Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 10-31-2009, 08:30 PM   #81
Recycles dryer sheets
 
Join Date: Sep 2009
Posts: 353
Quote:
Originally Posted by DblDoc View Post
Well Buffet runs a corporation - he is not an investment manager. Cramer is an entertainer, his stock picks appear to be mostly momentum plays that quickly sour. That leaves Lynch. Maybe he was as good as proponents of active management believe, but as you point out you would have to recognize that early in his carrier in order to take advantage. I know that I can't so I moved on to an investment strategy that I can understand and doesn't rely on someone else.

DD
Does not matter what Buffet is currently doing. He could be a genitor for all I care. What's important is whether he demonstrated that he can pick stocks better than indexes over the course of many years. And I think he did (judging by his investment picks, not by his companies he manages).

Same with Cramer. He might be an entertainer now - but he claims his fund returned 24% AFTER fees over many years way outperforming the benchmarks. So, IF that's true (and I guess it should be easily disprovable if it's not?), again, he would be an example of someone who demonstrated stock picking abilities over the indexing.

I have no problem with people not trying to pick above-average stock-pickers because it might be too hard, but I tend to think they exist and quite a few of them - the best ones we hear about, the not-so-good-above-index-returners ones are greater in numbers but they are still "above-index-returners"...
__________________

__________________
smjsl is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-31-2009, 08:43 PM   #82
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,099
Quote:
Originally Posted by smjsl View Post
Does not matter what Buffet is currently doing. He could be a genitor for all I care.
He is - times three. Definition of Genitor
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 10-31-2009, 09:25 PM   #83
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by smjsl View Post
The issue is can you identify the more skillful ones before their funds are closed or they go into retirement. I don't know.
The answer to that question is pretty obviously "no". There isn't even a metric you can use that doesn't involve waiting around for 10 years and then crossing your fingers and hoping that whatever the manager did in the past will continue to work in the future. See "Bill Miller" for a tutorial on how that works out.
__________________
Gone4Good is offline   Reply With Quote
Old 10-31-2009, 09:30 PM   #84
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by smjsl View Post
the best ones we hear about, the not-so-good-above-index-returners ones are greater in numbers but they are still "above-index-returners"...
Except no one has ever found any evidence that this is true. Its been studied to death and the results consistently show an inconsistency in the top performers. We all want it to be otherwise. The whole industry is based on that notion. But the manager who consistently delivers "above-index-returns" is like Big Foot and the Loch Ness Monster. People believe desperately they exist, even if no one has ever been able to prove it.
__________________
Gone4Good is offline   Reply With Quote
Old 10-31-2009, 09:48 PM   #85
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by smjsl View Post
Same with Cramer. He might be an entertainer now - but he claims his fund returned 24% AFTER fees over many years way outperforming the benchmarks. So, IF that's true (and I guess it should be easily disprovable if it's not?), again, he would be an example of someone who demonstrated stock picking abilities over the indexing.
Don't you think Cramer, or anybody else who could prove to investors that they could reliably produce returns in the vicinity of 24% per year in the future, would just about own the world? Even if he just used his own money, doubling it every 3 years like this would make him fabulously rich. But, if he really believed in himself, he could leverage his positions (using options and/or margin) and literally own the United States in a couple of decades. He'd be sought after by all of the world's powerful people. But, instead he's doing schtick on cable TV and sweating like a pig. Explanation? If someone DID do well in the past (and this is harder to verify than you might think) he must lack faith in his own ability to continue doing it (explaining why he won't leverage his positions) and he can't convince others that his ability is real (so he can't use their money). If both of these are true, why would you invest with this guru? If others think he's either just lucky or a fake, how will you know better than they do?

But, please feel free to pay an active manager who will look for the best stocks. They are out there in droves and they need your money. A few will be superstars, and they'll be clearly evident (in retrospect). As . . . Yrs to Go mentioned earlier in the thread, active managers/stock pickers are extremely important to the continued success of indexing, so everyone who pays for active management (including me) helps those who index (including me).
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 10-31-2009, 11:28 PM   #86
Recycles dryer sheets
 
Join Date: Sep 2009
Posts: 353
@samclem: Good thoughts. Let me make some counter points. 24% over 20 years will get you a factor of 74. If Cramer started with 10M of his own money (although if I recall correctly he did not have anywhere close to that when he started), he would now have ~740M, which does not seem unreasonable at all. Why does not he just continue? It's hard work for him - he burnt out as he says it himself. Does he doubt himself? All the time. I suspect all great investors doubt themselves all the time, but at least he is pretty clear that he does. I think that's the nature of the business.

