New expert investor who's not sure what he's doing

[braumeister]

If you look at the analysts who make the best picks, I think they do better than the index.

Occasionally, yes.
But consistently?

 

[Boho]

Occasionally, yes.
But consistently?

I looked up one of them and he was manager of a mutual fund that did well for about 20 years straight (I think better than the rest, probably beating the index but I don't recall the details). But then the fund did bad and he was fired. The guy who fired him made it sound like the fund was consistently bad but it wasn't and he refused to be interviewed. I should probably look him up again. He was considered a contrarian but I only recall that he bought when a stock was low while, I guess, most people buy when it's rising.

 

[travelover]

People that know how to predict where the market is going don't need a job as a fund manager - or any job at all for that matter.

 

[NW-Bound]

Nobody can beat the market every year. And an investor who beats the market soundly one year is most likely to stumble the next year because he is swinging for the fence.

A guy who beats the market just a bit every year would have a better chance of repeating the feat.

 

[Boho]

I found him...David Dreman

Random Walk and Outperforming Fund Managers - The Big Picture

As I’ve written in the past, we have kinda sorta mostly eventually efficient markets — but that is not the same as actually being efficient...Look to these hedge funds with 10 year or better track records for more evidence of trend spotting and trading — what the EMH claims to be impossible.
Theoretically, these people — who have put together terrific long term performance records — cannot exist:

...David Dreman

And this is about when he was fired.

 

[COcheesehead]

Nobody can beat the market every year. And an investor who beats the market soundly one year is most likely to stumble the next year because he is swinging for the fence.

A guy who beats the market just a bit every year would have a better chance of repeating the feat.

There was this one guy, Madoff I think was his name. He got like 12% returns every year. Whatever happened to him.

 

[FreeBear]

I looked up one of them and he was manager of a mutual fund that did well for about 20 years straight (I think better than the rest, probably beating the index but I don't recall the details). But then the fund did bad and he was fired. The guy who fired him made it sound like the fund was consistently bad but it wasn't and he refused to be interviewed. I should probably look him up again. He was considered a contrarian but I only recall that he bought when a stock was low while, I guess, most people buy when it's rising.

While cruising this thread, I finally read the thread title in full: "New expert investor who's not sure what he's doing"

Wow! I wish that during my past life in tech I knew more "new experts" that admitted that they weren't sure what they were doing...

Anyway, one of John Bogle's books has a section charting the performance of about a dozen superstar funds over 3-4 or more DECADES. A few even dominated for 20+ years (Magellan?), but then faded in a few years, never to return to glory. I'm done with this stuff...

 

[nun]

The dirty secrets of many that criticize active management are Wellesley and Wellington. I'm certainly an example. However the idea of betting on a manager because they have outperformed in previous years still strikes me as a triumph of optimism over common sense.


Sent from my iPhone using Early Retirement Forum

 

[NW-Bound]

Some balanced funds such as Wellesley, Wellington, and Dodge and Cox do not have a star manager. Rather, they have a philosophy of investing that tries to conquer greed and fear.

Hence, if their long-term performance beats the market, it is more due to the even-handed methodology, because the market occasionally does not exhibit common sense at all.

These balanced funds definitely do not beat the market every year. How does one beat the market during the dot-com mania? One would have to sell the farm and go on margin.

 

[jazz4cash]

While cruising this thread, I finally read the thread title in full: "New expert investor who's not sure what he's doing"

This thread reminds me of the one from the Principal of a Financial Success Company asking about ways to "create" wealth. Is it me or are there more of these threads lately?

 

[Boho]

Single country investing is like investing in individual stocks- which is "uncompensated risk". Market timing is another fool's errand. You might benefit from some general reading. Start with Bernstein's Four Pillars of Investing.

I recently bought A Random Walk Down Wall Street. I didn't start it yet but I already get the idea.

