Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 04-09-2016, 02:54 PM   #121
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 Running_Man View Post
Your implication that a market is in principle the Law of Conservation is simply not true, value of equities unlike energy can be created and or destroyed without being transferred, it happens all the time.
I think you're misunderstanding. Even if nobody trades anything, the principal still holds.

The average market return reflects the weighted average return of all securities in the market.

Investors as a whole can't outperform or underperform the average market return because they are the market.

An individual investor within the market can outperform the average market return but only by owning more outperforming assets.

For an individual investor to own more outperforming assets another investor or investors must own fewer outperforming assets and, by extension, must own more underperforming ones.

No one has to trade anything for all of the above to be true. Simply owning a different mix of investments than the weighted average market mix (e.g. being overweight or underweight an asset class relative to the market) will cause some investors to outperform and others to underperform. But as a whole, everyone will earn the market return.

Bringing this all back to my original comment . . .

If individual investors systematically underperform "the market" than some other investor or groups of investors must outperform. That doesn't appear to be the case. So I'm skeptical of the chart claiming that individual investors systematically underperform by virtue of poor market timing.
__________________

__________________
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 04-09-2016, 03:29 PM   #122
Thinks s/he gets paid by the post
 
Join Date: Sep 2006
Posts: 1,689
The idea that there are millions of “markets” that are redefined as money flows from one place to another creating offsetting winners and losers throughout the various “marketplaces” and that one only need calculate what the average is of each of these self creating markets reminds me of Donald Sutherland’s description of an atom.

__________________

__________________
Running_Man is offline   Reply With Quote
Old 04-09-2016, 04:03 PM   #123
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 Running_Man View Post
The idea that there are millions of “markets” that are redefined as money flows from one place to another creating offsetting winners and losers throughout the various “marketplaces” and that one only need calculate what the average is of each of these self creating markets reminds me of Donald Sutherland’s description of an atom.
We actually do have millions of markets. So it's pretty important to have clear thinking about which ones are relevant to the question you're trying to answer.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 04-10-2016, 06:38 AM   #124
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
The main reason that the typical investor under performs the market isn't that they have bad timing when the markets go down, it is that they fail to get back in in time when the markets go back up. They typically lose out on the major upswings.

Sent from my Nexus 4 using Early Retirement Forum mobile app
__________________
OrcasIslandBound is offline   Reply With Quote
Old 04-10-2016, 07:11 AM   #125
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,424
A short article by Morningstar that contrasts the total 10 year return of a mutual fund vs the actual returns that investors received. Investors: Don't Make This Costly Mistake
Quote:
The fundís 10-year total return was 3.9%, but its 10-year investor return was a terrible -15.4%, which is quite a big difference.
They attribute the difference to performance chasing by looking at the flow of funds into and out of the fund over the entire period.
Quote:
The fundís net cash flow tells the story of the discrepancy. Investors piled into the fund during its runup between 2006 and mid-2007, with most inflows occurring near the fundís peak value. Investors then fled as the fundís returns plummeted, with most outflows occurring near the fundís bottom. This type of behavior is not uncommon as investors tend to chase performance, buying high and selling low.
__________________
MichaelB is offline   Reply With Quote
Old 04-10-2016, 11:13 AM   #126
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,676
Quote:
Originally Posted by OrcasIslandBound View Post
The main reason that the typical investor under performs the market isn't that they have bad timing when the markets go down, it is that they fail to get back in in time when the markets go back up. They typically lose out on the major upswings.
This sounds generally correct to me.

Well any decent market timing system would have a sell AND buy strategy. Their are probably few good market timing strategies out there and any good ones are probably unpublished (my guess).

There is a very good discussion of some moving average type of market timing with provisions for skipping some sell signals at this site:
1) Trend Following In Financial Markets: A Comprehensive Backtest | PHILOSOPHICAL ECONOMICS

2) Growth and Trend: A Simple, Powerful Technique for Timing the Stock Market | PHILOSOPHICAL ECONOMICS

3) In Search of the Perfect Recession Indicator | PHILOSOPHICAL ECONOMICS

WARNING: These articles are very long and involved.
__________________
Lsbcal is offline   Reply With Quote
Old 04-10-2016, 01:24 PM   #127
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
I have, myself, done what might be construed as a bit of market timing upon 3 occasions in the last 10 years. All were relatively small compared to the bulk of my investments, perhaps 5% or less. When I rebalanced by moving into bonds the prior year, in around 2010, and again in 2011, the market had a sizable pull back. I moved around $40k back into stocks after 10-15% drop. I figured that I sold high and bought back low, so taking advantage of the moment.

