Passive Index Investing; a Bubble Bound to Burst?

[aja8888]

Another reason I have an FA stock picker dude -

If my memory is correct, didn't your FA guy get you into IBM a few months back (you started a thread?)? How's it doing?

 

[38Chevy454]

As a mutual fund investor myself, I have some index type funds as well as some sector type funds, to give me both pure passive and some partially active. This provides me diversification to some extent. There are overlap areas, as many of the sector investments are included in the index funds.



I believe there are always going to be those active individual stock pickers that think they are able to do better. Over the long term I think averages will equal out. But there could be a small percent that do beat average consistently; just as there will be some that under perform. I'll stick with the diversification of mutual funds and being happy with getting average level results without the ups and downs of individual stock picking. In the end, self-directed and I can accept that I will tend to be average results each year and not be paying FA fees that come off the top reducing the net result. Since I don't have time to do all of the research, I will pay the active managed sector funds as my contribution to keeping the financial community in business.

 

[foxfirev5]

Just a personal experience, not trying to pile on. DM worked for a small broker for about 50 years, later bought out by ML. The owner accumulated assets far beyond my comprehension and managed a fair portion of the local towns assets. What we would call our stock picking FA. The ironic thing DM noticed that once he was retired his assets were invested with VG and no stock picking at all. His heirs have experienced exponential growth. Nobody has an FA. It spoke volumes to me.

 

[copyright1997reloaded]

Back in the old, old, old days (circa 1978) when you had to go to the broker to see the ticker tape or do research (e.g. read the S&P reports or Value Line report), I met a lot of brokers as we used to go there just about every day (at lunch). It was at that point in time I realized that a lot of people working there weren't the sharpest tools in the shed. It was also at that point in time that I decided that if I did my own analysis, then I could only blame myself on how well I did.

Forty years later I still use the same approach for my non 401K accounts. I realize that this technique does not work for the vast majority of folks out there. Nor do I make stock suggestions for friends or family - the only thing I have suggested to them is to invest, and to invest with low cost (passive) mutual funds and ETF's. The reason is simple - I have no desire to ever hear I suggested an investment to them that didn't work out. I have even done that with my ex, who has me managing some of her money...it is mostly in Vanguard funds such as the Total Mkt Index. The only exception is some money I've been annually investing for my child - and those picks are a mix of passive ETF's with some individual picks to try to generate interest in understanding investing. (The first stock purchased was Activision Blizzard (ATVI) in April of 2013 under $15 - the stock is now $73, a 400%+ gain.)

 

[RobbieB]

If my memory is correct, didn't your FA guy get you into IBM a few months back (you started a thread?)? How's it doing?

He sold it all months ago for a small profit and bought some other stuff.

I compare his results (after fees) with FUSEX and he always wins. Been winning for 3 years straight now.

 

[thepalmersinking]

You realize that for the most part mutual funds and ETF’s own 95% of the same stuff and most mutual funds have so much $ chasing those few one-off winners that it makes little difference in their overall returns.

I choose ETF’s over mutual funds in Taxable and deferred and exempt accounts for one main reason. I can put stops on ETF’s. If there is a stupid tweet or a mushroom cloud and the market heads south at lunch then I am out usually before a market halt circuit breaker kicks in. Most big ETFs trade in a narrow range anyway. I can also sell covered calls on ETF s.

 

[audreyh1]

You realize that for the most part mutual funds and ETF’s own 95% of the same stuff and most mutual funds have so much $ chasing those few one-off winners that it makes little difference in their overall returns.

I choose ETF’s over mutual funds in Taxable and deferred and exempt accounts for one main reason. I can put stops on ETF’s. If there is a stupid tweet or a mushroom cloud and the market heads south at lunch then I am out usually before a market halt circuit breaker kicks in. Most big ETFs trade in a narrow range anyway. I can also sell covered calls on ETF s.

Actually with a stop you make yourself very vulnerable to a flash crash - and you don't necessarily get to sell at your stop, you might get kicked out well below it. Then in a couple of hours it has recovered, but you've been sold out of it.

 

[gauss]

Actually with a stop you make yourself very vulnerable to a flash crash - and you don't necessarily get to sell at your stop, you might get kicked out well below it. Then in a couple of hours it has recovered, but you've been sold out of it.

So true...

 

[thepalmersinking]

. If you have tight stop at 5%-10%. That is far from flash crash numbers for the circuit breaker. Even last flash crash, I lost $300 on a $300k ETF. I’ll take that insurance anyday on a flash crash turning into a rout.

 

[Totoro]

Actually with a stop you make yourself very vulnerable to a flash crash - and you don't necessarily get to sell at your stop, you might get kicked out well below it. Then in a couple of hours it has recovered, but you've been sold out of it.

+1. I'd rather put in a buy order at flash crashes .. incidentally, I also rather sell cash covered puts than cash covered calls.

When there's bargains to be had, buy! Unless the world ends, ah well.

 

[MRG]

Actually with a stop you make yourself very vulnerable to a flash crash - and you don't necessarily get to sell at your stop, you might get kicked out well below it. Then in a couple of hours it has recovered, but you've been sold out of it.

Yep. Been there, done that, and I couldn't afford to buy the T-shirt.

 

[OldShooter]

. If you have tight stop at 5%-10%. That is far from flash crash numbers for the circuit breaker. Even last flash crash, I lost $300 on a $300k ETF. I’ll take that insurance anyday on a flash crash turning into a rout.

How long have you been doing this? How many times have you been stopped out? What is your cumulative gain or loss since beginning to use the strategy?