Why Index Funds Are Like Subprime CDOs

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Jean
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Re: Why Index Funds Are Like Subprime CDOs

Post by Jean » Fri Sep 06, 2019 11:18 am

If you can get à job, you probaly can euthanize yourself.

jacob
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Re: Why Index Funds Are Like Subprime CDOs

Post by jacob » Fri Sep 06, 2019 6:13 pm

Freedom_2018 wrote:
Thu Sep 05, 2019 1:32 pm
If most folks have to become investment analysts to achieve/sustain FI...might just be better to stay at work.
Jin+Guice wrote:
Fri Sep 06, 2019 9:57 am
From an early retirement perspective the fact that you have to save >50% of your income for years AND work to earn at least the equivalence of a bachelor's degree in finance, makes the whole thing a lot less tenable/ appealing...
I think it's a lot easier to learn how to become a competent investor (1000 hours) and maintain a certain level of acumen (similar to how employees maintain their employability by being employed) compared to spending 3000 hours learning a specialization and working 40 hours a week for 40 years. But to each their own.

Nobody said FIRE was easy. Well, actually some did, but that was a mistake. I've been going on about how FI is a shift in vocation or quadrant rather than the freedom-from that it's sold at these days. Fact is that one is simply replacing an income that one gets from working with an income one gets from investing. The money being invested is a tool, but a tool also need an operator.

The problem as I see it is that very many has forgotten about needing an operator and replaced their due diligence (which does require a finite amount of effort) with a bunch of slogans that suggest that any diligence is now null and void. "Not only can you put all your monies in a fund and stop thinking about what happens to it. You can also stop thinking about your choice of putting it in a fund."

That was taking it too far.

However, the fact that some are bringing this up and questioning their investment paradigm means that they are not entirely asleep at the wheel. Remember the Mark Twain quote above. It's not a problem if you're wrong because as long as you're questioning yourself there's a limit to how much damage you can cause. Damage happens when one is certain that one is right but isn't.

The problem is not with indexing per se but with the sloganeering attitude that many index investors have: "Market always goes up in the long run", "When the market drops it just means I can buy move", "Time in the market beats timing the market", "You just have to diversify into more funds", ...

There are a lot of assumptions behind those slogans that those who like to repeat them as gospel aren't aware of.

slowtraveler
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Re: Why Index Funds Are Like Subprime CDOs

Post by slowtraveler » Fri Sep 06, 2019 6:56 pm

I agree with Jacob about awareness. If I see a ridiculous discrepancy in stock earnings yield vs treasury yields, I know what to do.

But it is not 1000 hours. I've spent many thousands of hours researching stocks, reading 10-k's, reading all the big investing books, reading value line reports, learning about different ways to distinguish stocks and sale vs those overvalued, good vs bad companies, and all that. While it's helped me understand, I would have been so much better off just researching investor behavior, applying it, and sticking to the index. It's depressing how much better I would have done.

Even after 10000 hours, people who do this for a living fail to succeed. It's a harmful idea that you can just study a few hours a day and beat the people who literally are sucking up to Chief Executives to get top quality information. Even they lose to the index. Most actively managed funds die. Of those that survive, most lose to the index.

Tyler's site actually helped a lot by allowing me to be more diversified in different stock indexes, have some hedges, and still achieve some decent returns.

Hindsite is 20-20 but I should have indexed the whole time I've been learning about finance. Maybe I could ERE by now if I had done that.

People have been bashing broad market index funds since the first came out in the 70's. It's nothing new. There are some flaws like adjusting for insider holding and float but they're still much, much better than the alternatives for the majority of the population.

Jason
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Re: Why Index Funds Are Like Subprime CDOs

Post by Jason » Fri Sep 06, 2019 7:12 pm

slowtraveler wrote:
Fri Sep 06, 2019 6:56 pm
I would have been so much better off just researching investor behavior, applying it, and sticking to the index. It's depressing how much better I would have done.
I agree. My most significant learning has not been about the stock market or individual stocks, but my reaction to their performance. And also, learning about finance, math, business documents et al., does not come "naturally" to me like learning about things that can be taught with just words and not those annoying graphs with numbers and shit.

Jin+Guice
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Re: Why Index Funds Are Like Subprime CDOs

Post by Jin+Guice » Fri Sep 06, 2019 11:17 pm

I really really feel that the investing component of the FI movement is a great weakness.

