Some Active beats Indexing

[ERD50]

And just for yucks, look at this chart:

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(again, select ALL for the time frame). The total time frame is a bit shorter due to the life of some funds, so SPY actually does a bit better than VWIAX in this snapshot.

VWIAX = Wellesley; VTINX = Retirement Fund (30/70); and vbtlx - Total Bond Fund

But just eyeball a balance of SPY and VBTLX, and VWIAX sure looks to outperform that blend. VTINX doesn't seem to be getting the full benefit of 30% equities? It seems to hug the bond fund pretty close?

Just eyeball stuff, you could download the numbers from Yahoo and make your own charts - I'm gonna go run some errands instead!


-ERD50

 

[Chuckanut]

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Slide the bar to the full 15 years, and Wellesley is impressive.

-ERD50

PSSSSTTTTTTT...... Wellesly. We need some t-shirts made with that printed on them.

 

[ERD50]

PSSSSTTTTTTT...... Wellesly. We need some t-shirts made with that printed on them.

That would be perfect for the occasional meet-ups that some have had! Sure would be easy to pick the er-org member out from the crowd!

-ERD50

 

[Chuckanut]

Looking at a few charts I get the impression that for the last years, Wellesly's big advantage was not being clobbered in the 08-09 crash. While it went down it went down a lot less than the other funds. These other funds then took quite a while to catch up with Wellesly.

From what I can see Wellesly management is very good at taking a bit more risk ** to get this much extra benefit ****. In other words, they seem to have a very good risk/reward ratio.

 

[Gone4Good]

Slide the bar to the full 15 years, and Wellesley is impressive.

A good chunk of that 15-year outperformance comes from simply missing the tech meltdown at the start of that time period.

Not trying to take anything way from Wellesley and Wellington management. There was tremendous pressure on fund managers to load up on the bubble stocks so as not to fall behind their competitors. So kudos to them for missing the aftermath.

It does beg the question, though, of how badly they lagged prior to the 2000 rout. If they didn't, or not that much, that would be a truly impressive display of market timing on their part.

I recall investing during that time and it was no secret that the equity market was silly (e.g. Palm's 10% float trading at higher market cap than 3M who owned the other 90% of Palm giving all of 3M a negative net worth). But who had the cajones to short Palm even though it was so clearly "easy money"? Not me.

But skipping the rally, and missing the tumble, was a pretty easy thing to do for stock pickers who weren't chasing momentum.

Considering the targets for Wellesley is something like (going from memory here) 40/60, and Wellington is 60/40, the performance difference isn't all that great, and I would have expected Wellington to lead over the long run.

Wellesley certainly has done a great job. Again, it really makes me wonder why more active managed funds aren't doing this well. Did the managers sell their soul at the crossroads?

-ERD50

That surprised me too. But if you look at Wellesley's portfolio mix, the bond portion is intermediate corporates. If you add Vangaurd's int-corp index to the graph, the relative performance makes a bit more sense.

Corp bonds have done really well over the past 15 years. Much better than I would have thought.

But still, there are periods where a 60% holding of corp's seemed like it should have held them back more than they did.

So, yeah, it looks like the guys and gals at Wellesley are earning their paychecks.

 

[golfnut]

I try to look for good performing funds (with at least a 15 yr history) with low exp. ratios. I have a mix of index and active (mostly Vanguard with a few Fidelity funds).

It's like going to Vegas and staying at budget hotels (index funds/low cost active funds) or 5 star hotels (high cost active funds). One will come home with more money staying at the budget hotel.

Just can't fathom why people invest in high expense ratio or front loaded funds.

 

[Running_Man]

Or you could look at how SDOG has performed against the S&P500 or the stocks I have owned through most of the time period from 2012. I am not sure what index corresponds to holding individual stocks managed at 25% of a portfolio, though I did recently sell HRL for replacement with ACN due to valuation concerns

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[NW-Bound]

A good chunk of that 15-year outperformance comes from simply missing the tech meltdown at the start of that time period.

Not trying to take anything way from Wellesley and Wellington management. There was tremendous pressure on fund managers to load up on the bubble stocks so as not to fall behind their competitors. So kudos to them for missing the aftermath.

It does beg the question, though, of how badly they lagged prior to the 2000 rout. If they didn't, or not that much, that would be a truly impressive display of market timing on their part.

I recall investing during that time and it was no secret that the equity market was silly (e.g. Palm's 10% float trading at higher market cap than 3M who owned the other 90% of Palm giving all of 3M a negative net worth). But who had the cajones to short Palm even though it was so clearly "easy money"? Not me...