Then again, you could be right - maybe he is just openly lying about his results all the time...

@YrsToGo: thanks for Bill Miller reference. Interesting example!
You are saying finding good managers cannot be done. I think it's hard to prove something cannot be done ;-) Many studies you refence include looking at best performers. I actually think ERD50 had a very interesting thought on that below...

Quote:
Originally Posted by ERD50 View Post
I'd actually be more interested in funds that did a little better (after expenses) than the market. That might actually be an edge that could be attributed to talented management (if there is such a thing) in some cases. But I think the top ten were more likely in the right place at the right time just due to the nature of the fund, and will not be repeated (might even be a contrary indicator).
__________________
smjsl is offline   Reply With Quote
Old 11-01-2009, 05:34 AM   #87
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by . . . Yrs to Go View Post
Except no one has ever found any evidence that this is true. Its been studied to death and the results consistently show an inconsistency in the top performers. We all want it to be otherwise. The whole industry is based on that notion. But the manager who consistently delivers "above-index-returns" is like Big Foot and the Loch Ness Monster. People believe desperately they exist, even if no one has ever been able to prove it.

I have mostly stayed out of this thread, since I think I have argued my points before. However, what you say simply isn't true.

What has been studied to death is the performance of mutual funds and to a much lesser extent the performance of individual investors in the aggregate.

I have yet to see any academic study which measures the performance of top money managers as opposed to mutual funds over long period of times. The most recent studies such as this one, in fact show that the top 10% of individual investor earn an average of 8% per year more than the bottom 10%. The author's attribute this to individual investor being skillful at identifying and exploiting market inefficiencies rather than just lucky.

As far professional managers go, Warren Buffett himself showed pretty convincing data that he and other students of Ben Graham were able to out perform the market over long periods of time. The story is told well in the Buffett biography Snowball.

The difference between studying the long term performance of actively managed mutual fund vs passive funds and the individuals who manage them is important.

By way of analogy think of a sport team with athletes instead of stocks. It is almost as easy to find the star companies such as Google, Apple, Goldman Sachs, Southwest Airlines as it is to identify star athletes like A Rod, Kobe Bryant, and Brett Farve. The tough task when assembling a team/portfolio is to figure out which athletes/stocks are under priced relative to their potential contribution.

Now imagine academics decide to study pro sports franchise. The first thing the academics would find is that on average sport franchise win 50% of their games, although because survivor bias it slightly higher for existing teams . However, they would surprise many people when they showed that in all of pro sports there are only three franchises (Yankees, Lakers, Celtics) who have a statistically significant winning records. (Disclaimer, I researched this a few years ago I am no sports authority but I believe this is correct.). The academics might recommend that owners can save money by minimizing management expenses. For example fire the scouts and use pooled scouting reports, don't hire expensive coaches or general manager etc. Now these recommendations would make sense based on simply studying the records of the average sports team/mutual fund.

Of course these recommendations would be meet with derision and laughter. Because what the academics neglected to study was the records of individual coaches. If they had looked at coaches records that would find scores of coaches who had lifetime winning records over 70% (and much of the success of teams like Lakers is because of coaches like Phil Jackson). Now it is possible that some academics might argue that like a million monkey, some coach statistically are going to be able to win 70 or 75% of their. However, after a bit of study I suspect that most academics would acknowledge that these winning coaches "outperform the index", add alpha, and collect championship rings based more on skill than luck.

Now the analogy breaks down a bit because a coach has two jobs, buying and selling talent, and then using that talent to win games. Where as the money manager job is simply buying and selling stocks. But few would argue that great coaches aren't very skilled in valuing talent, (e.g. Madden was famous for signing old athletes for small salaries to get one or two more years out of the, much the same way Ben Graham/Buffett would buy out of favor stocks on the cheap, "finding cigar butts is Buffett's expression) .

However, where I think the analogy is valuable is this. We should NOT generalize the admittedly poor performance of actively managed mutual funds, and conclude that individuals managers can't deliver "above-index-returns. If you are looking for the Loch Ness monster by monitoring similar lakes but never actually watch the Loch Ness lake you haven't proved anything. I think common sense says that stock picking is a skill and some people are better at than others.

