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Ray Lucia: index funds are so 1990's
08-02-2008, 01:24 PM
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#1
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Thinks s/he gets paid by the post
Join Date: Sep 2006
Posts: 1,691
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Ray Lucia: index funds are so 1990's
On Ray Lucia's 07/24 show, he has said index funds no longer work.
The 90s were a decade of index funds because the entire market
was going up, so low cost made sense. But this is no longer the
case, he used the Russell 1000 growth index from 3/31/00-3/31/08
as an example which has low single digit returns, compared to the
"top" account managers when double digit returns.
Looking at total returns for VIGRX (~2% last 10 yrs) and
VTSMX (~3.7% last 10 yrs), even VGTSX is only about
6.4% for last 10 yrs.
I don't have the option yet because I'm still working but
got me thinking maybe Bogleheads are wrong. Obviously
he choose the worst case, but even the 10 year returns
are less then satisfactory.
Anybody have a web site where I can compare these "top" account
managers?
TJ
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08-02-2008, 01:52 PM
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#2
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Give me a museum and I'll fill it. (Picasso)
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Location: Boise
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The typical question that will be asked here is this: How does one identify ahead of time who the top managers will be in the future?
From all I've read, about 1/3 of the actively managed funds will outperform an index fund over any long period of time; about 2/3 will underperform. To me (and to Mr. Bogle) that ratio along with the average expense ratio of actively managed fund strongly implies that the returns of actively managed funds are essentially random.
As I see it, if you and/or Mr. Lucia wish to take such a bet where you have a 1/3 chance of winning and a 2/3 chance of losing, feel free. I'm sticking with the index funds.
My 2 cents.
2Cor521
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08-02-2008, 01:53 PM
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#3
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Recycles dryer sheets
Join Date: Mar 2006
Posts: 206
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Yea-
Go with Bill Miller - His Legg Mason Value Trust has beat the S&P for 15 years straight - But wait - since last July his fund lost 34% 
Anybody can be hot for a while - probability demands it but I don't know who will be next.
Index funds are not out of style and never can be when used properly in a well thought out AA. Many index funds went to the moon during the period that Lucia stated - take a look at international (part of my AA)
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I'm trying to find myself.* Have you seen me anywhere today?
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08-02-2008, 02:16 PM
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#4
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Give me a museum and I'll fill it. (Picasso)
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Join Date: Dec 2003
Location: Losing my whump
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Yeah index funds suck and are a bad choice, almost as bad as all the others.
Interesting read over here. I dont necessarily agree with everything he has to say, but some parts are well written. His thesis is that index funds are better than managed funds, but that equities in general dont work anymore:
Money, Money, Money
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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08-02-2008, 02:56 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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You have to compare the right index to each fund as well. Just looking at growth vs. value versions of the Russell 2000 small-cap indexes shows plenty of difference between those two styles for the last 10 years or so. I suspect lots of funds could beat a large growth index for the past 8 years. That probably just means that large growth will be doing better than most in the future.
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08-02-2008, 02:57 PM
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#6
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Thinks s/he gets paid by the post
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Location: W Wash
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CFB
Great read. Found his comments on Vanguard website and Flagship services particularly amusing. Thanks for posting
Nwsteve
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08-02-2008, 03:35 PM
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#7
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Give me a museum and I'll fill it. (Picasso)
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I thought you might.
Some of his references are a little dated, like upgrading from pentium to pentium pro computers.
But its interesting to see how many things he was complaining about 6-8 years ago are pretty much still screwed up.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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08-02-2008, 04:05 PM
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#8
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Give me a museum and I'll fill it. (Picasso)
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Since his site is a little circuitous, heres a link to his investing philosophy as an early retiree. I find myself to be very much in agreement on most of what he says here. Probably because we're about the same age, from the same area, and worked in the same industry.
Early Retirement: Investing
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Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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08-02-2008, 06:05 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Aug 2007
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 Quote:
Originally Posted by SecondCor521
The typical question that will be asked here is this: How does one identify ahead of time who the top managers will be in the future?
From all I've read, about 1/3 of the actively managed funds will outperform an index fund over any long period of time; about 2/3 will underperform. To me (and to Mr. Bogle) that ratio along with the average expense ratio of actively managed fund strongly implies that the returns of actively managed funds are essentially random.
As I see it, if you and/or Mr. Lucia wish to take such a bet where you have a 1/3 chance of winning and a 2/3 chance of losing, feel free. I'm sticking with the index funds.
My 2 cents.
2Cor521
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My additional 2 cents would be how to decide when to get out (as eventually those who outperform eventually underperform) and who to choose next...
DD
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08-02-2008, 06:05 PM
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#10
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 4,337
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Quote:
Originally Posted by cute fuzzy bunny
Yeah index funds suck and are a bad choice, almost as bad as all the others.
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The other key piece of information is that Ray Lucia is a FA. If you could just go into index funds, why would you need to pay him anything?
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The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
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08-02-2008, 08:28 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Jan 2008
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Index funds are so 1990s.. the real money today is in Hyundai.
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08-03-2008, 02:49 PM
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#12
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Give me a museum and I'll fill it. (Picasso)
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the point he was making was that index funds do work great when markets are rising but in falling or sideways markets like now there is no chance of making money in index funds. you stand some chance in managed funds if you have the right funds. of course key words are "right funds". i can tell you i have both my index funds portfolio and my fidelity newsletters active managed portfolio . no contest over the last five years as my managed funds as a group outperformed my index by quite a bit. not every fund beat its index but as a group the active are ahead
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08-03-2008, 03:22 PM
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#13
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Mathjak
When mentioned "Fidelity newsletters actively managed portfolios", could you please share which newsletters and how you use their suggestions.
Thanks
nwsteve
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08-03-2008, 03:29 PM
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#14
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Give me a museum and I'll fill it. (Picasso)
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fidelity insight, i use the growth portfolio
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