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Old 10-03-2009, 12:36 PM   #1
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The chart below reveals the thin line of managers that have beaten the benchmark over time statistically indistinguishable from zero, according to a recent study.

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Old 10-03-2009, 01:21 PM   #2
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Here's the article from which Hulbert inferred that that singularly impressive chart.

http://www.nytimes.com/2008/07/13/bu...7f3&ei=5087%0A

Unfortunately, the article tells us little more than the chart, that somebody, the authors of the paper referenced, said that there is no skill among managers of mutual funds.

It says no one was able to consistently beat the indexes. It does does define "consistent". It also does not say that no one had a lumpy record that over the full period studied beat the averages. It is silent about this. Perhaps if one found the original scientific paper this issue was addressed; I don't know and the NYT article does not make the (IMO) important distinction.

Anyway, what most people use articles and studies for is to bolster their pre-existing prejudices and attitudes, so this one should be as useful as any for that purpose.

Ha
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Old 10-03-2009, 01:40 PM   #3
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I have often wondered about Ben Graham's Postscript Chapter in The Intelligent Investor. Hitting/picking/getting lucky with the one big stock/or a very few stocks to the point of making a lifetime of returns(based on a broad index average over say 30 yrs) and walking away or just being average the rest of the time.

Two engineers I worked with back in the day - one put her kids thru college with Home Depot and the other secured his retirement with Johnson and Johnson.

heh heh heh - the Norwegian widow never plans to give up with her side money - plus the Saint's are doing a little better this year. .
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Old 10-03-2009, 01:55 PM   #4
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None of these "random walk" or "efficient market" studies really prove that there is no such thing as stock picking ability. They merely conclude that the number of people who have consistently beaten the market is not larger than one would expect by random chance or "dumb luck," and thus the existence of consistent "market beaters" can't be proven.

Absent of fees, for example, you might assume there's a 50/50 chance of beating the market. Thus, over 10 years, you might expect 1 person out of 1,024 to beat the market every year by random chance. So if you looked at 10,240 stock pickers and considerably more than 10 of them beat the market every year, you could conclude there is such a thing as "stock picking skill" (using some statistical confidence level, usually 95%). Note that not having more than 10 isn't proof that it doesn't exist -- just that there is no evidence to prove it does.

Some fans of indexing and "efficient market" aficionados like to use studies like these as proof that there is no one who can consistently beat the market (and thus, we should all index). But that, as far as I can tell, isn't the correct conclusion.
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Old 10-03-2009, 02:58 PM   #5
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Quote:
Originally Posted by unclemick View Post
I have often wondered about Ben Graham's Postscript Chapter in The Intelligent Investor. Hitting/picking/getting lucky with the one big stock/or a very few stocks to the point of making a lifetime of returns(based on a broad index average over say 30 yrs) and walking away or just being average the rest of the time.
Kinda what I did, on a smaller scale though. I hit a big home run earlier this year and, with it, my portfolio's average return bounced back to 8%+ per annum for the past 10 years (I started investing in 01/2000). It was my long term return target, so I sold the winner last month and I am going back to being just average. So I was lucky with this one stock saving my portfolio from 10 years of (way) below par market returns.
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Old 10-03-2009, 04:02 PM   #6
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Originally Posted by ziggy29 View Post
None of these "random walk" or "efficient market" studies really prove that there is no such thing as stock picking ability. They merely conclude that the number of people who have consistently beaten the market is not larger than one would expect by random chance or "dumb luck," and thus the existence of consistent "market beaters" can't be proven.

Absent of fees, for example, you might assume there's a 50/50 chance of beating the market. Thus, over 10 years, you might expect 1 person out of 1,024 to beat the market every year by random chance. So if you looked at 10,240 stock pickers and considerably more than 10 of them beat the market every year, you could conclude there is such a thing as "stock picking skill" (using some statistical confidence level, usually 95%). Note that not having more than 10 isn't proof that it doesn't exist -- just that there is no evidence to prove it does.

Some fans of indexing and "efficient market" aficionados like to use studies like these as proof that there is no one who can consistently beat the market (and thus, we should all index). But that, as far as I can tell, isn't the correct conclusion.


Re: DITTO
Even Jack Boggle admitted on a Interview with Forbes " Active mge funds do better 3 out of 5 yrs., just don't expect them to do it consistanly every yr." and he also mentioned in another CNBC amitting VG's VWELX and VWINX have proven professionally run funds like these have beaten Individuals trying to do the same.

Comparing those 2 Funds to a Port of Similar Index funds and they have beaten them for the past 10 yrs..But, the point being? It's the Human Factor that makes any kind of Portfolio Underperform, be it using Indexes or Active Mge Funds..

And Love this one: " 80% of AMF's did not out perform the Indexes" , only thing came to my mind? Ok, So what about the other 20% or Better ranked Ones? ( If There is some 5,000 funds x 20% = still 1,000 funds that have? )

And it's too bad VG doesn't have Global and EMD Bond Funds and we have to go to AMF's to get them an those have really boosted a Traditional Port of Index Funds now for the past 10+ yrs..

I guess those of us who use AMF's have just been lucky these past 10+ yrs..

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Old 10-03-2009, 08:21 PM   #7
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Whenever people start touting actively managed funds, I say:

Fine, since it's such a good strategy, if the actively managed fund doesn't do better than its index fund, then the person that recommended the managed fund should be willing to make up the difference, or make me whole.

I smell an opportunity in the futures/options market. "Manager default swap" anyone? Brewer??
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Old 10-03-2009, 08:28 PM   #8
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Quote:
Originally Posted by ats5g View Post
Whenever people start touting actively managed funds, I say:

Fine, since it's such a good strategy, if the actively managed fund doesn't do better than its index fund, then the person that recommended the managed fund should be willing to make up the difference, or make me whole.

I smell an opportunity in the futures/options market. "Manager default swap" anyone? Brewer??
Actively managed funds are like annuities on this board. My only point was to put context on these studies which don't prove that any "stock picking ability" exists -- and that's that these studies don't prove it does NOT exist, either, merely that there isn't a statistically significant distribution of consistent market-beaters. One can be a diehard or a Boglehead and recognize that. Doesn't mean actively managed funds are usually the place to be, of course.
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 10-03-2009, 08:39 PM   #9
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Quote:
Originally Posted by ats5g View Post
Whenever people start touting actively managed funds, I say:

Fine, since it's such a good strategy, if the actively managed fund doesn't do better than its index fund, then the person that recommended the managed fund should be willing to make up the difference, or make me whole.

I smell an opportunity in the futures/options market. "Manager default swap" anyone? Brewer??
When you use a word like "tout" you assume that the poster is even remotely enough interested in what you do or don't do, believe or don't believe, to bother to tout you.

I would fade that proposition.

Ha
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Old 10-04-2009, 11:08 AM   #10
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Even if these index beating managers exist picking them out remains a losers game. It does you no good to know that 5% of all the active managers will beat the "market" over some reasonable time frame if you can't invest with them while they do so.

DD
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