Now how one goes about figuring who is truly skilled at managing money, and who is just lucky, is a huge problem.
__________________
clifp is offline   Reply With Quote
Old 11-01-2009, 08:40 AM   #88
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by clifp View Post
I have yet to see any academic study which measures the performance of top money managers as opposed to mutual funds over long period of times. The most recent studies such as this one, in fact show that the top 10% of individual investor earn an average of 8% per year more than the bottom 10%.
But this study doesn't actually say what you're claiming it says. It doesn't say that these top individual investors actually outperform the market on a consistent basis. In fact, the study doesn't even seem to factor in trading costs, which is one of the big reasons why active investors lose to the market . . .

Quote:
We then construct a zero-cost trading strategy that is long the portfolio of the top quintile and short the portfolio of the bottom quintile.
What the report does say is that some investors are better than others, which isn't exactly shocking news. Some blackjack players are better than others. Big deal. The relevant question isn't whether you play better than the guy sitting next to you. It's whether you can consistently beat the house. And the answer to that question is no.

But even on the question of whether some individual investors are better than others, the study is inconclusive. It includes less than six years of data. Considering that relative style performance (growth vs. value, etc) can last a decade or more, the study can't actually distinguish whether the top quintile traders were skillful or lucky. Which might be why this report is categorized as a "working paper" rather than a full-blown peer reviewed publication.

On the point regarding actively manged mutual funds, though, the "working paper" agrees with me . . .

Quote:
Most studies of mutual funds find that the abnormal performance of the average funds lags that of the overall market. Similarly, only limited evidence exists suggesting that those funds that outperform can be expected to continue to do so in the future.
__________________
Gone4Good is offline   Reply With Quote
Old 11-01-2009, 08:50 AM   #89
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Buffet seems to have a pretty cold hand this year.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 11-01-2009, 09:47 AM   #90
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by smjsl View Post
@samclem: Good thoughts. Let me make some counter points. 24% over 20 years will get you a factor of 74. If Cramer started with 10M of his own money (although if I recall correctly he did not have anywhere close to that when he started), he would now have ~740M, which does not seem unreasonable at all.
Except in the hedge fund world of 2% plus 20%, that isn't how the math works . . .

Quote:
Last year wasn't the best year for hedge funds, but the 25 top earners still managed to pull in a cool $11.6 billion in compensation. Yes, $11.6 billion. Between 25 people.
Richest Hedge Fund Managers Still Rich - Daily Brief - Portfolio.com

I share Samclem's skepticism that a hedge fund manager generating 24% annual returns would give up a shot at billions in favor of being a punching bag for the likes of John Stewart. Not impossible, but highly questionable.

The other thing I wonder, if it is possible to consistently beat the market, why is it that over the course of about 100 years only two guys (Buffett and Lynch) are offered up as examples of folks who have done it. With about 8,000 mutual funds out there, you'd think we'd have a list of at least 100 managers (1%) who could claim the market beating title. But instead, such names are scarcer than UFOs.
__________________
Gone4Good is offline   Reply With Quote
Old 11-01-2009, 10:10 AM   #91
Recycles dryer sheets
 
Join Date: Sep 2009
Posts: 353
Quote:
Originally Posted by . . . Yrs to Go View Post
Except in the hedge fund world of 2% plus 20%, that isn't how the math works . . .
What do you mean?

Quote:
Originally Posted by . . . Yrs to Go
The other thing I wonder, if it is possible to consistently beat the market, why is it that over the course of about 100 years only two guys (Buffett and Lynch) are offered up as examples of folks who have done it. With about 8,000 mutual funds out there, you'd think we'd have a list of at least 100 managers (1%) who could claim the market beating title. But instead, such names are scarcer than UFOs.
Buffett and Lynch are just most well known ones. Just because there are a few stars, does not mean there aren't many more better-than-average actors.
__________________
smjsl is offline   Reply With Quote
Old 11-01-2009, 10:13 AM   #92
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by smjsl View Post
What do you mean?
Hedge funds routinely charge fees of 2% of assets plus 20% of returns. Some funds charge much more.

