Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 04-08-2016, 07:45 AM   #81
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Even a completely random exercise of coin flipping, if done by enough people, will produce a distribution where some consistently "beat the average." Many will attribute that success to superior coin flipping skills.

What's shocking about investing isn't that we can point to a handful of managers who beat the averages. What's really shocking is how few we can point to that do.

According to Morningstar Vanguard's S&P index beat 86% of large cap domestic equity funds after 1 year, 89% after 3 years, 91% after 5 years, 84% after 10 years, and 75% after 15 years.

That's not a distribution you get from an exercise where skill plays a significant roll in determining the outcome. That's not even a distribution you get from random chance. That distribution describes a situation where the odds are considerably stacked against the active manager.
__________________

__________________
Retired early, traveling perpetually.
Gone4Good 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 04-08-2016, 08:41 AM   #82
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,391
Quote:
Originally Posted by garyt View Post
I posted this on another thread, but active fund managers are handicapped by the very people who invest in them. I see it all the time at work. When the market goes down, people panic and shift out of stocks. When the market skyrockets, they go all in. They're basically forcing the managers to sell low and buy high.
This has also been my opinion. Not just during market downturn, but during the mania periods if they do not join with the crowd they will trail the market. Their holders will redeem and put the money where the managers load up on hot stocks.

What this means to me is that if you want to be a contrarian, you need to do that yourself. Nowadays, that's easy to do and stay diversified at the same time using ETFs.

The above said, indeed it is difficult to beat the market consistently. But to say that the few who are consistently successful are simply lucky is to lower them to ordinary status, to be more like ourselves. Are Nobel prize winners, Olympic champions, etc... just lucky? Yes, outstanding results usually require some luck, but not every success is like throwing coins.
__________________

__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 04-08-2016, 09:01 AM   #83
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
Quote:
Originally Posted by NW-Bound View Post
Look how little the fund dropped during the recession of 2002-2003 and the Great Recession of 2008-2009, compared to the S&P. However, it has not grown as strong in the last few years.

Is the data behind the graph even meaningful? I thought Yale had a huge portion of their endowment in illiquid assets that can't really be marked to market like a traditional stock/bond portfolio.

I used to have Swenson's book but I never read it. Maybe I would know the answer if I had.



Sent from my iPad using Early Retirement Forum
__________________
photoguy is offline   Reply With Quote
Old 04-08-2016, 09:11 AM   #84
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,391
This could be true, and the reason for the fund holding value during the last two recessions. Private investments are not marked down drastically like common stocks.

But then that begs the point: I have had two opportunities since 2000 to load up on cheap marked down stocks, and why am I not having a lot more money?

It is indeed difficult to go against the crowd, and when they panic you think perhaps they know something you don't. Indexing is just that: follow the crowd and do not ask questions.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Some Active beats Indexing
Old 04-08-2016, 09:11 AM   #85
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,369
Some Active beats Indexing

Quote:
Originally Posted by photoguy View Post
Is the data behind the graph even meaningful? I thought Yale had a huge portion of their endowment in illiquid assets that can't really be marked to market like a traditional stock/bond portfolio.

I used to have Swenson's book but I never read it. Maybe I would know the answer if I had.



Sent from my iPad using Early Retirement Forum


Thanks for sharing what I was thinking as I was going on my memory which isn't the smartest thing for me to do. I read an article a few years ago about their portfolio when they were having the great success and it appeared to resemble little what I would be able to mirror.
__________________
Mulligan is offline   Reply With Quote
Old 04-08-2016, 09:16 AM   #86
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 NW-Bound View Post
But then that begs the point: I have had two opportunities since 2000 to load up on cheap marked down stocks, and why am I not having a lot more money?

It is indeed difficult to go against the crowd, and when they panic you think perhaps they know something you don't.
I'd add that massive market sell-offs are not always irrational or an indication of panic. The 2008/2009 drop was completely justified based on the distribution of potential outcomes. Buying at the bottom required more than just a contrary spirit or a calm assessment of the fundamentals, it required an act of faith.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 04-08-2016, 09:25 AM   #87
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,043
If you are trying to beat the 'index', whatever that is, just buy the index. I buy S&P 500 shares through IVV at Fidelity. No cost to get in, or out.

I am near guaranteed to match the index. My dividends are ~2.25%, always reinvested. There are never any capital gains, only the qualified dividends. I do not have to re-balance and pay any capital gains.

When I was more of a trader I worried about the recent drops in the market. Now they are just a blip, and I keep my investing schedule. I sleep better too. I have nearly $2K a month in dividends now, shooting for $3K per month by the time i am 62. When I was trading stocks, not many dividends, and much more losses.

