Of 350 mutual funds available to investors in 1970, only 100 survived through 2014. The other 250 closed, or were merged with other funds. Of the 100 that survived, 45 beat the market over the whole period; 42 of them beat it by less than two percentage points per year.
What’s remarkable is that the three “superstar” funds that did beat the market by more than 2 percentage points a year for 45 years, spent, on average, a third of the time underperforming the market on a rolling three-year basis.
As Housel points out:
You can imagine the ridicule these managers went through when, for years on end, they lagged the market. Clients surely pulled money out of their funds. Journalists stopped calling them. Their personal pay likely plunged. It was uncomfortable. But they still beat 99% of their peers over the long run.
The same thing happened to Warren Buffett in the 1990’s, when everyone was getting themselves wrapped up in the dot-com craze.
After a heady experience of that kind, normally sensible people drift into behaviour akin to that of Cinderella at the ball. They know that overstaying the festivities… will eventually bring on pumpkins and mice.Warren Buffett, December 1999
To be sure, Buffett felt a lot of pain during this period, as he both underperformed the high-flying internet stocks and was ridiculed for doing so. His biography, The Snowball, even opens in July 1999 in the midst of this very drama.
But in the end, Buffett adhered to his Intelligent Investor principles, endured the pain, and had the last laugh.