Quote:
Originally Posted by smjsl View Post
Buffett and Lynch are just most well known ones. Just because there are a few stars, does not mean there aren't many more better-than-average actors.
But wouldn't fund companies aggressively advertise these people. Wouldn't they all be household names?
__________________
Gone4Good is offline   Reply With Quote
Old 11-01-2009, 10:34 AM   #93
Recycles dryer sheets
 
Join Date: Sep 2009
Posts: 353
Quote:
Originally Posted by . . . Yrs to Go View Post
Hedge funds routinely charge fees of 2% of assets plus 20% of returns. Some funds charge much more.
Yes, I know that part, but so what? Claimed 24% was quoted AFTER fees. So how does it affect the math?

Quote:
Originally Posted by . . . Yrs to Go
But wouldn't fund companies aggressively advertise these people. Wouldn't they all be household names?
I think there is no lack of advertisements. Look at any investment letter, listen to any financial advisor, look at any fund literature. They all tout themselves one way or the other. There is too much advertisements and we just don't believe them :-)
__________________
smjsl is offline   Reply With Quote
Old 11-01-2009, 10:39 AM   #94
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by . . . Yrs to Go View Post
But wouldn't fund companies aggressively advertise these people. Wouldn't they all be household names?
No, apparently they jump from fund to fund in secret and no one is able to study their individual returns. But some are fantastic. It's amazing that the successful ones have agreed to keep it a secret, but apparently they do. They have some sort of guild or something.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 11-01-2009, 11:04 AM   #95
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Quote:
Originally Posted by smjsl View Post
Yes, I know that part, but so what? Claimed 24% was quoted AFTER fees. So how does it affect the math?
Because the value to him isn't based on how much money he personally invested. It's based on how much money he can attract into his fund. So while it might be impossible to become a billionaire investing for his own account if his starting balance was small, it might only take a decade or so if he's working with other people's money.

For example, if he's got $5MM invested in his own $1B hedge fund that returns 24%. His personal investment increases $860K after fees. But his fee income from the fund is $68MM (a portion of which gets paid to overhead). But its pretty clear that it is much better to run a hedge fund than to invest in one.

Oh, by the way. If next year the fund tanks 50% . . . the hedge fund manager still collects his 2% (~$12MM) on the diminished value of people's investments that have now been locked up and prevented from being withdrawn.

That's what I call "market beating returns".
__________________
Gone4Good is offline   Reply With Quote
Old 11-01-2009, 12:11 PM   #96
Recycles dryer sheets
 
Join Date: Sep 2009
Posts: 353
@Yrs to Go: I see what you mean. All true and probably while he did not have initial 10M to invest, he made way way more than that in fees over years and not in investing in the fund. Still, the point is whether there is a contradiction in him making 24% after fees for investors and him now "owning" US. I don't think so.

Overall, I agree about the strange fee structure. I can't imagine paying anyone 20% of "possible" gains and 2% in case of losses... Even to Buffett (unless of course I could go back in time and start from there). But apparently a whole hedge fund industry is based exactly on just that! Perhaps they know something we don't? Of course the only well-known well-publisized explanation we have is that all those rich investors are all dumb - makes it easier for us to sleep at night :-)
__________________
smjsl is offline   Reply With Quote
Old 11-01-2009, 12:24 PM   #97
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,689
If all the academic types have proven there is no advantage to trying to do anything other than passive index investing why then do they outsource their fund management pay massive management fees and earn returns over the long run over any market averages?

Here is Harvard's Investment Philosophy, they certainly are not indexers:
Harvard Management Company - Investment Philosophy


And for Yale, David Swenson who advocates individuals only by index funds, for his job selects managers for investment philosophy as he feels this is an "art"
Money-Rx Blog: David Swensen - CIO, Yale Endowment

I think if these institutions who push on the masses you can't outthink the market get enough money in the indexes they will be able to greatly outperform because of the lack of competing capital for truly good ideas that are not in an index. And they seem to have a methodology to pick managers as well, in fact these high institutions feel it is paramount to the universities long term success.

