Dave Ramsey has helped a lot of people get out of debt.
He is one of the leading writers and speakers in finance, and I’ve had anyone from church-going folk to atheists tell me how they listen to him for financial wisdom.
And like all of us—finger pointing back at me—he says stupid things sometimes.
There is a quote floating around Internet Land where he says that beating the S&P 500 index was not really hard.
Here’s the full quote:
Over the last 30 years my little portfolio of that has averaged over 12, most years over 13%…
But I mean it’s not really hard to beat the S&P.1
Au contraire mon frère.
What’s easier is showing why he’s wrong.
Mr. Ramsey is a straight shooter and is known not to mince words, so I know he can handle my saying so.
Here is why his statement is flawed:
According to SPIVA, only 7.81% of actively managed large cap funds beat the index over a 15-year period.2
If you ask the other 92%, they probably won’t say it’s easy.
Meb Faber, a co-founder and Chief Investment Officer of Cambria Investment Management, with the help of Morningstar, ran the numbers over 30 years.3
Guess how many mutual funds performed over 13% per year?
Not one. Nada. Zilch.
Translation: it’s not easy for mutual funds to beat the index.
Here is Warren Buffet’s right-hand man, Charlie Munger, who paints a much different picture than Ramsey:
The indexes have caused just absolute agony among the intelligent investment professionals because basically 95 percent of the people have almost no chance of beating it over time…and yet all the people expect, if they have some money, they can hire somebody who will let them beat the indexes. And, of course, the honest, sensible people know they’re selling something they can’t quite deliver and that has to be agony. Most people handle that with denial. They think that it will be better next year or they just don’t want to think about it. I mean, I don’t want to think of my own death either, but it’s a terrible problem, beating those indexes.4
While Mr. Ramsey thinks it’s easy to beat the index, Mr. Munger thinks most have almost no chance of beating it.
The Wall Street Journal’s prolific financial columnist Jason Zweig responded directly to Ramsey’s statements much more concisely.
Wait for it….
With a poop emoticon.5
Ahh, the glories of Twitter…er…X.
The lesson in all this is clearly not: don’t trust anything Dave Ramsey says. He’s improved many financially.
Wisdom is found in that old proverb: take the meat and spit out the bones.
This goes for any guru and celebrity in whatever sphere. Their words are not Law and are worth testing.
And that particular riff from Ramsey looks like a monstrous mouthful of bones.
- Tweeted September 25, 2023 10:54am. Accessed online: https://twitter.com/MebFaber/status/1706366679750676559
- S&P Dow Jones Indices. SPIVA | S&P Dow Jones Indices
- See footnote 1.
- Charlie Munger: 95% of People Have No Chance of Beating The S&P 500 Index | DJ 2017 【C:C.M Ep.255】
- Tweeted September 22, 2023 8:09am. Accessed online: https://twitter.com/jasonzweigwsj/status/1705237812025397407