I think buying low is technically market timing, and that can be done. Selling high is almost as easy. The problem comes before and after that cycle because you have to decide how long to stay uninvested and how good a deal to wait for.

Some people say 1 in 100 analysts obtain good results with market timing. I think more will be learned about how to do it in the future and index funds will gradually become less popular, though it's possible they'll become more popular first.

 

[target2019]

As valuations climb, it becomes more difficult to buy low. Painting this as either indexing or buying individual shares isn't representative. Most investors are probably somewhere between pure indexing and stock picker. And life changes drive you to a hybrid model.

 

[panacea]

I recently bought A Random Walk Down Wall Street. I didn't start it yet but I already get the idea.

I think buying low is technically market timing, and that can be done. Selling high is almost as easy. The problem comes before and after that cycle because you have to decide how long to stay uninvested and how good a deal to wait for.

Some people say 1 in 100 analysts obtain good results with market timing. I think more will be learned about how to do it in the future and index funds will gradually become less popular, though it's possible they'll become more popular first.

Ok, now I can't tell if you're just trying to be funny. You should probably crack open the book.

 

[exnavynuke]

The markets are close to record highs. That said, when I invested more in the market on Monday, was I buying at "lows" or "highs"? Relative to 10 years ago, I was buying at "highs". Relative to where the market is probably going to be in 30, 40, or 50 years, then almost certainly I was buying at "lows".

Here's the problem with market timing you're almost certain to never overcome- You don't know when the good days will come until they've already passed.

if an investor stayed fully invested in the S&P 500 from 1995 through 2014, they would've had a 9.85% annualized return.

However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 6.1%.

6 of those "best" days came within weeks of the worst days as well, so timing to avoid the "worst" and catch the "best" is practically impossible without a crystal ball.

 

[foxfirev5]

When I get the urge to deviate from my diversified asset allocation I ask myself - What do I know that nobody else does?

 

[NW-Bound]

Ok, now I can't tell if you're just trying to be funny. You should probably crack open the book.

It looks like the OP is just starting out. Investing, like most things in life, has to be learned by doing (after a lot of reading).

 

[Boho]

Ok, now I can't tell if you're just trying to be funny. You should probably crack open the book.

If you pinpoint what's wrong with what I said I may be able to provide you with a reference. Even though I didn't read the book yet I've read other pro-indexing stuff and there's usually some indication that there's a work-around to fix whatever the problem was with market timing.


There's the fact that day trading can work, and if you're extra careful and do it infrequently, I think it's obvious that your chances of picking correctly would improve, the problem being that you may be out of the market too often.


And I already posted a link about hedge fund managers being able to time the market. I have more stuff, but it's hard to reply to a general comment like "are you joking?"

 

[nun]

Some balanced funds such as Wellesley, Wellington, and Dodge and Cox do not have a star manager. Rather, they have a philosophy of investing that tries to conquer greed and fear.

"Greed is not good" when it comes to long term investing because it makes you do dumb things. Many people fear that they are missing out of the best returns and so will chase that return by buying and selling and going after the latest hot fund or stock. This leads to portfolios with far too many investments, high costs and lower than average returns.

 

[REWahoo]

If you pinpoint what's wrong with what I said I may be able to provide you with a reference. Even though I didn't read the book yet I've read other pro-indexing stuff and there's usually some indication that there's a work-around to fix whatever the problem was with market timing.

Note the past tense of the "fix" as it can only be known in retrospect. IOW, the work-around is called time travel. Let us know when you've read the book on that.

 

[nun]

I And there's the fact that day trading can work, and if you're extra careful and do it infrequently, I think it's obvious that your chances of picking correctly would improve, the problem being that you may be out of the market too often.

You are right to highlight probability. It's the probability distribution of returns that is important. Unfortunately people like shiny things and they focus on the maximum possible amount of return and ignore the very low probability of getting those returns. They should focus on simply being average, however, it's hard to sell "average" even when it gives you the highest probability of investing success.

