[lutusp]

> ... how do you feel about laymen investing with a buy-and-hold strategy?

The answer is that buy & hold is a very reliable way to grow your capital, and it does without the services of investment advisors and brokers, which is why they don't want you to find out about it.

On average, buy & hold investors do better than those who enlist the help of brokers or who become day traders (who on average do worse than anyone else).

For actual evidence, one need only examine the outcome of the Wall Street Journal dartboard contest, which compared expert equity picks to random picks. The expert picks weren't sufficiently better than random picks to justify the broker fees, and this outcome went on for years.

http://www.investorhome.com/darts.htm

Quote: "... the performance of the pros versus the Dow Jones Industrial Average was less impressive. The pros barely edged the DJIA by a margin of 51 to 49 contests. In other words, simply investing passively in the Dow, an investor would have beaten the picks of the pros in roughly half the contests (that is, without even considering transactions costs or taxes for taxable investors)."

[sopooneo]

I read these sorts of outcomes periodically and it always makes me wonder how on earth managed funds stay in business? How can an industry that does no better than chance on average continue to exist?

[lutusp]

> How can an industry that does no better than chance on average continue to exist?

Are you asking why people invest in equities? It's because the market as a whole grows over time, sometimes as high as 15% but at present about 4% after taxes, fees and inflation. This means a buy & hold investment returns a reliable long-term averaged 4%, at a time when virtually no other investment can offer that kind of return (when expressed in the same way).

The above is true if one simply invests in an index fund that tracks (for example) the DJIA, and no trades are made -- no brokerage fees, no taxes until a redemption takes place, and lower taxes than for regular income.

Or are you asking why people have managed portfolios? It's because of widespread ignorance and a bit of the cowboy mentality -- a real cowboy would throw the dice instead of playing it safe. But "throwing the dice" in equities is easily shown to be a foolish act, historically, statistically, and reliably.

[sopooneo]

You are correct in your second guess: why managed funds. And I am tempted to agree with you. It just seems like eventually the truth would out and, what essentially amounts to a scam would stop being able to attract customers.

[sumedh]

> How can an industry that does no better than chance on average continue to exist?

The average Joe does not know that.

[ForHackernews]

Not just average Joes. Lots of extremely wealthy people put their money in actively-managed hedge funds that also underperform the market: http://www.bloomberg.com/news/2013-12-06/hedge-funds-trail-s...

[oofabz]

Their selling point isn't profit, it's convenience. The average worker just wants to check a box on his 401(k) form and be done with it. Mutual funds fill that niche.

[lutusp]

Yes, but there are mutual funds that track market indices -- they're not all managed portfolios. So you have the relative stability and security of an index fund, and the convenience of a mutual fund to handle the transactions.

I want to clarify that there's no real security in equities, my use of that term is only relative to other kinds of investments. Everyone should understand that you could lose everything, and there's no deposit insurance or anything like that.