I remember very clearly standing in the studio at my college in 2006 and my friend telling me that he would invest in real estate when he got some money because "historically, it always goes up." I remember telling him that I didn't know anything about investing or real estate, but I knew he was wrong. Luckily he didn't have any money in 2007 either. A decade later an I'm watching a video of Jim Collins say the same thing about index funds.

Concerns about index investing is what lead me to this forum. I was looking for anyone in the FIRE community who disliked index investing, since I had my doubts, when I remembered reading an ERE blog post that had a dissenting viewpoint. I read that and thought there might be more on the forum and hear I am, a little over a year later.



I haven't spent 1,000 hours trying to become an investor. Probably more on the order of 100 hours. I still don't feel like I even know what direction to go in. I'm not sure I'd be worried about learning how to invest if it wasn't for needing to actually retire due to old age someday. I guess the bigger my stack of money gets the more interested I'll get.

I'm with Jason in that I don't find investing inherently interesting. I even like numbers and charts. I have a fucking econ masters. I've tried to think about how an investor mindset would be inherently useful outside of investing. I still can't get super into it.

I'm still not sure what I'm going to do. I'm still trying and still feel like I'm getting no where.

Not knowing what i'm doing lead me to this forum and it lead me to think of semi-ERE and find others who were doing that as well. I still think that the difficulty of turning money into more money is something that's under-discussed in the FIRE world and dare I say in the ERE world as well.

Seppia
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Re: Why Index Funds Are Like Subprime CDOs

Post by Seppia » Fri Sep 06, 2019 11:46 pm

Jin+Guice wrote:I guess the bigger my stack of money gets the more interested I'll get.
I personally believe that it’s best to get started when the money stack is smaller, as you’ll most likely make mistakes early on.
In my anecdotal experience, the mistake will be in most cases behavioral, and how it presents itself will depend on how you’re wired.
Some lose money due to overconfidence, or panic, while my mistakes were mostly due to inaction.
I think this is because of my overly conservative approach.

Today, I really find myself in what Jacob described more or less as “I’m more interested/concerned in the sustainability of my cash flow than in the paper value of my assets”
Or something like that.

I guess this makes me some sort of dividend investor.
My strategy involves some broad market index funds as well.
Last edited by Seppia on Sat Sep 07, 2019 12:25 am, edited 3 times in total.

daylen
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Re: Why Index Funds Are Like Subprime CDOs

Post by daylen » Fri Sep 06, 2019 11:54 pm

I do not have any experience investing, but I think some of the appeal has to do with the semi-guided studying associated with it. Any NT type would typically be a lifelong student already so having a purpose/direction provides motivation. Having skin in the game makes every bit of information that much more interesting. All "news" is potentially vital given the stakes. Even baby shower gossip could trigger insight concerning an emerging bubble or a market inefficiency.

classical_Liberal
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Re: Why Index Funds Are Like Subprime CDOs

Post by classical_Liberal » Sat Sep 07, 2019 1:52 am

@J+G
Deciding to stay near 100% cash is an investment choice. You are investing. It's just a very concentrated strategy that generally does not hold up well for the long term. A couple years of double digit inflation would completely change your outlook on holding cash.

The above is basically an attempt to motivate you. :D I tend to disagree with the arguments that indexing will ever cause significant liquidity issues. There will always, sooner rather than later, be large scale buyers if the price is low enough. Does it possibly cause some stocks included in the indices to become overpriced? Maybe. But there are alot of indices, most stocks are included in the ones for their class. So I think inefficiencies exist to be exploited, but not enough for a casual, armchair investor. Will the indexes always go up? Maybe, given enough time. History always seems to forget what happens during long periods they don't, and obviously forever growth is not possible unless we start getting off-planet resources. But your investments are in terms of years or maybe decades. Looking too far ahead won't help.

I still think indexing is a great tool for an overall strategy. If you have not, I would really, really encourage you to read all of @tyler9000's commentary on Portfolio Charts. I'm assuming you've read Brownes book on the PP (Fail Safe Investing)? If not read that as well. I really think some type of noncorrelation strategy is the best starting point for people who need to invest, but don't want to get their hands dirty with too much research. At least to ensure capital preservation, which holding cash does not do in several economic environments.

Freedom_2018
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Re: Why Index Funds Are Like Subprime CDOs

Post by Freedom_2018 » Sat Sep 07, 2019 4:26 am

Life is more complex, nuanced and richer than just ERE. People are not just their MBTIs and investing (and choices we make in life) is much to do with the investor himself than stock analysis and numbers...though that is very very important.