The idea that one can succeed in investing, in fact the belief that you can actually outperform someone who works on this all day long without applying any knowledge has changed the investing landscape. When the value of what you are investing in becomes irrelevant then instead of actually being more rational the investors will become much more susceptible to panic when the results are not in line with which the academics such as David Swenson or Jeremy Siegel purports. There is in reality a very short time frame to show what the effect of index investing incurs on long term investing returns and the so called beneficial aspect of investing in individual index classes without any thought into the value beyond "diversification".
__________________
Running_Man is offline   Reply With Quote
Old 11-01-2009, 04:39 PM   #98
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by . . . Yrs to Go View Post
But this study doesn't actually say what you're claiming it says. It doesn't say that these top individual investors actually outperform the market on a consistent basis. In fact, the study doesn't even seem to factor in trading costs, which is one of the big reasons why active investors lose to the market . . .
I think it does. Here is the conclusion

Quote:
Conclusion
Recent literature has emphasized that on average individual investors are misguided in their trades. We provide evidence here that some individual investors are persistently able to beat the market. Traders that can be classified among the top 10 percent (based on the performance of their other trades) buy stocks that earn abnormal returns of between 12 and 15 basis points per day during the following week. These findings are robust to different forms of risk adjustment, to the removal of small stocks from the sample, and to the removal of any firms in which the account has
traded more than once. Similarly, there are also individual investors who consistently place underperforming trades. Traders classified among the bottom 10 percent of all traders place trades that can expect to lose up to 12 basis points per day during the subsequent week. In long horizon (holding period) returns, successful investors outperform unsuccessful investors by about eight percent per year. A trading strategy
that exploits the information in investors’ trades earns risk-adjusted returns of about five basis points per day. [Note 5 basis point a day = 18.3% a year not all that different than 24% smjsl is talking about]
....
Finally, this evidence does not support the efficient market hypothesis. The ability of individual traders at a discount brokerage to select outperforming companies is not confined to small firms or to only a few firms in which the traders transact frequently;and some investors persistently trade so as to underperform. These findings suggest
that investors’ persistent abnormal performance is not derived primarily from trading on inside information. The ability of some individual investors to achieve persistent abnormal performance implies a violation of semi-strong form market efficiency. An interesting further question is whether large brokerage firms are aware of the value of the information contained in their customers’ trades.
The paper also talks about other studies that showed individual investors who did well.
Quote:
However, not all individual traders do poorly in their investments. Indeed, as Barber and Odean (2000) note, the top-performing quartile of the individual accounts in their dataset outperform the market on average by 0.5 percent per month. Ivkovich and Weisbenner (2005) find that individual investors generate relatively high returns when purchasing the stocks of companies close to their homes compared to the stocks
of distant companies. Ivkovich, Sialm and Weisbenner (2005) find that individuals with relatively concentrated portfolios outperform those that are more diversified,
Regarding trading costs, I think one of the things that use to be relevant but is increasingly irrelevant. Schwab charges me $8.95/trade pretty typical for a discount broker, the bid and ask spread is generally $.01. I generally buy 1,000 shares at time ($10 spread cost). So it cost $40 to buy AND sell a stock, on a $20 stock this is .02% and my portfolio turnover is about 30%/year putting my trading cost considerably lower than even Vanguard index funds. The relevant figure for the study was average transaction $8500 and an average 378 day holding period or an ER of .05% again lower than index funds. (As an aside individual trading cost are so low now that somebody with a multi-million portfolio can save money over the long term by purchasing the 500 stocks in the S&P 500 and then making the 3 or 4 trades a years vs buying VFINX)


Quote:
What the report does say is that some investors are better than others, which isn't exactly shocking news. Some blackjack players are better than others. Big deal. The relevant question isn't whether you play better than the guy sitting next to you. It's whether you can consistently beat the house. And the answer to that question is no.
Thank you for proving my point. EMH says that skills of individual investor are irrelevant because the market has priced in all relevant information. The study shows many individual investors do much worse than the market, logically meaning that some do much better.

As for blackjack, there plenty of books, movies (e.g. "21") documenting how skilled blackjack players have millions playing blackjack. You don't even need to count cards, about 6 years ago I made $15,000 one summer playing blackjack, by exploiting promotional money early online casinos were giving away. I didn't do it by making one big score but rather by winning an ~$100 from more than 100 online casinos. No great skill was required just good math skills and persistence (I played probably 100,000 hands of blackjack.) Just because the house has structural advantage, and the average blackjack player is an idiot doesn't mean that a skilled player can't take advantage of short-term opportunity. The same thing is true for the stock market. Skilled players can do better than average.