Recently, I employed a similar strategy buying an oil ETF for $11k in December after this sector was beaten down so hard. Another $11k when it was further beaten in January. All these "timings" were successful. But in general, I avoid market timing.

Sent from my Nexus 4 using Early Retirement Forum mobile app
__________________
OrcasIslandBound is offline   Reply With Quote
Old 04-10-2016, 04:40 PM   #128
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
harley's Avatar
 
Join Date: May 2008
Location: Following the nice weather
Posts: 6,422
Quote:
Originally Posted by Lsbcal View Post
Their are probably few good market timing strategies out there and any good ones are probably unpublished (my guess).
I've been thinking about publishing my strategy, which has worked out well for me. Basically, it involves making a lucky move, then becoming paralyzed with fear and indecision and not making any additional stupid moves. Overall I've come out pretty well.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Will Rogers, or maybe Sam Clemens
DW and I - FIREd at 50 (7/06), living off assets
harley is offline   Reply With Quote
Old 04-10-2016, 05:10 PM   #129
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,676
Quote:
Originally Posted by harley View Post
I've been thinking about publishing my strategy, which has worked out well for me. Basically, it involves making a lucky move, then becoming paralyzed with fear and indecision and not making any additional stupid moves. Overall I've come out pretty well.
Sounds like an excellent strategy and all one needs is the lucky move.

I did that once. Played once in the California lottery and won!!! Got a whole $9 back. Have never played again. I bet few can claim they are net winners of the lottery.
__________________
Lsbcal is offline   Reply With Quote
Old 04-10-2016, 06:21 PM   #130
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,710
Actually if you look at broad index funds you can do the s&P 500, a total us stock market index which is still about about 80% made up of the S&P 500. If you want to go index then the widest index would be the way to go. One way might be a total world stock market fund. Or possibly if you want to spend time look at country based index funds but then you have to decide how to allocate your funds.
__________________
meierlde is online now   Reply With Quote
Old 04-12-2016, 04:34 PM   #131
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 2,211
Only way to have rallies is when more people than usual are buying. Same for crashes. So the majority will be buying high and selling low. Otherwise no such variance. Pretty much by definition.

So who is causing the swings then and getting stuck with the bad results?

I believe individuals who invest via mutual funds, i.e. indirectly, are the ones indeed losing out the most. And I think they do it because many don't understand what they are buying. If they did, they would have probably done it themselves.

I have a few friends where I saw that scenario play out (for small amounts of money luckily). None of them stayed in the market after the first crash hit them.
__________________
Totoro is offline   Reply With Quote
Old 04-12-2016, 04:45 PM   #132
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,382
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.
How would open end index fund managers be immune to this? Similar with an ETF, if it is open ended it would be subject to untimely redemption runs.


Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Old 04-12-2016, 09:41 PM   #133
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
harley's Avatar
 
Join Date: May 2008
Location: Following the nice weather
Posts: 6,422
Quote:
Originally Posted by haha View Post
How would open end index fund managers be immune to this? Similar with an ETF, if it is open ended it would be subject to untimely redemption runs.
Because index fund investors are made of sterner stuff, being fully comfortable with their asset allocations and able to ride out the vagaries of the market. Not!

You're right, this would happen in an index fund as well as an actively managed fund. I do think that those who invest in index funds are a little less likely to bolt. And since index funds pretty much never lead the market, they don't get the fast money moving in either. So there might be a lesser effect, but certainly not none.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Will Rogers, or maybe Sam Clemens
DW and I - FIREd at 50 (7/06), living off assets
harley is offline   Reply With Quote
Old 04-13-2016, 05:16 AM   #134
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 1,714
Quote:
I do think that those who invest in index funds are a little less likely to bolt. And since index funds pretty much never lead the market, they don't get the fast money moving in either. So there might be a lesser effect, but certainly not none.
The effect in a broad index fund/ETF should be very muted. To some degree, index investors (ex: Bogleheads) are more likely to be buy and hold, rather than timers or emotional players. Also, since a broad index mirrors the full market, you are only going to see what the entire market is doing.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 04-13-2016, 08:58 AM   #135
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,264
Quote:
Originally Posted by harley View Post
... I do think that those who invest in index funds are a little less likely to bolt. And since index funds pretty much never lead the market, they don't get the fast money moving in either. So there might be a lesser effect, but certainly not none.
I wonder if this could be seen to a higher degree in the 'target retirement funds'? Those tend to have lower in/out trading I think.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 04-13-2016, 11:14 PM   #136
Recycles dryer sheets
 
Join Date: Jun 2014
Posts: 433
My own personal experience is that my level of activity is inversely proportional to my total return. whether that's picking individual stocks, ETFs, mutual funds or boxes of cereal :P. The winners of that are the people/organizations that collect from the level of activity.