Here is Mr Mental Models himself on Donald Trump in 2011:

https://youtu.be/RGLMnTzQIh8

Wonder how he feels about living and possibly dying the last 8 yrs under a Trump regime (assuming Trump gets reelected)

We need our heads, hearts and spirit to face what life will throw at us.

Jason
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Re: Why Index Funds Are Like Subprime CDOs

Post by Jason » Sat Sep 07, 2019 5:55 am

Jin+Guice wrote:
Fri Sep 06, 2019 11:17 pm

I'm with Jason in that I don't find investing inherently interesting.
To clarify, I find it interesting according to my abilities and understanding. But I know those abilities place me in the everyday, consumer type of investor category. I like having a stake in a company. I like watching my money work for me. Could I get to the point that I'm in my attic with 100's of prospectuses at my feet making informed decisions? Maybe. But it would be the equivalent of Jeffrey Epstein attending an orgy at a senior center. It's not the kind of stuff I naturally want to look at.

I think most people have taken a class or gone into a program thinking this is what they want to study. But then they realize its a topic they want to study up to a point, not to the exacting standards required for professional status. Either their abilities and/or commitment level get stretched beyond their comfort level. And that's fine. It's better to cut and run. And the 1000 hour thing? Maybe that works with ironing or cleaning out your garage. But if JLF and I studied applied economics for 1000 hours, who's feet are people most likely to be sitting under after we're finished? When you're talking about a field with essentially no ceiling of understanding, it's a different matter. And I think that was John Bogel's message. People who do the 1000 hour study thing and get the certifications and the acronyms still don't understand that much more than the average person. And the guys who do really understand it? Most are going to use that understanding to enrich themselves at prestigious banks or financial organizations. It's the guys who don't understand it that end up in the jobs pushing annuities with their Rolex adorned wrists across tables at the average person and why its just better for that average person to index.

The Old Man
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Re: Why Index Funds Are Like Subprime CDOs

Post by The Old Man » Sat Sep 07, 2019 7:45 am

jacob wrote:
Fri Sep 06, 2019 6:13 pm
The problem is not with indexing per se but with the sloganeering attitude that many index investors have...
Wow! This is a major change in your position on index funds. In the past you have been nothing but unrelenting in your attacks on index funds as an investment vehicle.

I think you’re an intelligent person, but I could never understand these attacks. I agree there is a bubble in stocks, bonds, real estate, and now even cash (with the prospect of negative rates); however, index funds have nothing to do with this bubble other than simplifying and reducing the costs of making such investments.

Index funds may foster a confidence in investments as “safe”, when they are in fact NOT. It is much like people accepting without question the 4% rule without understanding its important caveats.

Index funds may have their own specific risks. The 1987 crash was driven by derivatives. Options & Futures exist on the S&P500 index, so this could be a significant source of destablization. There may be other specific risks. Saying a bubble exists in index finds is meaningless without also explaining HOW index funds as an investment vehicle have the potential to destabilize the markets.

jacob
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Re: Why Index Funds Are Like Subprime CDOs

Post by jacob » Sat Sep 07, 2019 8:13 am

@TheOldMan - I don't see my position as changed but maybe you/people understand it better now? I do realize that I have a reputation for "hating index funds" in certain circles (There's even an old FAQ(*) on my blog on that) but what I've talked about are the systemic risks of mass-adoption and the problem of strategy-diversification in the market that index funds facilitate.

I don't think I've said much beyond what the patron saint himself eventually warned about as well. If there's anything I've been unrelenting in attacking, it's the supreme faith of the typical index investor.

(*)
ERE FAQ wrote: Q: Why do you hate index funds?
A: Dude! I don’t hate index funds and the idea that I do has been greatly exaggerated by the louder members of a certain forum on the internet who feel compelled to call down a witch hunt whenever anyone questions their dogma (You know who you are!) In fact, I’ve used index funds myself to invest on occasion when the situation called for it. It’s just that I don’t hold any rigid views when it comes to my personal investment strategies. I reserve the right to change my strategy if the situation changes and so far that has worked out well for me.

cimorene12
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Re: Why Index Funds Are Like Subprime CDOs

Post by cimorene12 » Sat Sep 07, 2019 9:11 am

The market is not entirely owned by indexers, of course, and it never will be, and Bogle pointed out that as indexing increases to a certain point, it opens opportunities for active investors to exploit inefficiencies in the pricing of some stocks. But past that point, wherever it might be — somewhere beyond 75%, in his view — the market could become a dangerous place.
I'd say that Michael Burry is looking at those inefficiencies, which he says. I also believe that Michael is improperly valuing Korean stocks.

