actually outperforming its U.S. counterpart so far in 2020. The widespread impression of U.S. dominance in pandemic-era markets is largely rooted in the stratospheric rise of a few technology and internet giants. But for the vast majority of publicly traded U.S. companies, 2020 has been nowhere near as favourable. The average S&P 500 index company is down by roughly 8%year to date. “In Canada, on the other hand, the overall market returns have been much more evenly spread out. The average stock in the S&P/TSX Composite Index, regardless of size, is down by just less than 5%.” More breadth means a more healthy market. That is, there is more support or more contribution to returns from more companies and more sectors. From that Globe article: “Five years ago, the five largest companies in the S&P 500 accounted for about 10% of the total market capitalization of the index. By early September, that weighting rose to 25%.” That might be a sign that the Canadian market might hold up a little better. The U.S. market may rise and fall based on the merits of those tech giants. In fact, in the recent stock market selloff that began on Sept. 2, U.S. stocks are down over 9% while Canadian stocks are down just 4.5% to end of trade Wednesday of this week. The Canadian stock market is known for not being very diversified. Our stock market is dominated by financial stocks and energy-related stock names. But the suggestion from that article is that the Canadian market is now more diversified than the tech-heavy U.S. market. All said, we are back to the theme of global diversification within your portfolio. The U.S. stock market is known to fill in many of the portfolio gaps for Canadian investors; that song remains the same. Now, perhaps, it’s possible that the Canadian stocks might pick up the slack for US stocks. Investing in movie theatres: That’s not the ticket Mulan is a flop. Even in China, where COVID is more under control, Mulan could not fill seats. This Disney release was supposed to provide a post-pandemic jumpstart to the film and movie theatre industry, but moviegoers are just not going. (You can always sit at home and watch Mulan by way of a Disney+ subscription, plus $34.99 US.) On Sept. 11, I conducted an unofficial Twitter poll that predicted tough times for the movie industry… Mulan is a $200-million US production that has only brought in some $57 million US. Survey says: Not many want to sit in an enclosed theatre during a pandemic. Go figure. Disney decided to skip the U.S. theatre release altogether. Perhaps it’s just not worth the effort: In the U.S., only 65% to 75% of movie theatres are open at limited capacity, with major markets like New York, Los Angeles, and San Francisco still closed due to the global pandemic. And while the global sci-fi “hit” Tenet has solid numbers globally, the seats are largely empty in North America. In its opening weekend, Tenet pulled $20.2 million in the U.S. For comparison, let’s look at the U.S. opening weekend revenues for Tenet director Christopher Nolan’s other genre films: Inception grossed $62.7 million, Dunkirk $50.5 million, and Interstellar $47.5 million. It’s expected that Tenet will not turn a profit in the end. This is playing out
