Index Revolution, The

by Charles D. Ellis, L.J. Ganser (Reading)

The evidence-based approach to a more worthwhile portfolio. The Index Revolution argues that active investing is a loser's game, and that a passive approach is more profitable in today's market. By adjusting your portfolio asset weights to match a performance index, you consistently earn higher rates of returns and come out on top in the long run. This book explains why, and describes how individual investors can take advantage of indexing to make their portfolio stronger and more profitable. By indexing investment operations at a very low cost, and trusting that active professionals have set securities prices as correctly as possible, you will achieve better long-term results than those who look down on passive approaches while following outdated advice that no longer works. "Beating the market" is much harder than it used to be, and investors who continue to approach the market with that mindset populate the rolls of market losers time and time again. This book explains why indexing is the preferred approach in the current investment climate, and destroys the popular perception of passive investing as a weak market strategy. All great investors share a common secret to rational decision-making based on objective information. The Index Revolution shows you a more rational approach to the market for a more profitable portfolio.

Genres: Finance, Nonfiction

MP3 CD

Published May 9, 2017

About the author

Charles “Charley” D. Ellis is an American investment consultant. In 1972, Ellis founded Greenwich Associates, an international strategy consulting firm focused on financial institutions. Ellis is known for his philosophy of passive investing through index funds, as detailed in his book Winning the Loser’s Game.

Reviews

[Ian Huang · Rating 3 out of 5]

I was a bit misguided when I first picked up the book as I thought it was about something about indexes, like CPI or other economic measures. Then I proceeded after I noticed it is fore-worded by G. Burton Malkiel, who is the author of the famous book "A Random Walk Down Wall Street". As a proponent of random walk theory--which simply put is that no one can beat the market as the market itself is random; and anyone who had some good performance over the last 5-10 years is majorly because of luck, not by their excellence in peeking into the future. -- it is undoubtedly that Mr. Malkeil would stand for what this book is for.

The author has been in the investing advisory and consulting business since late 60's, and he argued that while active investing did bring the value in the past, it is no longer the norm as market become more efficient, and any marginal performance would be canceled out given the 1-2% percent fee. In a nutshell, the past success of active investing has become its biggest enemy. In addition, with today's technology democratization, a retail investor can easily build his/her own portfolio in pursuit of risk diversification.

One of the classic phrases in the book are that: "Investors should focus on the policy, which is the long term goal and big picture, and mind less about the operation. "

It is worth noted that the author himself sits in Yale's endowment fund investing committee, which has been one of the largest investors and adaptors in index funds. Mr. Malkiel is also a partner of Wealthfront, an online investing tool with focus on index fund and ETF investment.

[helen_wellbeing · Rating 4 out of 5]

As a market practitioner since 1960s, the author experienced the golden days of active management fund. He viewed the equity market has been evolving from semi-efficient to almost completely efficient and transparent market. Thus, the room for alpha return diminishes dramatically, demonstrating the Markowitz’s Morden Portfolio Theory.

The author positioned market return, beta, is what anyone and everyone can attain because any marginal return of “alpha” cannot be justified with the excessive marginal cost of investment.

I wish the author can discuss more about the formation of market return. This book assumes market return is the index return which is probably the weakest assumption in this book. More Fintech evolves to explore the “smart beta” index fund, composing or re-weighing the index to optimise the index return. It will be great if Charles can shred light on his view of how close index fund is from the the real market portfolio.

[Halpern Financial · Rating 4 out of 5]

"Those who have knowledge don't predict. Those who predict don't have knowledge."--Lao Tzu

Active managers argue that the more you index, the market becomes less efficient. They would have you believe that there are only a few stocks that will do well. This book is an easy ready that concisely provides evidence against active management and for an index-based approach that is low cost, tax-efficient and in most cases does better than active management. Some people will say that indexing means accepting mediocrity, but the results show your returns are better than active. You are seeking the best return in a tax and cost efficient way, and it frees up time to focus on goal-based financial planning.