Nomad
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Re: Why Index Funds Are Like Subprime CDOs

Post by Nomad » Sat Sep 07, 2019 9:25 am

Some people are very enthusiast about index funds and quote sources such as 'A Random Walk Down Wall Street' which say that 92% of active funds fail to beat the index.

The questions is, why not put money into the 8% of active funds that beat the index?
It is easy to find funds that have beaten the market five or more years in a row.

Seppia
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Re: Why Index Funds Are Like Subprime CDOs

Post by Seppia » Sat Sep 07, 2019 9:33 am

The hard part is finding those who will beat it in the next five or more

Jin+Guice
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Re: Why Index Funds Are Like Subprime CDOs

Post by Jin+Guice » Sat Sep 07, 2019 9:52 am

To clarify my position, I know that investing is important and something we are all involved with, whether we chose to be or not. This is what makes it so frustrating! I'm also not holding a cash position entirely, I'm holding the vanguard money market fund, with the current goal of keeping up with inflation. I don't know much, but I am paying attention, and currently it seems like every broad asset class is over-valued and inflation is low, so the cost of holding cash while I gain an education is not high.

What I'm having trouble with is even figuring out how to develop a strategy. How do I sort through all of the conflicting advice? How do I figure out where my efforts are best allocated?

I do find investing interesting up to a point and, obviously I'm interested in earning income from money I've saved. I do like learning about economics and human behavior and different investment methods, but I don't yet find researching companies and reading annual reports interesting at all. It's certainly something I could spend a few hours a week doing if I was deriving income from it, but how does one get to that point?

This is what I worry about in regards to learning:
slowtraveler wrote:
Fri Sep 06, 2019 6:56 pm
But it is not 1000 hours. I've spent many thousands of hours researching stocks, reading 10-k's, reading all the big investing books, reading value line reports, learning about different ways to distinguish stocks and sale vs those overvalued, good vs bad companies, and all that. While it's helped me understand, I would have been so much better off just researching investor behavior, applying it, and sticking to the index. It's depressing how much better I would have done.

Even after 10000 hours, people who do this for a living fail to succeed.
Jason wrote:
Sat Sep 07, 2019 5:55 am
I think most people have taken a class or gone into a program thinking this is what they want to study. But then they realize its a topic they want to study up to a point, not to the exacting standards required for professional status. Either their abilities and/or commitment level get stretched beyond their comfort level. And that's fine. It's better to cut and run. And the 1000 hour thing? Maybe that works with ironing or cleaning out your garage. But if JLF and I studied applied economics for 1000 hours, who's feet are people most likely to be sitting under after we're finished? When you're talking about a field with essentially no ceiling of understanding, it's a different matter.
What amazes me most about Jacob is his ability to self direct and his ability to learn new subjects with ease. I always get lost in the bullshit and terminology for a few years before I can figure out which was is up.

How does one get to the point where they feel like they know what they're doing?


The first thread I ever made on this forum was requesting information on how to develop an investing strategy from those who had one. The answers I got were 1) Index; 2) No one can tell you how to invest and 3) study Jacob's curriculum and read books about different investment strategies. No one told me how they developed their strategy or what their learning process was like.

I've been reading books about investment strategies for the last year and I have the 1st finance book from Jacob's curriculum. I still don't feel like I'm any closer to knowing what I'm doing. I'm still going to try and run through Jacob's curriculum and keep reading books about different strategies, but god damn, those books are boring. It's hard to stay motivated through a boring book and absorb what it says when you know you're going to have to read 15 more books and then 6 textbooks to even begin to develop a strategy.

I get that this isn't supposed to be easy. Learning to play piano isn't easy either. The difference is, if you don't want to learn to play piano, you don't have to. To continue the analogy, It feels like I have a casual interest in piano, but everyone who knows how to play is telling me that each note is different and half of everyone swears that if you just sit at the piano for long enough you'll learn, because piano always sounds good, in the long run.

daylen
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Re: Why Index Funds Are Like Subprime CDOs

Post by daylen » Sat Sep 07, 2019 10:03 am

It is [sometimes] considered a liberal art for a reason, it takes some creativity. Research alone doesn't cut it. Comfort with the feeling of being lost is very important, because certainty is just not something that happens when trying to predict the behavior of complex adaptive systems.
Last edited by daylen on Sat Sep 07, 2019 10:06 am, edited 1 time in total.

