"I see dead people" - and they are the best investors!

[ERD50]

I recently came across this guy's work, though I think someone posted quite a while ago about a blog he did about "how I failed my daughter". That was good, but didn't really grab me.

But I think this one is really good, and loved the way he makes his point at 30:14 in the video (the link should take you to that point).

He says that Fidelity did a study, and their fund investors on average, did worse than the fund itself. Now that seems odd, but it was apparently due to getting in/out of the market at the wrong time.

They dug deeper, and found a subset that did better than average, and managed to match the total return of the fund. They found that this subset consisted of a high percentage of dead people. Dead people don't try to time the market! I thought that was pretty good.

JL Collins: "The Simple Path to Wealth" | Talks at Google

https://youtu.be/T71ibcZAX3I?t=1814

-ERD50

 

[Red Badger]

I recently came across this guy's work, though I think someone posted quite a while ago about a blog he did about "how I failed my daughter". That was good, but didn't really grab me.

But I think this one is really good, and loved the way he makes his point at 30:14 in the video (the link should take you to that point).

He says that Fidelity did a study, and their fund investors on average, did worse than the fund itself. Now that seems odd, but it was apparently due to getting in/out of the market at the wrong time.

They dug deeper, and found a subset that did better than average, and managed to match the total return of the fund. They found that this subset consisted of a high percentage of dead people. Dead people don't try to time the market! I thought that was pretty good.

JL Collins: "The Simple Path to Wealth" | Talks at Google

https://youtu.be/T71ibcZAX3I?t=1814

-ERD50

Like this forum, JLC helped me on the path to retirement. I don't try to time the market. I'm confident in my ability to maintain the same behavior once I'm dead.

 

[Chuckanut]

No doubt the commission based FA's and actively managed fund gurus will want to bury that finding.

 

[REWahoo]

"The best investor is a dead investor"

Maybe true, but it sure sounds politically incorrect.

 

[ckelly78z]

Dead men tell no lies either !

It takes real patience not to jump when the market takes a dive, and discipline to stay the course.

 

[Chuckanut]

It takes real patience not to jump when the market takes a dive, and discipline to stay the course.

+1

The legendary John Templeton made quite a fortune by purchasing $100 worth of every stock that sold for less than $1 a share during the 1937 recession.

https://khronology.com/2019/05/26/john-templeton-and-the-recession-of-1937/

John Templeton had no fear though. Contrary to his contemporaries, in 1939, Templeton purchased $100 worth of every stock that was trading below $1 per share on the New York and American stock exchanges. Four years later he would sell those shares for four times the price he paid for them.

 

[NW-Bound]

Templeton is a hero of mine. But if you think about it, he was not a buy-and-holder, nor an indexer. He was always a stock picker.

About the legendary story of buying cheap stocks, Templeton bought $10,000 worth of stocks that traded below $1 in 1939, at the early stages of Hitler's Blitzkrieg and after a decade of economic problems. That showed that he was a value-stock investor, something he always was in his career. In all, he bought $100 worth of each of 104 different stocks, of which 37 were already in bankruptcy. Crazy, eh?

Also, he was not a buy-and-holder. Of those stocks that he bought, they said that the average holding period was 4 years, and overall he did turn the $10,000 into $40,000. Being a value investor, he sold when his stocks became fairly valued or overvalued. He did not hang on, hoping for even more.

A Web site talked about how Templeton picked those 1939 stocks.

In 1939, Templeton had anticipated that once the United States would be drawn into the war, the government would come up with a wartime tax on excess profits, like they had done in the past. This tax would hurt the profitable companies more than Templeton's bargain basement stocks, where there was usually not much to tax anyway. This turned out to be one of many instances where Templeton had done his homework just a little better than the average investor, saw what others didn’t see, made a sound decision and had the courage to act.

A historical chart of the Dow Jones that covers the above period is shown below. Templeton did beat soundly the market from 1939 to 1943, which was flat in this period.

Here's his record as a money manager: from 1954 to Templeton's retirement in 1992, the Templeton Growth Fund returned a 16% CAGR after fees.

Of course it is not easy to be like Templeton.

 

[ERD50]

Templeton is a hero of mine. But if you think about it, he was not a buy-and-holder, nor an indexer. He was always a stock picker. ....


A historical chart of the Dow Jones that covers the above period is shown below. Templeton did beat soundly the market from 1939 to 1943, which was flat in this period. ...

And John Templeton is dead. Kinda proves this guy's point, doesn't it?

https://en.wikipedia.org/wiki/John_Templeton

-ERD50

 

[OldShooter]

... Templeton did beat the market from 1939 to 1943. ...

There's a reason for that and IMO there is also a reason that stock picking no longer works.