[Chris Boutté · Rating 5 out of 5]

This was a decent book about indexing. I hadn't read any of the books from Ellis but was introduced to him in his book Elements of Investing with Burton Malkiel. The first half of this book is sort of a memoir of Ellis' journey through becoming an investor and learning why index funds are so beneficial. The second half is some short chapters on the benefits of index investing. As someone who reads a ton of books on this subject, there wasn't a lot of new value, but it was still worth the read as a reminder of the basics.

[Brad Plaman · Rating 5 out of 5]

Highly recommended. Charles Ellis makes a strong and logical case for an easy investment approach for reaching your retirement goals. Every American worker and retirement saver could benefit from reading one of his books.

[Divakaran · Rating 4 out of 5]

I'm reading this book right after reading John Bogle's "The Little Book of Common Sense Investing" and while it is not as in depth, Ellis' book makes it easy to understand why Indexing matters, especially for beginners.

[Josep Julia · Rating 4 out of 5]

Mirarse solo la segunda parte del libro. La segunda parte del libro te dice los motivos por los que invertir en fondos indexados.

Este libro es un complemento perfecto a el otro libro que me he leído sobre fondos indexados, llamado “ The Little Book of Common Sense Investing”

[Heikki Keskiväli · Rating 2 out of 5]

Usually have a positive bias for investment books but this was a disappointment. Nothing new for ample index touting business books.

[Bb5201314570 · Rating 4 out of 5]

指數化投資可以讓你空出更多時間去做更重要的事

[S · Rating 2 out of 5]

Full discloser: I work for "Active" investment manager and my whole career relies on success of active managers.

To start I'm a firm believer in active management even though I hate those MFS advertisements that proclaim "Active Management"

This book and many other Vanguard devotees talk about virtues of indexing and how it is superior to active management over long periods of time. And that most investors would be better off indexing. It all makes sense until it doesn't.

There is false pretense that indexing will always do good no matter what in years to come to infinity. It's like Gary Cohns analogy about fiduciary rule - govt is saying all retirement plan participants should only eat healthy stuff and not indulge in more tasty and sugary stuff.

The basic premise of the book is wrong. It says markets are efficient its difficult to beat the market. And because there are so many active talent r managers are out there that they are eating each other's lunch causing the market to efficient.

Markets are not always efficient, and that's the whole business to figure that out. The race is not to beat the market but achieve risk adjusted superior returns. Market has 100% beta risk with active management one can minimize max draw down, reduce volatility and achieve much better risk adjusted results.

All comparisons are over 10 or 20 years, while it's useful but it's usually covers many business cycles and secular changes. Realistically people don't keep their active managers over that long period of time. Rarely some still do if they keep generating good returns and believe in the managers skills and philosophy.

Here are my two cents -

Tax Efficiency - it forgets about what you can with tax loss harvesting and tax efficient active investing.

Opportunistic - it doesn't talk about how opportunistic active investing can be and how it can enhance overall return when used in diversified asset allocations. Again the premise is no one can predict Mr. Market - but the game is not prediction, it's thorough research and calculated bets based on publicly available information and personal judgement.

Trading Costs - lot of big active funds participate in IPO flips to off set trading costs or use REPOs to generate additional income.

Manager flipping costs - book says it always costly mistake to switch managers and that you always end up selling low and buying high. It's not always true. I personally been watching CalPERS gain after switching their managers.

On positive note, I learnt few historical facts I didn't know - how in old days fees were 6% of the dividend income earned or how it was based on hourly fees just like lawyers etc. even before and how we came out % of assets as fees.

Try again next time please I'm not convinced.

[Chris Jaffe · Rating 3 out of 5]

It ain't bad, but it ain't much. It's a slight (less than 180 pages of text, not including appendixes), and not very groundbreaking. If you've read anything about index mutual funds before, then you'll know what this is going to say in advance. There are some interesting bits about how the investment profession has changed over the decades (making it harder for active investors to beat the market), and on the author's personal life experiences, but mostly it's just a rehash of decades-old arguments on behalf of index funds.

[James · Rating 3 out of 5]

I did not learn much more than I already knew about index investing. Ellis other book on What It Takes on 7 firms a much more convincing read.