Some fund managers can beat the index, most cannot beat it year over year. Even BRK doesn't beat it most years. And there is no income, so you always have to sell to get income. There are always schemes, gimmicks and snake oil salesmen that will have a guaranteed way to "get rich fast", but index investing makes it work easier.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 04-08-2016, 09:59 AM   #88
Full time employment: Posting here.
dixonge's Avatar
 
Join Date: Mar 2008
Location: Ajijic
Posts: 843
Quote:
Originally Posted by Senator View Post
If you are trying to beat the 'index', whatever that is, just buy the index. I buy S&P 500 shares through IVV at Fidelity. No cost to get in, or out.

I am near guaranteed to match the index. My dividends are ~2.25%, always reinvested. There are never any capital gains, only the qualified dividends. I do not have to re-balance and pay any capital gains.
So basically you always beat the index by 2.25% - not bad!
__________________
dixonge is offline   Reply With Quote
Old 04-08-2016, 10:05 AM   #89
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,043
Quote:
Originally Posted by dixonge View Post
So basically you always beat the index by 2.25% - not bad!
It depends on how everyone calculates the index... Sometimes they count dividends reinvested, sometimes, not.

In 2016, it should be easy for anyone to beat the S&P index, even fund managers.

The S&P index went down so fast, that any amount purchased in the first two months will beat the index if it winds up positive, or flat. That's a 66.67% chance of beating it. I put most of my $24K of my 401K in by the end of Feb, so that amount is way ahead of the index.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 04-08-2016, 10:06 AM   #90
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,369
Quote:
Originally Posted by dixonge View Post
So basically you always beat the index by 2.25% - not bad!


That reminded me a few months ago, where a CNBC reporter let a fund manager conflate an issue and get away with it. Reporter questioned fund manager why his fund trailed the S&P 500 the previous year. Manager said he did slightly but counting the dividends he actually beat the index. Reporter should have said, well after counting the S&P dividends you trail again.
__________________
Mulligan is offline   Reply With Quote
Old 04-08-2016, 10:11 AM   #91
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 Senator View Post
In 2016, it should be easy for anyone to beat the S&P index, even fund managers.

The S&P index went down so fast, that any amount purchased in the first two months will beat the index if it winds up positive, or flat. That's a 66.67% chance of beating it.
You underestimate the incompetence of active fund managers . . .

Bloomberg: It was a stockpicker's market; too bad about the stock picks

Quote:
By some measures, active managers got what they’ve been hoping for in 2016, at least on paper: correlated moves among equities unwound to the lowest levels since 2012 and breadth, or the number of stock advancing, came roaring back. Both are viewed favorably by anyone trying to beat an index.

Those gifts proved illusory as fund managers trailed benchmarks by one of the highest rates in two decades. The reason: stocks they avoided went up, and the ones they owned went down.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 04-08-2016, 10:53 AM   #92
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,391
Quote:
Originally Posted by Gone4Good View Post
I'd add that massive market sell-offs are not always irrational or an indication of panic. The 2008/2009 drop was completely justified based on the distribution of potential outcomes. Buying at the bottom required more than just a contrary spirit or a calm assessment of the fundamentals, it required an act of faith.
The above is an argument from the EMH proponents, more than from the indexers. The most ardent followers of EMH will say that there's really never any mania. When a tulip bulb is priced the same as a farm, the market says it should be so, and the market is always right.

I think EMH and market indexing both have valid points. However, I am not going to follow the crowd blindingly. I am not going to deny myself the privilege of asking questions. It's the same reason we vote and do not just allow the crowd to decide for us. Oui?

Come to think of it, investing is when one is really free from the tyranny of the crowd, compared to public elections. Whether you agree with the majority or not, once an election result is in, it is binding on everyone. In investing, you are free to vote with your money. And in some rare occasions, you can make out like bandits. Those opportunities are indeed uncommon, but if you were a lemming you would not allow yourself to make a judgement call.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 04-08-2016, 01:11 PM   #93
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 NW-Bound View Post
The above is an argument from the EMH proponents, more than from the indexers.
No, it's an argument specifically about the 2008/09 financial crisis and has nothing at all to do with EMH.

We can go through loads of specifics, but "relative value" and "fundamental" analysis basically broke down because all of the benchmarks became questionable and unsound.

As some examples: what are houses worth if there is no mortgage market? How then do we value bank balance sheets loaded with mortgage related assets? How much are corporate assets worth if otherwise solvent companies go bankrupt because they lack liquidity and are forced liquidators? How much is anything worth when unemployment heads into multiple double digits?

These were all live questions in 2009.

I worked on a credit trading desk at an investment bank at the time. I spent many of hours talking with corporate treasury departments about how they would keep funding themselves as the Commercial Paper markets shut down. Pretty much the conversation went like this:

"So you only have about $30MM of cash on hand, and about $400MM of CP outstanding. How are you going to finance yourself if you can't roll over your CP?"