When Templeton was active (and when Buffett was his most successful) the stock market was much less efficient than it has become. Information propagated slowly and selectively. Communication was slow. In an inefficient market the person with the most information wins. "Snowball," the authorized bio of Buffett, describes the hours he spent studying Moody's (paper) Stock Manuals and his practice of actually visiting the Standard & Poor's offices and the offices of the SEC. He was looking for, and occasionally finding, companies that his mentor Benjamin Graham called "cigar butts." i.e., Value.

Charles Ellis in "Winning the Loser's Game" argues convincingly that the days of the inefficient market are over. Communication is near-instantaneous, 10,000 mutual funds are chasing 3,600 US stocks, and all the genius mathematicians are simply cancelling each other out. This leaves an efficient market where future prices are driven by random future events. Most of Modern Portfolio Theory is predicated on random stock price behavior -- and it got Markowitz a Nobel.

So, if I believe Ellis, Templeton's days have passed.

 

[NW-Bound]

Yes, Templeton is dead.

I have not found a way to check the statement that "from 1954 to Templeton's retirement in 1992, the Templeton Growth Fund returned a 16% CAGR after fees", but that would turn $1M into $281M after 38 years.

What is the market return in those 38 years? A meager $12.22M. Templeton's return is 23x higher!

 

[NW-Bound]

In 2000, stocks were already traded online, and the market was already quite "efficient" as news and info were published in real-time on the Web.

It was also the time of the dot-coms, and people were talking about the "New Economy" and the death of "brick-and-mortar" businesses.

Templeton was already retired, but he could not sit still during this mania. He shorted some dot-coms, and made $90M for himself, even though he did not need the money.

In an interview afterwards, he said jokingly that his business was to "help" people. When investors clamored to buy, he helped them out by selling stocks to them, even selling short.

Templeton would not care for any Nobel prize. He knew a mania when he saw one. He did get knighted by Queen Elizabeth for his charity work.

“This is the only time in my 88 years when I saw technology stocks go to 100 times earnings; or, when there were no earnings, 20 times sales,” Templeton, who had reportedly shorted 84 Nasdaq stocks, explained in 2001. “It was insane, and I took advantage of the temporary insanity.”

 

[athena53]

Dead men tell no lies either !

It takes real patience not to jump when the market takes a dive, and discipline to stay the course.

I think that part is still true. When I hear of people who "lost all their savings" in a market drop, assuming they weren't dealing in naked options or holding their assets 100% in a now-bankrupt employer's stock, it's usually because they panicked and sold when it was down.

It also takes some insight not to pile in and buy what everyone else is buying. One of my favorite Buffet quotes: "When others are cautious, be greedy. And when others are greedy, be cautious."

 

[NW-Bound]

... It also takes some insight not to pile in and buy what everyone else is buying. One of my favorite Buffet quotes: "When others are cautious, be greedy. And when others are greedy, be cautious."

People also believe in "strength in numbers". If you do whatever others do, it's safe.

Here's a funny story. In a past election, the husband of my sister-in-law asked me who got my vote. I told him, then added that I did not think this candidate would win. He blurted out "Then why vote for him?"

I thought that was funny. This man believed that we were supposed to vote with the crowd.

 

[LOL!]

He says that Fidelity did a study, and their fund investors on average, did worse than the fund itself. Now that seems odd, but it was apparently due to getting in/out of the market at the wrong time.

They dug deeper, and found a subset that did better than average, and managed to match the total return of the fund. They found that this subset consisted of a high percentage of dead people. Dead people don't try to time the market! I thought that was pretty good.

This is urban myth. There was no Fidelity study. Please read
https://www.nytimes.com/2016/08/06/your-money/401k-retirement-plan-investment-stock-markets.html

Fidelity, which has received inquiries about the study ever since, without knowing why, told me this week that it had never produced such a study.

Yes, I am a member of the internet police and I am trying to nip Fake News in the bud.

 

[dtbach]

This is urban myth. There was no Fidelity study. Please read
https://www.nytimes.com/2016/08/06/your-money/401k-retirement-plan-investment-stock-markets.html

Yes, I am a member of the internet police and I am trying to nip Fake News in the bud.

Kudos to you sir. I owned Templeton for a number of years and they never claimed that good of a record in their literature.

 

[MichaelB]

This is urban myth. There was no Fidelity study. Please read
https://www.nytimes.com/2016/08/06/your-money/401k-retirement-plan-investment-stock-markets.html

Yes, I am a member of the internet police and I am trying to nip Fake News in the bud.

Thanks for the link.


I do recall Morningstar doing multiple analyses comparing the returns of early vs later investors in high performing funds. IIRC only the early investors earned the high performance, while later investors earned average to below average.

 

[ERD50]

This is urban myth. There was no Fidelity study. Please read
https://www.nytimes.com/2016/08/06/your-money/401k-retirement-plan-investment-stock-markets.html

Yes, I am a member of the internet police and I am trying to nip Fake News in the bud.