 

[Boho]

Note the past tense of the "fix" as it can only be known in retrospect. IOW, the work-around is called time travel. Let us know when you've read the book on that.

I don't mean that kind of fix. I mean, for example, it's been shown that when you read that you should "hold" a mutual fund, that's a better indication that you should buy it than a "buy" recommendation is. people read that and think it means you should ignore the experts. I read it and think it means I should ignore "buy" recommendations while considering "hold" and "sell" useful.

 

[REWahoo]

I don't mean that kind of fix. I mean, for example, it's been shown that when you read that you should "hold" a mutual fund, that's a better indication that you should buy it than a "buy" recommendation is. people read that and think it means you should ignore the experts. I read it and think it means I should ignore "buy" recommendations while considering "hold" and "sell" useful.

History indicates all those recommendations are excellent - at increasing commissions.

 

[easysurfer]

I already got my main question answered in another section. It's pretty much what I figured.


I guess if I had to pick another question it would be what country's index fund do you think would make a good investment for the coming years, not including the U.S. I believe a little market timing could work and I want to weight my portfolio a little bit towards countries that Trump will have the least effect on, but I want more reason than that before I buy a foreign index fund.

Welcome aboard Boho.

I think you have do decide first if you want to be an active or passive investor. Don't know if there was a poll (there's plenty of polls here ) or not here on that topic, but my guess is the majority are passive, indexer types. Once you decide, don't jumping back and forth between the two strategies or else you'll be a serial market timer .

 

[exnavynuke]

If you pinpoint what's wrong with what I said I may be able to provide you with a reference. Even though I didn't read the book yet I've read other pro-indexing stuff and there's usually some indication that there's a work-around to fix whatever the problem was with market timing.

What "work-around" to fix whatever the problem was with market timing will work to make market timing better than index investing in the future? If you have that answer, go to Wall Street and become a billionaire because no one has ever found something that consistently works.

There's the fact that day trading can work, and if you're extra careful and do it infrequently, I think it's obvious that your chances of picking correctly would improve, the problem being that you may be out of the market too often.

Day trading can work. Becoming an NFL quarterback can also work at increasing net worth. A similar percentage of people wanting either dream tend to succeed at their endeavor.

And I already posted a link about hedge fund managers being able to time the market. I have more stuff, but it's hard to reply to a general comment like "are you joking?"

No, you posted a link to an article that says that some fund managers have done "very well" over the long term. Most of them have nothing to do with "timing the market". In fact, I'd be surprised if any of the names mentioned were trying to time the market for decades. Bernard Baruch is right at the top of the list and he made him money speculating on the sugar market. He got in on a growing market segment and made money off of it. That's not market timing. Buffett doesn't time the markets, he researches and buys into companies based on his own criteria. Even the guy you linked to earlier wasn't timing the market or trying to buy into a specific area, he set criteria for companies he wanted to invest in and followed his criteria for investing. That's not timing the market, it's buying and holding companies that meet specific criteria. Buy and hold was his "market timing". He just had an unusual set of criteria for what to buy and hold which worked some of the time and failed miserably at other times.


Of course, the one thing all of the people mentioned in the article you linked have in common is that it was their profession to research companies and markets and determine what investments to pursue. Like hundreds of thousands of other fund managers over the years. Most of those people haven't fared nearly as well as the 30 or so names mentioned. Overall, about or less than 1% of them have consistently beat the markets over the long haul. So, with the overwhelming majority of professionals, spending all of their work-days researching and planning and learning, yet still failing to do better than the market; one question arises:

What in the world makes you think you'll succeed at market timing when just about everyone, with arguably better education and/or training on the subject, has consistently failed to achieve your objective for more than 100 years?

 

[REWahoo]

What in the world makes you think you'll succeed at market timing when just about everyone, with arguably better education and/or training on the subject, has consistently failed to achieve your objective for more than 100 years?

Boho, this ^ is why you were asked if you were joking.