The parent company was 3Com, not 3M. I owned 3Com during that time, and watched in amazement the Palm mania.

Also during that time, some MF managers got scared of the tech stock mania, and started to sell to raise cash. Some irate MF holders called in to berate them for doing so. They said they sent in their money to be 100% invested, not be kept in cash.

This shows how hard an MF manager's job is during stock mania periods. You trail the market by selling too early, they call you names. You stay in, and crash along with the market, they call you names. And when the market is bottoming, you want to buy, but people are still redeeming their shares, so where is the fresh money for you to buy?

 

[NW-Bound]

I have told this story a few times, but it is worth mentioning again.

In 2000, Soros made some bets on some tech stocks, and lost big money. Julian Robertson, another hedge fund manager, shorted dot-coms but was too early. He was wiped out and had to close his Tiger Fund. So, you can go long or you can go short and if your timing is wrong by a month or two you still lose.

And then there's the famed John Templeton. He waited until it was right, shorted some stocks which then went bankrupt and he never did have to cover his shorts. He made $80M for himself, as he already retired then and no longer managed other people's money. It was just a lark for Templeton, as this $80M was puny compared to his billionaire status. He just could not sit still seeing people going stupid over dotcoms.

In an interview afterwards, Templeton said that he liked to "help" people. He explained that when they were desperate to sell he bought from them (at the bottom of market). When they clamored to buy, he sold to them, even if he had to sell short.

Templeton is my hero.

 

[Mulligan]

The parent company was 3Com, not 3M. I owned 3Com during that time, and watched in amazement the Palm mania.

Also during that time, some MF managers got scared of the tech stock mania, and started to sell to raise cash. Some irate MF holders called in to berate them for doing so. They said they sent in their money to be 100% invested, not be kept in cash.

This shows how hard an MF manager's job is during stock mania periods. You trail the market by selling too early, they call you names. You stay in, and crash along with the market, they call you names. And when the market is bottoming, you want to buy, but people are still redeeming their shares, so where is the fresh money for you to buy?

Thanks for posting that. I was reading the above 3M reference and thinking I knew somebody owned Palm but it wasnt them. But I was going to accept it because my memory isn't always truthful to me anymore. To further test my memory, if not mistaken I think I lost a little bit of cash playing around with 3Com back in the day, too. Maybe one of those falling knife plays that never work.

 

[ERD50]

... That surprised me too. But if you look at Wellesley's portfolio mix, the bond portion is intermediate corporates. If you add Vangaurd's int-corp index to the graph, the relative performance makes a bit more sense.

Corp bonds have done really well over the past 15 years. Much better than I would have thought.

But still, there are periods where a 60% holding of corp's seemed like it should have held them back more than they did.

So, yeah, it looks like the guys and gals at Wellesley are earning their paychecks.

Yep. And for a little more 'fun' with that chart, I realized just recently that if you adjust the bar for a time frame less than "ALL" (1 year, 2 years, whatever), you can then grab the bar in the middle and slide it left-right, and see how X year performance was across the entire span.

Thanks for posting that. I was reading the above 3M reference and thinking I knew somebody owned Palm but it wasnt them. ....

It took me a minute, but 3Com was based here and I knew people who worked there, and at its earlier incarnation - that was US Robotics (of modem fame).

-ERD50

 

[Mulligan]

Yep. And for a little more 'fun' with that chart, I realized just recently that if you adjust the bar for a time frame less than "ALL" (1 year, 2 years, whatever), you can then grab the bar in the middle and slide it left-right, and see how X year performance was across the entire span.



It took me a minute, but 3Com was based here and I knew people who worked there, and at its earlier incarnation - that was US Robotics (of modem fame).

-ERD50

US Robotics, I havent heard that name in a while....If we keep this up we will eventually be heading toward mentioning Wang Class B shares of stock!

 

[Gone4Good]

The parent company was 3Com, not 3M. I owned 3Com during that time, and watched in amazement the Palm mania.

Yup. Memory fades, I guess.

 

[NW-Bound]

It's OK. It happens to all of us, some sooner than others.

Anyway, I would love to know to be a contrarian like Templeton. He made mucho money, and also acted as a stabilizing actor in the market with "helping" other investors: selling when they clamor to buy, buy, buy, and buying when they are desperate to get out at any price. Without contrarians, the market swings would be even more severe.

 

[frayne]

We all know the cliche, how do you make a small fortune in actively managed funds ? Start with a large one.

 

[dallas27]

Which single benchmark do you have 100% of your investments in? Are you in, say, 100% S&P 500 so that you can be "guaranteed" at being the benchmark itself?

