Good luck to all!
It's clear that some respondents either did not read and/or understand the Blackstar Funds research piece or my blog post. One of the main points was that index funds are actively managed. The returns that you love so much are due to active management! Indexes replace losers and add winners. For example, the DJIA used to have U.S. Steel, which peaked in 1959, and Navistar in it. They were removed. Successful companies, like Hewlett-Packard and Boeing have been added. If you literally bought-and-held the original companies in the Dow (1896), you wouldn't own Boeing and Hewlett-Packard. Instead, you would discover that you lost your entire investment in U.S. Leather Company (one of 12 original components). They made bridles for horses and went bankrupt in 1952. So, yes, actual buy-and-hold typically loses money even over long time horizons. And if you hold Boeing long enough, it will probably go out of business too, about the time we start using the Star Trek transporter to get around!
What I find most interesting is that responses are 1) mostly hostile, 2) glib in citing oft-repeated but incorrect information, and 3) none have refuted the three basic issues I outlined in my first reply. I'm not going to continue to get into a flame war because I don't think what I have to say is going to be listened to, even though I believe it is factually correct.
It's a shame because understanding capital markets, investor sentiment, and saving like mad can help all of you reach your early retirement goals or help you live better in retirement. But good luck to you all.
P.S. Indexing and relative strength management are not mutually exclusive, by the way. PDP, PIZ, and PIE are all index funds in an ETF format that use relative strength. They own 100 high relative strength stocks and are reconstituted and re-weighted each quarter. (Disclosure: my company provides the indexes for these products.) AQR Management also has several open-end index mutual funds like AMOMX. Clifford Asness at AQR wrote his thesis at the University of Chicago on momentum; his thesis advisor was Eugene Fama, the famous efficient markets theorist. When I wrote that none of my three propositions was controversial, I guess I should have said "within the community of finance professionals and academics." Clearly, the news hasn't gotten to everyone yet!
It's clear that some respondents either did not read and/or understand the Blackstar Funds research piece or my blog post. One of the main points was that index funds are actively managed. The returns that you love so much are due to active management! Indexes replace losers and add winners. For example, the DJIA used to have U.S. Steel, which peaked in 1959, and Navistar in it. They were removed. Successful companies, like Hewlett-Packard and Boeing have been added. If you literally bought-and-held the original companies in the Dow (1896), you wouldn't own Boeing and Hewlett-Packard. Instead, you would discover that you lost your entire investment in U.S. Leather Company (one of 12 original components). They made bridles for horses and went bankrupt in 1952. So, yes, actual buy-and-hold typically loses money even over long time horizons. And if you hold Boeing long enough, it will probably go out of business too, about the time we start using the Star Trek transporter to get around!
What I find most interesting is that responses are 1) mostly hostile, 2) glib in citing oft-repeated but incorrect information, and 3) none have refuted the three basic issues I outlined in my first reply. I'm not going to continue to get into a flame war because I don't think what I have to say is going to be listened to, even though I believe it is factually correct.
It's a shame because understanding capital markets, investor sentiment, and saving like mad can help all of you reach your early retirement goals or help you live better in retirement. But good luck to you all.
P.S. Indexing and relative strength management are not mutually exclusive, by the way. PDP, PIZ, and PIE are all index funds in an ETF format that use relative strength. They own 100 high relative strength stocks and are reconstituted and re-weighted each quarter. (Disclosure: my company provides the indexes for these products.) AQR Management also has several open-end index mutual funds like AMOMX. Clifford Asness at AQR wrote his thesis at the University of Chicago on momentum; his thesis advisor was Eugene Fama, the famous efficient markets theorist. When I wrote that none of my three propositions was controversial, I guess I should have said "within the community of finance professionals and academics." Clearly, the news hasn't gotten to everyone yet!
