Tracks

This January, for the first time, balances in index funds exceed the balances in actively managed funds.* I view this as positive for reasons that will become more understandable after this story…

Years ago, I spent a few days fishing the Skeena River in Northwestern Canada. It’s far-north, only miles from the Alaskan boarder. To fish the Skeena you use drift boats to reach promising areas where you tie off the boat, spread out and fish while standing in the river. It is a great experience.

During one of our stops my friend and I walked upstream, through an overgrown thicket, to reach a promising location we had seen from the boat. We had barely cast our lines when we noticed the unmistakable tracks of several bears and at least one cub. We didn’t need to see the bears to know they were nearby; the evidence was overwhelming.

I frequently share this story as I introduce our investment disciplines. After screening and a rigorous process of elimination which narrows down the list of investment opportunities, we always look for tracks, evidence of institutional activity, to confirm our investment thesis. Their activity drives the financial markets, and their decisions ultimately translate into things we can see and track, things like trading volume, price volatility and price behavior.

All this money flowing into passive, rule-based investment products will only make their behavior more predictable and more easily identified. Ultimately, I think this has the potential to yield better results for you and me. It is indeed great to be active in a passive world.

* Investors Business Daily, ““Investors Finally Throw in the Towel on Active Fund Managers”, May 27, 2024

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