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Old 07-07-2014, 02:45 PM   #21
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Investment managers in hedge funds and private equity take home 1% or 2% / 20% carry. Same thing for various insurance companies.

Investment banks take home windfall profits from IPOs. The founders and capital backers too.

Top management of large corporates get a slice through stock options.

HFT firms take a tiny slice. Brokers as well.

Even vanguard gets a litte bit

And then of course the tax men in various countries. As a foreigner I lose for example 15% of all dividend returns in the US due to withholding taxes. Not sure if that's included.
The MF return numbers do not include income taxes as these depend on the individual investor financial situation. However, they are already net of all market "friction losses". And then, the average guy manages to catch only a fraction of that MF return.

If you go to Morningstar and look at some MFs, you will see that all their investor returns over the last 15 year trailed the fund returns. All of them! Somebody's got their money. Who?

Is it the "1%"? Not the "1% in income" or "networth", but it could be. Is it a really exclusive group that we do not get to know personally? Or is it many little guys like me who beat the index over the last 15 years, and there are more guys like that than acknowledged in the media?
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Old 07-07-2014, 02:54 PM   #22
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Bonjour, sounds great. Please present your plan backed up by copious research.
I suspect financiers like Soros or the late Templeton just know how to "read" the market sentiment, and know what the "average" guy is doing.

Maybe they sell when there are too many "Wh***" or something intangible like that. That's what I like to learn, but of course even if you get close to them which is impossible, they are not going to tell.
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Old 07-07-2014, 03:04 PM   #23
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But what about those of us who think maybe we've already won the game and have no interest in taking risks to try to run up the score?

I may not have a sky box at the stadium but I've got some good seats, and I'll cheer you on.
Is the market really risk free? The last 15 years gave us some hair raising periods, and I have repeatedly shown that the S&P just recently broke even with the high in 2000. It was the recent surge that put it in the positive since that market top.

So, I do not think any of us are seating in the stadium. I feel like all of us are down there in the streets, facing the bull. I want to survive by buying-low-selling-high, while others call it rebalancing because it is the term condoned by the high priests. I think the only truly passive watchers are those in annuities or CDs.

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Old 07-07-2014, 03:14 PM   #24
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I checked my 5 year return for OAKEX. Plenty of buys and sells, probably rebalancing and added money. I don't think I veered significantly from a 5% portfolio stake. M* fund total return for 5 years ending 6/30/2014 was 16.37%, investor returns were 13.59%, my returns per Quicken were 17.34%. Yea! Guess I picked up some of that "average" investor money.

Think I'll leave it at that while I'm feeling smart.
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Old 07-07-2014, 03:15 PM   #25
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I think I recognize some of those ER posters confronting the bull in that picture.

Me, I am watching from a high perch.
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Old 07-07-2014, 03:27 PM   #26
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... M* fund total return for 5 years ending 6/30/2014 was 16.37%, investor returns were 13.59%, my returns per Quicken were 17.34%. Yea! Guess I picked up some of that "average" investor money.
That's what I have been tryin' to tell y'all.

If you got ahead in the last 15 years, with the S&P as lousy as it was, either you did some buy-low-sell-high yourself, or relied on MF managers like Wellesley to do it for you.
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Old 07-07-2014, 03:31 PM   #27
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I think I recognize some of those ER posters confronting the bull in that picture.

Me, I am watching from a high perch.
Eh, that's what you think.




And look at the bloody horns on the bull in the photo below.



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Old 07-07-2014, 03:55 PM   #28
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After looking at those photos, I'm now convinced that a sky box will be a good investment.
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Old 07-07-2014, 04:08 PM   #29
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And I just want to be in the next town, eating a filet steak and drinking rioja, while watching the mle on TV.


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Old 07-07-2014, 04:17 PM   #30
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I've been 100% VG index funds for 10+ years, making very few contributions to my stash, yet it continues to double every 7-8 years. Is it the indexing or am I just a damn good investor?
Quite likley if you take vanguards 500 fund the returns for 5 years are 18.27/pa. Using the rule of 72 you are getting between 8 and 10% Using this web site for the CAGR on the S&P 500 since 1871 you get before inflation about 10.75% and after about 8.55% Yielding a doubleing time since 1871 of about 8.5 years.
Vanguard on its index fund claims after taxes on distributions returns of 23.8 for 1 years 15.66 for 3 and 18.27 for 5 and 7.32 for 10 years.
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Old 07-07-2014, 04:35 PM   #31
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Past performance of the market can be very misleading, particularly when we have had two bear markets when the S&P loss was around 50%.

If we count from one of the bottoms until now, it looks really good.

