NYT: Index Funds Win Again

I am a big fan of index funds, owing shares in three of them. So I was happy to read this recent article:

Mr. Kritzman calculates that just to break even with the index fund, net of all expenses, the actively managed fund would have to outperform it by an average of 4.3 percentage points a year on a pre-expense basis. For the hedge fund, that margin would have to be 10 points a year.

The chances of finding such funds are next to zero, said Russell Wermers, a finance professor at the University of Maryland. Consider the 452 domestic equity mutual funds in the Morningstar database that existed for the 20 years through January of this year. Morningstar reports that just 13 of those funds beat the Standard & Poor’s 500-stock index by at least four percentage points a year, on average, over that period. That’s less than 3 out of every 100 funds.

We'll see with these changing market conditions whether active mutual funds can continue their success of (almost always) swindling their clients.

Stat of the Week: Hospitials as Hotels

According to a paper from the National Bureau of Economic Research

"We also find that a one-standard-deviation increase in amenities raises a hospital's demand by 38.4% on average, whereas demand is substantially less responsive to clinical quality as measured by pneumonia mortality."

-It's interesting they used pneumonia mortality as a measure of clinical quality. I can only read the abstract, but I would assume that they adjusted for confounders and such like a good epidemiologist would do.

700 billion dollars

Understanding the United States financial woes is a rather difficult task. I'm still trying to get a handle of it myself. My basic thoughts are that we have been accumulating debt and deregulating the markets for several decades now, and it's finally come back to bite us. Corporations job is to turn a profit, it's the government job to regulate and protect the general public. The government has failed us in this instance.

That being said, this article from daily kos does a nice job explaining why a plan is needed, explaining the financial institutions as the heart of the economy.

As you know, the bailout/rescue bill failed yesterday, leading to a major drop in the stock markets around the world. The congressmen (particularly ones up for re-election) have a very difficult decision to make. There have been rumors that calls were made to the congressmen by the general public being 50 or 100 to 1 against the bailout/rescue bill. However you can notice from the markets some kind of bill is essential. I think it's important to remember that this 700 billion isn't all going down the drain, but an investment that could actually make money one day (a risky and possibly bad one though).

It is understandable that tax payers are against with figures like the one in Time Magazine showing how much 700,000,000,000 really is...

• Give every person in the United States $2,300 or give every household $6,200
• Pay the Income taxes of every American who makes $500,000 or less a year
• Fully fund the Defense, Treasury, Education, State, Veterans Affairs and Interior departments next year, as well as NASA
  
• Buy gasoline for every car in the United States for the next 16 months.
• You could pay the income taxes for every American who makes $500,000 or less.
• You could buy every NFL, NBA, Major League Baseball team and build each one a new stadium - and pay every player $191 million each for a year.
• Create the 17th largest economy in the world - roughly equal to that of the Netherlands
  
• You could pay off just 7% of the $9.8 trillion national debt