"we have back up revolvers (i.e. bank lines)"

"Well what happens if the banks can't fund you?"

"that's not going to happen"

"Who's leading your lending group?"

"Well, it's Bank of America and Citi?"

"Did you see that Citi's stock price is down to $1 per share and BOA isn't much better?"

"We know."

-----
So how much is that company worth? Assuming they get liquidity, quite a lot more than if they don't. Now multiply that by lots and lots of companies. What you end up with is binary market values that are wildly different and both completely reasonable.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 04-08-2016, 04:19 PM   #94
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
The discussion in this thread seems to equate "indexes" with "broad indexes." For example, many are comparing the performance of some actively managed MF with the S&P 500 index. Seems like a good idea.

But what about the folks who own 100% index funds but their portfolio includes a variety of more focused index funds? You know...... dom small cap value, various commodity indexes, regional international indexes, market segment indexes (I'm in the midst of getting burned owning an energy segment index etf right now!) and on and on.

Has anyone seen statistics on how individuals who own a variety index funds as opposed to only owning the S&P 500 do? How to folks who actively diversify their portfolios with a variety of index funds do vs. folks who stick to only owning the S&P 500 or the TSM?

You can be a 100% indexer and be totally out of whack with the S&P 500 index, or any of the many domestic large cap indexes and their corresponding index funds, right? Is anyone who owns anything other than SPY, VTI (or equivalent) doomed to under perform due to not just buying and holding the S&P 500 or the TSM?
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 04-08-2016, 04:27 PM   #95
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,391
As I mentioned in an earlier post,

Quote:
Originally Posted by NW-Bound View Post
Eh, indexing is the PC thing to safely say nowadays.

Plus, my index beats your index. And then, my rebalancing method is superior to yours.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 04-08-2016, 05:02 PM   #96
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,043
Quote:
Originally Posted by youbet View Post
Has anyone seen statistics on how individuals who own a variety index funds as opposed to only owning the S&P 500 do? How to folks who actively diversify their portfolios with a variety of index funds do vs. folks who stick to only owning the S&P 500 or the TSM?
Is this close to what you are looking for?


Quote:
But we also know that most individual investors are horrible investors. In fact, a recent study by Richard Bernstein showed that the average investor generated a measly 2.1% return over the period from 1993-2013:


http://www.rbadvisors.com/images/pdf...s_of_chaos.pdf
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 04-08-2016, 11:17 PM   #97
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 924
Average investor only did 2%? I'm sure everyone here did better than that. We must've all lived in Lake Woobegon.
__________________
gcgang is offline   Reply With Quote
Old 04-09-2016, 03:06 AM   #98
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
Why does the "average" investor earn just 2%? It is because they are market timers.

Sent from my Nexus 4 using Early Retirement Forum mobile app
__________________
OrcasIslandBound is offline   Reply With Quote
Old 04-09-2016, 05:22 AM   #99
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 1,713
Quote:
Originally Posted by youbet View Post
The discussion in this thread seems to equate "indexes" with "broad indexes." For example, many are comparing the performance of some actively managed MF with the S&P 500 index. Seems like a good idea.

But what about the folks who own 100% index funds but their portfolio includes a variety of more focused index funds? You know...... dom small cap value, various commodity indexes, regional international indexes, market segment indexes (I'm in the midst of getting burned owning an energy segment index etf right now!) and on and on.

You can be a 100% indexer and be totally out of whack with the S&P 500 index, or any of the many domestic large cap indexes and their corresponding index funds, right? Is anyone who owns anything other than SPY, VTI (or equivalent) doomed to under perform due to not just buying and holding the S&P 500 or the TSM?
This is right. Most of the discussion here is in regard to the S&P 500 index, which is by far the most used index target for ETF's and funds. The broad discussion also presumes buy and hold. Look at Senator's post yesterday with the chart. If one is using an array of narrow indexes, there is likely some trading going on as well, and overall return is likely to suffer over the long haul.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 04-09-2016, 05:58 AM   #100
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,045
BRK-B nudges out SPY/VTI, not by much though.

Five year total returns:
SPY 69.94% / VTI 66.41% vs. BRK-B 72.17%
__________________

__________________
jim584672 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 and an IFA beats passive, the reasons why. nun FIRE and Money 0 12-11-2014 06:43 PM
Indexing or Active approach? sox2012 FIRE and Money 49 10-16-2012 09:36 PM
Alternatives to indexing (alternatives to cap weighted indexing) jIMOh FIRE and Money 7 08-31-2010 09:52 PM
Buffett beats his own Berkshire Hathaway performance Nords Stock Picking and Market Strategy 8 11-21-2007 02:37 PM
Burns~ Indexing is flawed, vain, violent...better get some. mickeyd FIRE and Money 4 01-15-2007 07:21 PM

 

 
All times are GMT -6. The time now is 12:49 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.