Quote:
But even on the question of whether some individual investors are better than others, the study is inconclusive. It includes less than six years of data. Considering that relative style performance (growth vs. value, etc) can last a decade or more, the study can't actually distinguish whether the top quintile traders were skillful or lucky. Which might be why this report is categorized as a "working paper" rather than a full-blown peer reviewed publication.

On the point regarding actively manged mutual funds, though, the "working paper" agrees with me . . .
Yes I agree six years is too short a time, and it would be fascinating to see how the top 10% performed in 2008. I noticed that most of the folks portfolios on this board declined less than market indexes. Somewhat surprising because we have so many index fans...

Again I am not arguing that active mutual funds are better than index funds, I agree they are far worse. I am simply saying the studies about mutual funds are irrelevant in trying to figure out if the top money managers/individual investors are able to outperform the market over long periods of time. Just like coaches switch teams, money manager switch mutual funds.
__________________
clifp is offline   Reply With Quote
Old 11-01-2009, 04:50 PM   #99
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
Quote:
Originally Posted by Running_Man View Post
If all the academic types have proven there is no advantage to trying to do anything other than passive index investing why then do they outsource their fund management pay massive management fees and earn returns over the long run over any market averages?

Here is Harvard's Investment Philosophy, they certainly are not indexers:
Harvard Management Company - Investment Philosophy


And for Yale, David Swenson who advocates individuals only by index funds, for his job selects managers for investment philosophy as he feels this is an "art"
Money-Rx Blog: David Swensen - CIO, Yale Endowment

I think if these institutions who push on the masses you can't outthink the market get enough money in the indexes they will be able to greatly outperform because of the lack of competing capital for truly good ideas that are not in an index. And they seem to have a methodology to pick managers as well, in fact these high institutions feel it is paramount to the universities long term success.

The idea that one can succeed in investing, in fact the belief that you can actually outperform someone who works on this all day long without applying any knowledge has changed the investing landscape. When the value of what you are investing in becomes irrelevant then instead of actually being more rational the investors will become much more susceptible to panic when the results are not in line with which the academics such as David Swenson or Jeremy Siegel purports. There is in reality a very short time frame to show what the effect of index investing incurs on long term investing returns and the so called beneficial aspect of investing in individual index classes without any thought into the value beyond "diversification".
Uhhhmmm, have you heard about how well the Yale and Harvard endowments did this past 18 months? Needless to say there have been "shake-ups" in management and a "new" investment philosophy going forward http://www.nytimes.com/2009/09/11/bu...11harvard.html .

DD
__________________
At 54% of FIRE target
DblDoc is offline   Reply With Quote
Old 11-01-2009, 05:03 PM   #100
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by samclem View Post
No, apparently they jump from fund to fund in secret and no one is able to study their individual returns. But some are fantastic. It's amazing that the successful ones have agreed to keep it a secret, but apparently they do. They have some sort of guild or something.

I think you are being sarcastic but in fact I think you are right.

There are a huge incentives for financial firms to keep the performance of their best traders quite. If Joe at Citigroup is a super star trader, we certainly don't want word to get out or the folks at Goldman Sachs well be over there to double his salary. In fact we know that confidentiality agreements and lawsuits over poaching are pretty common occurrences on Wall St.

Let's say Joe moves to Goldman, over the next ten years Joe collects annual bonuses of say $10 million/year several times more than the average trader. My question to Sam, Years to Run and other is this.

Given your guys hypothesis that is petty much impossible for an individual money manager to outperform the market over long periods of time.

Why is Goldman paying Joe so much money? Is it because Goldman is filled with financial idiots who care nothing about spending the firms money? Or is it possible that Goldman'scompensation executives actually know something that we don't?
__________________

__________________
clifp is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Active vs passive equity investing MichaelB FIRE and Money 13 06-21-2009 09:07 AM
More evidence from the Active-Passive debate ats5g FIRE and Money 11 10-03-2008 08:47 PM
More to passive investing that just ER... mickeyd FIRE and Money 0 04-13-2008 11:46 AM
(FAQ archive): Invididual Stocks vs. Funds/Active Funds vs. Passive Funds Nords Early Retirement FAQs 0 10-22-2007 04:07 PM
Active management for free with Edgar lazyday FIRE and Money 7 04-05-2005 05:21 AM

 

 
All times are GMT -6. The time now is 09:40 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.