Seppia
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Re: Why Index Funds Are Like Subprime CDOs

Post by Seppia » Sat Sep 07, 2019 10:06 am

@J+G
As I mentioned before: start.
Having a little skin in the game will make you care more. You will make mistakes, you will learn your behavioral biases.
My mentor told me it takes a moderately smart person 20 years to kind of understand how markets work: the sooner you start the sooner you’ll figure it out.

I started by buying 4 stocks, selected with the following criteria:
Very large
Solid dividend payers
1 utility, 1 oil and gas, 1 bank/insurance, 1 industrial

I was in France at the time so I picked Suez, Royal Dutch shell, Axa and St gobain.

The initial invested sum has to be relevant enough that you will care, but small enough so that if you make a mistake it would not cripple you.

At the time, that was 1500€ per stock for me.

Wow that was 2006. Time flies.

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Re: Why Index Funds Are Like Subprime CDOs

Post by jacob » Sat Sep 07, 2019 10:42 am

@J+G - I described how I think learning works in the ERE book in the Gauging Mastery section. I strongly believe that these lessons also apply to investing, but in the public perception, investing has turned into this mysterious dark art where it's believed that one can spend 10000 hours (that's like 5 years of full time study!) and still understand nothing ... or spend 1 hour and do just as well as professionals. That's rather screwed up.

In terms of CCCCCC-model, I think there's great and unseen risk in remaining at the "copying" stage relying on what is essentially "social proof" to form one's understanding. Much of the, dare I say, cultish behavior exhibited in many groups serve to exclude people from not even trying to "compare" or "compile" other insights. In short, there's a level of fundamentalism going on ... similar to what we saw with the real estate market up until 2008 ... and now in certain corners of the world once again.

In terms of hours, one can spend 10000 hours reading 10Ks... but insofar that does not lead to moving beyond "calculation" (the level achieved by a typical econ undergraduate), most of those hours are wasted insofar the goal is to develop the ability to run a portfolio. I think that is the main mistake made when thinking that the only alternative to VTSAX is to becoming an elite stock picker. But that's like believing that 10000 hours spent rehearsing endless piano scales makes one a good composer or even allows one to play a simple tune. It doesn't. Those are entirely different skills. They're facilitated by a mastery of scales, but they are skills of their own.

If I have any "magic" learning abilities, it's that I know what the learning process is supposed to look like. See the CCCCCC explanation.

Essentially, investing is just like any other skill in the universe.
  • You can be an informed DIY'er.
  • You can be an uninformed DIY'er.
  • You can be an informed consumer.
  • You can be an uninformed consumer.
These are not mutually exclusive. They exist on a range one can be anywhere on the 2D graph.

What I'm saying (w/o relenting :-P ) is that it is always a bad idea to be uninformed($) whether it is as a consumer or a self-directed producer. Also, there's not a false choice between being an extremely well-informed DIY investor and an uninformed investor who learned all they think they need about investing from a blog post. One can also be an informed consumer of investment products.

($) Well, that is to say ... if it regards something that's worth $10, I don't care about being uninformed. I'm not a connoisseur of ketchup bottles or beer for that matter. But when we're talking 4 figures and up, you better believe that I take an interest in what I spend my money on.

The minimum I would do as an informed consumer would be to read Bodie's book(*) (see my curriculum) and then talk to a fee-only CFP every few years to see what they think. This would prevent one from committing to a particular investment style for "the long run" just because it has performed well in the last 15 or 30 years. If you look at some of the old FIRE people who started back in the 1980s, you can see how the paradigm has changed several times. Reading the three versions of YMOYL is a good example of the need to stay on one's toes. The first edition suggested LT-bonds. The second edition suggested index funds. And AFAIK the third edition just gives an overview. Now imagine those who read the first edition and never bothered to check in again or deliberately decided not being convinced of the original arguments for risk free bonds. Or those who waited until the next edition of the book came out.

There's a reason why the ERE book doesn't give specific investment advice. I'm well aware that investment strategies change on the decadal time scale. I think others should be too.

(*) So as to get an overview of how everything works instead of wasting time trying to learn from facebook or blog/forum posts.

