‘Dumb money’!

Updated: Oct 16, 2020

ETF Edge: Lizzy Gurdus
SEP 26 20209:15 AM EDT

‘Dumb money’ is fueling one of the biggest lies on Wall Street, researcher says. “Nobody likes to be average.”

That idea is reinforcing “one of the big lies from Wall Street” as retail investors turn to platforms such as Robinhood to try their hands at stock-picking, Larry Swedroe, chief research officer at Buckingham Wealth Partners and co-author of “The Incredible Shrinking Alpha,” told CNBC’s "ETF Edge" on Monday.

The rush of retail traders to the stock market during this year’s volatility has romanticized stock-picking in a potentially dangerous way, said Swedroe, whose latest book is just out in its second edition.“That’s what Wall Street tells you — we could do better than average — which of course is possible to do,” Swedroe said. “But the fact is that’s one of the big lies from Wall Street.”

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“We know that if you just passively invest in these index funds, you get market returns, which means you outperform or get higher than average returns than the vast majority of active investors,” he said.

Over the long term, that tends to hold true. Most active managers underperform the S&P 500 over the intermediate and long term, with 92% of large-cap funds underperforming the passive index over the last 15 years, according to S&P Dow Jones Indices.

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