So... for me personally the long term goal has been to reduce activity to as close to 0 as possible. That has been incredibly challenging because I think I'm really smart and I love tinkering. I have lots of evidence to prove I'm really dumb and should stop tinkering, but somehow I'm insanely stubborn about it.
__________________
petershk is offline   Reply With Quote
Old 04-14-2016, 12:52 AM   #137
Full time employment: Posting here.
gcgang's Avatar
 
Join Date: Sep 2012
Posts: 924
Quote:
Originally Posted by petershk View Post
My own personal experience is that my level of activity is inversely proportional to my total return. whether that's picking individual stocks, ETFs, mutual funds or boxes of cereal :P. The winners of that are the people/organizations that collect from the level of activity.

So... for me personally the long term goal has been to reduce activity to as close to 0 as possible. That has been incredibly challenging because I think I'm really smart and I love tinkering. I have lots of evidence to prove I'm really dumb and should stop tinkering, but somehow I'm insanely stubborn about it.
+1

Incredibly well said.
__________________
In theory, there's no difference between theory and practice. In practice, there is. YB
gcgang is offline   Reply With Quote
Old 04-14-2016, 08:57 AM   #138
Thinks s/he gets paid by the post
Fedup's Avatar
 
Join Date: Mar 2014
Location: Southern Cal
Posts: 2,930
Quote:
Originally Posted by petershk View Post
My own personal experience is that my level of activity is inversely proportional to my total return. whether that's picking individual stocks, ETFs, mutual funds or boxes of cereal :P. The winners of that are the people/organizations that collect from the level of activity.

So... for me personally the long term goal has been to reduce activity to as close to 0 as possible. That has been incredibly challenging because I think I'm really smart and I love tinkering. I have lots of evidence to prove I'm really dumb and should stop tinkering, but somehow I'm insanely stubborn about it.
Agree 100%. The dumb ones in my family do really well in the stock market.



Sent from my iPad using Early Retirement Forum
__________________
When I post IIRC, that means going by memory. Google is your friend for facts. Stop being a lazy bum, I can't do all the googling for you. I'm lazy too. LOL
Fedup is offline   Reply With Quote
Old 04-15-2016, 10:39 PM   #139
Confused about dryer sheets
 
Join Date: Apr 2016
Posts: 6
Isn't indexing just buying stocks from some list, and then everybody just owns the same list of stocks? When the tech bubble happened the S&P 500 was 40% tech companies, and indexers were smiling paying low fees while they were getting wiped out. There are hundreds of indexes these days. I'd rather have someone at the wheel thinking. Individual stocks are great - and, even cheaper than index funds since there's no expense, and I know what I own at all times.
__________________
fourinone is offline   Reply With Quote
Old 04-16-2016, 06:19 AM   #140
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 1,714
Quote:
Originally Posted by fourinone View Post
Isn't indexing just buying stocks from some list, and then everybody just owns the same list of stocks? When the tech bubble happened the S&P 500 was 40% tech companies, and indexers were smiling paying low fees while they were getting wiped out. There are hundreds of indexes these days. I'd rather have someone at the wheel thinking. Individual stocks are great - and, even cheaper than index funds since there's no expense, and I know what I own at all times.
Yes, it is owning stocks from a list, but the real point is that the list should be very broad and very steady to spread risk, and it would be an awful lot of stocks to own individually. In the 2000-2002 market the S&P 500 was affected by the tech weighting, but where tech as a group was down 80-90%, the 500 was down half as much and recovered faster also. To me, true indexing means the S&P 500 or the total market, not the many narrow slice indexes that are also available. You can get the broad indexes in an ETF with expenses of .1% or less, which is little to pay for the convenience of 500 to 5000 stocks. When you look at multi decade performance, it is virtually impossible to beat the return of the dividends reinvested broad indexes. Even active managers who do it for a while have following periods where they lose their touch and the higher fees also drag. If an active fee is 1% higher than a passive one, over 30 years that's 30% that the manager has to outperform just to keep even. Why go against the odds with active?
__________________

__________________
"The mountains are calling, and I must go." John Muir
DrRoy 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 09:52 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.