What? Are we gonna let a few little "facts" get in the way of a good story?

Or maybe it was Vanguard?

Hmmmm, interesting. Well, I'll be more skeptical of Mr. Collins in the future. But it does seem like I've heard that investors under-perform their funds on average - is there any data to back that up? So maybe it's a twist on an old story? But it would be good to know for sure. I'll see what I can find.

edit/add: Well, it was right in that story (at least partially):

According to Morningstar data examining 1,930 stock mutual funds over 15 years ending in June, the difference between what the funds would have delivered to steadfast investors and what the average investor (who did not hang around for that long) actually earned was 0.99 percentage points.

Not sure that's really apples-apples, that might just be people who got out (maybe they needed the money, maybe moved it?), versus staying in the market?

And it isn't hard to believe, I know some people who sold near the bottom, and I don't think enough others have figured out the "buy low - sell high" timing that it would take to move the average back up. So doing average in the market by B&H could make you above average among investors.

Now I have about 50 people I told this to over the Labor Day w/e that I need to contact and update. <j/k>

-ERD50

 

[GravitySucks]

It's cheap to be dead. It's the pulling money out to live on that reduces my pile
.

 

[LOL!]

What? Are we gonna let a few little "facts" get in the way of a good story?
...

Now I have about 50 people I told this to over the Labor Day w/e that I need to contact and update. <j/k>

-ERD50

Just tell them that the story you read had the Fidelity study wrong:

The investors that had the best performance were not dead, but they were the ones whose Fidelity advisors had died.

 

[NW-Bound]

It's cheap to be dead. It's the pulling money out to live on that reduces my pile
.

I am sure that there are plenty of good-weather investors who buy high/sell low.

The problem is how to tell those from the poor retirees who simply have to withdraw money to convert to food.

Or do we say that they are supposed to sell bonds for food, and even rebalance bonds into stocks?

But what if their WR is higher than 4%, and they could not help selling some stocks?

Then, remember that in a long long bull market like we had during 1982-2000, anyone who rebalanced from bonds to stocks ended up trailing those who kept 100% stock. Do we call them dumb for selling high, just to see stocks go even higher?

This stuff is never that simple.

 

[NW-Bound]

... I owned Templeton for a number of years and they never claimed that good of a record in their literature.

Regarding Templeton Growth Fund performance, Morningstar says that from the end of 1954 to the end of 1992 when Sir Templeton retired, an initial $10K investment would have grown to $1,762,357. That's a return of 176x over 38 years, or 14.6% annual compounded rate.

That 14.6% number agreed with the 14.5% number I saw on a Web site about Templeton's performance, but falls short of the 16% number I quoted earlier from another Web site.

The 14.6% is still astounding, compared to the 12.22x over 38 years or 6.8% per year of the US market.

How did Templeton do it? He was the first global investor, and looked for bargains in the international market. He even said this about Buffett:

Buffett... has been focused primarily on U.S investments. That is strange. To that extent, I think he’s short-sighted – or small-sighted. Small-sighted, I think. If he had spent more time in foreign nations, he would be better off.

 

[NW-Bound]

From 1992 till now, Templeton Fund's performance is not all that great, and currently trailing the S&P.

Would it do better if Templeton himself were still at the helm? Who knows? He is dead, and probably would not care to keep on proving himself if he were still alive.

But I really admire his last performance of shorting dotcoms in 2000 for himself, just because he could not see this silly mania and sit still. Yes, Templeton is my hero.

 

[RISP]

And it isn't hard to believe, I know some people who sold near the bottom, and I don't think enough others have figured out the "buy low - sell high" timing that it would take to move the average back up. So doing average in the market by B&H could make you above average among investors.

Um, every time one person sells, another person buys, right? If the average (median?) investor trails the fund's performance, that can only mean many small fish sell to few large sharks in times of distress. That, or transaction costs.

 

[ERD50]

Um, every time one person sells, another person buys, right? If the average (median?) investor trails the fund's performance, that can only mean many small fish sell to few large sharks in times of distress. That, or transaction costs.

I think the explanation for that is this applies to the fund itself, not the market as a whole. IOW, when a fund investor sells from that fund near the top, he is selling into the entire market, he is not selling to another owner of that same fund.

Does that make sense (and that is a question, I'm pretty sure that's correct, but I'm not 100% sure)?

-ERD50

 

[RISP]

I think the explanation for that is this applies to the fund itself, not the market as a whole. IOW, when a fund investor sells from that fund near the top, he is selling into the entire market, he is not selling to another owner of that same fund.

Does that make sense (and that is a question, I'm pretty sure that's correct, but I'm not 100% sure)?

-ERD50

No, that doesn't make sense to me. One person is selling shares in the fund, one person is purchasing them. Doesn't matter if the latter were invested in the fund already beforehand, or not. But let's hear what others think. Wouldn't be the first time I was wrong.