If counting from market top to market top, or from a market top till now, it is not so good.
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Old 07-07-2014, 04:54 PM   #32
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I recently updated my chart of data from the Investment Company Institute. I think this mutual fund flow includes ETF's.

Hardly looks like a wild bull market even with the great 2013 returns :



and here is some data on a longer term picture. We are not yet seeing multiyear periods of net cash flows to equities.



EDITED: Added green bars in 1st chart to make it easier to see comparison with 2nd chart. Slight change in "extended period" statement too.
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Old 07-07-2014, 05:04 PM   #33
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Retire Early: Book Review

So
The Millionaire Next Door: The surprising secrets of America's wealthy.

...must be be wrong. Because it states:


"Page 100. "Forty-two percent of millionaires the authors interviewed for their latest survey had made no trades whatsoever in their stock portfolios in the year prior to the interview. The so called active investor is one of the more difficult types of millionaires to find for interview purposes." Frequent traders take note: buy and hold seems to create more wealth."
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Old 07-07-2014, 05:12 PM   #34
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Again, Morningstar shows the aggregate MF holders doing poorly compared to the funds' performance, including index funds. And that's for a 15-year performance.

And we all know people who bailed out at the market bottom, or piled in at the market top.

So, I have no doubt that a buy-and-hold MF investor does better than the "average" MF investor.

The question no one has the answer for is that who's got the excess return? For every guy who sells at the bottom, someone is buying that stock. Who is that?
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Old 07-07-2014, 05:20 PM   #35
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Usually institutional buyers "Smart money" get excess return that retail investors lost. Now 2009-now bull cyclical bull market "Smart money" actually missed.

I want to stress that readers here (no matter how smart/wealthy they may be) are for 99% not "Smart Money" and for them following exact AA (avoiding any kind of trading except for re-balance) is best way to make money over a long term.
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Old 07-07-2014, 05:26 PM   #36
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... following exact AA (avoiding any kind of trading except for re-balance) is best way to make money over a long term.
But rebalancing makes you buy low sell high.

And that's the way to make money when the market jumps up/down like in the past 15 years. When it went straight up like the long bull period of 1983-2000, rebalancing meant keeping on selling year after year, and you now trail the market index. You would do far better just to buy and hold.

What I am trying to say is that people tend to extrapolate from recent history as to what method will work.

I do not claim to know, and in fact realize that I do not know. So, when people claim a certain way will always work, I look in the past to see if that method is truly universal. And I am not so convinced.
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Old 07-07-2014, 05:32 PM   #37
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If you are at 30% equities it is a different rebalancing issue then if you are at 65% or above.

Anyway, I think making general investment statements is even more difficult then market timing. Investment truths are hard to come by.

Nobody has yet offered to make me whole if their advice takes me down a rat hole. I think the crash of 1987 reminded me how it's up to me to make the ultimate decisions.
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Old 07-07-2014, 05:35 PM   #38
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But rebalancing makes you buy low sell high.

And that's the way to make money when the market jumps up/down like in the past 15 years. When it went straight up like the long bull period of 1983-2000, rebalancing meant keeping on selling year after year, and you now trail the market index. You would do far better just to buy and hold.

What I am trying to say is that people tend to extrapolate from recent history as to what method will work.
Recent history was 10 year secular bear market which included 2 cyclical bull markets.

So that would suggest that current cyclical bull market is part of new born secular bull market.

Historically we get far far better then 4.30% for 15 years of S&P. We get more like 8-9%. But I don't know. I am just speculating. My AA does not require me to be "smart money" in order to make a tidy profit.
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Old 07-07-2014, 06:12 PM   #39
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If you are at 30% equities it is a different rebalancing issue then if you are at 65% or above.

Anyway, I think making general investment statements is even more difficult then market timing. Investment truths are hard to come by.

Nobody has yet offered to make me whole if their advice takes me down a rat hole. I think the crash of 1987 reminded me how it's up to me to make the ultimate decisions.
No I think making "general" statements is far easier then market timing.

If you have simple portfolio:
VTI X%
VXUS Y%
BND Z%

And you stick with it no matter what is happening, and equities are majority then over a long time you will do very well.

People who are driven by fear during sell off and by greed during Bull peaks will do poorly. Lot of retail investors behave like this and that is why they under-perform funds in which they invest.
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Old 07-07-2014, 06:12 PM   #40
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I try to maintain an AA too. It's my way to hedge. And I am a self-proclaimed market timer because I decide when to rebalance, and do not have a fixed threshold.

And gasp, I even vary the AA depending on my perception of market risk. This is before I found that it is called Tactical AA.

I guess if I posted the above in boglehead forum, they would ban me right here and now.
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