A benchmark is whatever you dream up. Active investing try call winners as subsets.

I allocate across 5 indexes.


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[OrcasIslandBound]

I am mostly in index funds now, but I still have a few managed funds. I have to keep an eye on them and if one of their managers quits, I move that investment into an index. If I miss this detail I'll move the investment to an index when it does poorly.

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[Fedup]

Does BRK/b beat index fund?


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[youbet]

Does BRK/b beats index fund?


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BRK/b outperforms many index funds in given time frames. Lately, the dozens of index funds following energy, commodities, almost any international index or domestic small cap index come to mind. Going forward, it's a good guess that BRK/b will beat some of 'em and not others, depending which of the dozens and dozens of indexes and corresponding index funds you're talking about.

If you like the idea of not having taxable divs thrust upon you every year and impacting your tax picture, some folks find BRK/b a reasonable substitute for a dom TSM index fund such as VTI. There is no guarantee that it will stay that way of course.

 

[Fedup]

May be I should be specific, the s&p 500 index, I've heard on the news that his funds have not being doing well lately.


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[youbet]

Mane I should be specific, the s&p 500 index, I've heard on the news that his funds have not being doing well lately.


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Oh, OK.

BRK/b generally outperformed the S&P 500 index over the past five years. Here's a nice tool to play with and that answers the question.

Berkshire vs. the S&P 500 | Thumbcharts®


BRK/b did have a down 2015, but still ended the five year period ahead of the S&P500 and BRK/b holders had the opportunity to sell at a nice margin over the S&P 500 along the way. How things will work out over the next few years would just be a guess.

I couldn't decide and own some of both (but predominantly TSM)...... There was a nice buying opportunity for BRK/b in January at about $125 and I couldn't resist. We'll see how it works out.

 

[papadad111]

Stock pickers just had their worst quarter ever

http://www.cnbc.com/id/103518291

Much of the past decade has been rough for active fund managers, but 2016 hasn't been just bad, it's been history-making bad.

Fewer than 1 in 5 large-cap funds beat the S&P 500, the lowest level since at least 1998,

For growth-focused funds, the news was even uglier: Just a 6 percent beat rate at a time when the S&P benchmark has gained just over 1 percent year to date.

Value managers did a bit better with a 19.6 percent beat rate,

core funds fared comparatively well, with 29 percent topping the benchmark.

 

[Gone4Good]

BRK/b generally outperformed the S&P 500 index over the past five years. Here's a nice tool to play with and that answers the question.

Berkshire vs. the S&P 500 | Thumbcharts®

That chart doesn't look like it includes dividends. And that's a huge illusory advantage for non-dividend paying companies like Berkshire.

Total returns for Vanguard's 500 Index are 73% over the last five years instead of about 50% shown in the chart. BRK looks like it's up about 60% over 5 years, so trailing the S&P 500 total return.

 

[NW-Bound]

Yes, one should be sure to include dividends when comparing stocks.

According to Morningstar, a $10K invested 5 years ago would grow to $17,130 in VFINX (Vanguard flagship S&P MF), and $17,253 in BRK. So they run neck-to-neck the last 5 years.

Over longer terms, Buffett leads big. Morningstar only shows data going back to 8/31/1991, so I took that as the start.

A $10K invested on 8/31/1991 grew to $35K 10 years later (8/31/2001) with S&P and $79K with BRK. It's a factor of 2.26X. This is the period of the tech bubble, and Buffett beat it. Amazing!

Keep the investments for another 10 years, and it became $45K in 2011 with the S&P, and $125K with BRK. The factor has widened to 2.78X.

Keep it till now (4/2016), and it's $84K with the S&P and $245K with BRK. The factor is now 2.91X.

If we can go back further than 1991, BRK would shine even more when it was smaller and Buffett could make more agile moves, and beat the pants off the S&P. From Wikipedia:

Berkshire Hathaway averaged an annual growth in book value of 19.7% to its shareholders for the last 49 years (compared to 9.8% from the S&P 500 with dividends included for the same period), while employing large amounts of capital, and minimal debt.

That's a return of 2X better, and compounding over 50 years? Oh la la.

But, as I often repeatedly said, no one can beat the S&P every single year. Stand back to look over a bit longer period and you will see the difference.

 

[NW-Bound]

I think I have just convinced myself to put all my current cash holding in BRK if the market crashes tomorrow. If any stock could recover from Armageddon, BRK would be leading them.

But until then, I can use my cash to write more puts on BRK. If the market does not crash, that still gives me a bit of return if the option does not get assigned. And if it gets assigned, that will do me good in the long run.