P_K
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Re: Why Index Funds Are Like Subprime CDOs

Post by P_K » Sat Sep 07, 2019 11:30 am

Jin+Guice wrote:
Sat Sep 07, 2019 9:52 am
No one told me how they developed their strategy or what their learning process was like.
Here is the plan I have been following for learning as I have it written. Credit goes predominantly to Jacob (and other forumites) as I picked it up from him (and others) over the years. But, I am NOT advocating this as Jacob's recommendation. It is simply what I have understood from the posts I have read. Not sure if this is exactly what you are asking, but this is the process I have been following. Also, I think things will become more clear to you as you read the textbooks in the curriculum. They cover a good deal regarding getting started. And sorry about the horrid formatting :D

1. Read the "Startup Curriculum" textbooks
a. After reading a few of these (enough to establish somewhat of a foundation of understanding of finance), read layman's textbooks in parallel to get an idea of what kind of strategies already exist
i. E.g. Margin of Safety, The Intelligent Investor, The Permanent Portfolio, What Works on Wall Street, More Than You Know, Value Averaging, technical trading books, etc.


2. Begin writing reports akin to what professional analysts would write
a. This will require generating my own tables, graphs, and mental models*
i. This, in turn, will require substantial practice at scrubbing the data from quarterly and annual reports to normalize accounting differences
1. Some ideas for data formatting can be found in the various books above, but I should experiment with the construction of these tables and graphs to see what works best for me
ii. *E.g. understanding the differences between the functionality of, say, a furniture company and a grocery chain
iii. This is typically where people will specialize. Try to find a niche that I understand better than most

b. This will require reports to compare to. Some choices:
i. S&P 500 reports might be available from your broker
ii. ValueLine might be available from your library (or worth purchasing)

c. Continue education/reading for insight and ideas:
i. Recommended to subscribe to an investing magazine for additional insight/ideas (AAII, for example)
ii. Recommended to spend time on SeekingAlpha for additional ideas
iii. Continue reading layman's books on investing strategies


3. Once I feel like my reports are equal to or greater than professional analysts, start picking stocks to actually put my money into
a. Start small (say, 10% of assets) and scale up based on demonstrated success

b. If I start to fail, scale back

c. Focus on small cap stocks or stocks that generally aren't followed by many analysts, as these tend to be the more often inefficiently priced from a fundamental standpoint
i. Other screen ideas can be found in these forums, and in the textbooks and layman books read above (WWoWS had a bunch of these. In general, though, be careful about just copying these, like all things in investing they are past looking while I need to be forward looking)

d. Try to come up with my own, novel ideas. Be forward thinking; is there anything the market is missing/not aware of that I can see? Try to come up with an edge other's might miss. E.g., will spending time in a videogame reddit give me insight into that industry that someone else might miss?


4. If I find that I simply cannot hack it, use the knowledge gained from the above to chose a professional to manage my money


Also, I found the following quote from Jacob to be helpful in deciding whether or not I should even try all this vs. just learning enough to select an asset manager (from viewtopic.php?f=3&t=7766&start=75#p118360). It's a tough decision; but, I ultimately decided I was confident/arrogant enough to think I could do it. Or at least try. Time will tell.
jacob wrote:
Wed Jun 01, 2016 12:42 pm
So with that in mind, I hope this makes for a somewhat more rational and deliberate decision as to whether financial understanding is worth pursuing for a given individual. Should one do it? Well, that question requires three more questions?

1) Are you interested in learning the skills? It's pretty hard to learn anything if one isn't interested in learning it. There's simply a lot to learn for starters and it's an ongoing process that requires some maintenance once learned. If the markets aren't exciting to you, there's no need to bother. Go invest in index funds.

2) Do you have the talents? That's a really hard question to answer. So far the question can only be answered in the negative. That's what I tried to do with the cigar post above. If there's a difference between the dogmatic voices on in the personal finance space on internet forums (unfortunately, including this one) and successful investors, it's that the latter habitually question themselves as to whether they really have the correct understanding, both in terms of fundamental theory but also wrt current market developments. All these guys have what could be called a "learning-mind", always happy to latch onto anything that might increase or question their understanding. Conversely, dogmatic types, who are the anti-thesis of the learning-mind and not only think they know everything but specifically that it's impossible to learn anything new, should not bother. Instead go invest in index funds.

3) Are you capable of coming up with novel ideas? A good indicator that you're not is if you tend to lean heavily on argument by authority and wanting references for everything. This is not going to work. Investing is forward looking, not backward looking, because unlike the rest of the business world, investing is one of the few areas where most of the advantage goes to the first mover instead of the one who comes in, copies the idea, and executes it better. In other words, if you had to be completely honest with yourself, do you have some aspect of yourself that sets you apart from most other people (maybe it's an ability to concentrate really well, maybe it's the ability to see patterns in complex situations, ... )? If not, you probably shouldn't bother either. Instead go invest in index funds.

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