Anti-Index Fund Literature

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suomalainen
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Re: Anti-Index Fund Literature

Post by suomalainen » Wed Feb 07, 2018 6:27 am

[deleted double post after the edit]
Last edited by suomalainen on Wed Feb 07, 2018 6:35 am, edited 1 time in total.

7Wannabe5
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Re: Anti-Index Fund Literature

Post by 7Wannabe5 » Wed Feb 07, 2018 6:31 am

Sclass wrote:if you don’t know WTH you are doing buying the index isn’t the worst option.
You could buy timber land, Barbie Princess dolls in original packaging, meat rabbits, and silver. IOW, there might be markets in which it is possible to gain enough expertise to make 10% on $50,000 in the same amount of time/effort you would have to invest to make 5% on $100,000 in the stock market as reflected in the index. Jacob has an IQ above 160, so he can be a big fish in a big pool. Other people who would need to study 3 or 4X as hard/long as Jacob to still not quite get it, might be better off exploring local or niche markets. For instance, I doubt you would have to worry about players of Jacob's caliber showing up at a Barbie Swap/Meet in Kenosha, Wisconsin.

suomalainen
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Re: Anti-Index Fund Literature

Post by suomalainen » Wed Feb 07, 2018 6:34 am

@P_K very mature of you to indirectly criticize my arguments via fake commiserating with poor @Jacob just having to engage in an Internet forum discussion with poor dumb idiot like me, instead of addressing your criticism directly at me.
P_K wrote:
Tue Feb 06, 2018 11:14 pm
I have to laugh every time someone says “If professionals can’t beat the market better than average, do you really think you can!?” Has anyone saying this ever worked with any “professionals” in any field, ever? I can’t imagine they have. Because my experience has taught me that the answer is “Yes,” and, also, “Duh.” The other equally common “argument” has also got to be getting old: “Well if you’re so good why don’t you open up a hedge fund and get rich??” Never mind that investing $500k or $1M is categorically different than 100M, than 10B.
The point of my comment is that even using @jacob's numbers, if you are a top 10% amateur in ANYTHING, maybe you should consider turning pro. Isn't the point of ERE/web of goals to do things that, as a side of effect of your expertise and/or enjoyment earns you income? If you really are that good, you can run one of those dumb scammy day trading websites and make some money, if that's your thing; you don't have to run a 10B hedge fund to be a professional.
P_K wrote:
Tue Feb 06, 2018 11:14 pm
While it was definitely more of an issue in the past, a big problem with the laissez faire approach to investing nowadays is that it runs the risk of buying a product you don’t understand, and have no way of evaluating...The point is that if you don’t know what you’re getting, or how to evaluate what you've received to make sure that you’re getting what you're supposed to get, you’re not really setting yourself up for long term success. For an EREer who plans to live off of or at least support themselves to some degree by investment income for 40+ years this kind of knowledge is even more important. Maybe you aren’t capable of being the 10%, but at least you can be aware enough of what’s available and what’s not and how that relates to what you’re currently buying, as opposed to getting whatever you’re sold.
If you'll read my posts closely, you will note that I was addressing a specific either/or question - is @MI's time better spent in reading 10Ks or in working overtime. @MI went on to say that he doesn't know anything! Why in the world would you encourage a person who admits he has no skill that "Yeah, dude, totally, you can beat the market! Just read a shittonne of 10Ks instead of doing your day job where you actually know what you're doing!" My advice to @MI and those in a similar position is NOT to start reading 10Ks. Absolutely get some more general education and knowledge first in your free time. In the meantime, DON'T QUIT YOUR DAY JOB TO DAY TRADE. YOU WILL LIKELY SUCK AT IT. If you happen to have a skill and you end up in the top 10%, consider quitting your day job and become a professional making money doing something you'd be doing anyway.

I don't really know what's so controversial about this advice. Not everyone is as skilled at investing as apparently everyone on this forum. :roll: Investing is not plumbing. Any idiot can watch a youtube video and go out and successfully fix his toilet the same day. You CANNOT watch one youtube video and successfully beat the market. To compare the two is laughable.

EDIT: As to my last point, I am one of those idiots who has fixed any number of things in my house after a brief consultation with youtube. I do not have the time or inclination (see, e.g., the 76% of my posts that complain about my kids) to become an expert trader even though I actually work in the investment management industry and have made a few great trades following one of my friends who is an investor who said "buy Mexico" the day after the election. Made 20% in a couple of weeks. "Sell LQD and buy TBT". Made another 20% in a couple of weeks. He is a great investor. I am not. But on a broader scale, as @Jacob alluded to, our best returns are with our private equity managers and even there, returns vary widely.

frommi
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Re: Anti-Index Fund Literature

Post by frommi » Wed Feb 07, 2018 7:35 am

You don`t have to be an expert to roughly estimate what the future return for the next 10 years of for example the S&P500 or the 10 year treasuries is. Nor do you need to read any 10K for that. You will not be able to pinpoint the exact return, but you will be able to estimate a rough range of possible returns and you just need to read one website for that (or one youtube video if you find the right one). If you understand that your investment return comes from "dividend yield"+"growth"+"change in valuation" you have everything at your disposal to roughly estimate the return on any stable stock, real estate or bond. How is that hard? Btw. here is that website for you, i posted it already in the CAPE thread: https://www.gurufocus.com/stock-market-valuations.php :)

Did you notice that i didn`t even mention "beat the market"? Because that is totally irrelevant. At least to me, i just want to get a good return on my investment and with an index fund on the S&P500 at the current point in time i don`t get that!
The problem with investing is that there is so much noise and misinformation that it is hard to find the "real" knowledge, but its out there. And the second problem is that it takes years to see if your toilet repair was successfull.

IlliniDave
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Re: Anti-Index Fund Literature

Post by IlliniDave » Wed Feb 07, 2018 8:12 am

jacob wrote:
Tue Feb 06, 2018 5:19 pm
Beating or not beating the market is a false dichotomy. The main goal as a FIRE-investor is to have enough cash on a day to day basis and not run out of it. Doing relatively better than the market (by which people usually mean the s&p500 proxy) is insufficient if the market itself is not doing well enough on an absolute basis to fulfill this requirement.
+1 X 1000 to the emphasized.

The sorta converse of the second sentence in the extract is that beating the market is unnecessary if the market return is sufficient for the goal.

There are basically three knobs at work while accumulating: 1) how much you make (wages), 2) how much you spend, 3) and what you do with the difference to grow/preserve it. For the poster above I'd say to keep hammering the overtime while you can because it is much more certain than the outcome of 3), takes much of the pressure off of said outcome, and I think is the most straightforward way to address the potential of markets not doing the future heavy lifting that history implies they will.

We all know I believe my own odds of being in the 90% who'd lag the market are about 90% (using your ratios, though differing estimates exist). So as much as I can (it's a trade-off) I'm trying to insulate myself from qualitative variation in market returns by, as my friends over on bogleheads would say, "over-saving" and "denying" myself a good life. But inescapably the higher I drive my multiples the greater the odds whatever the market does will be good enough and the semi-converse I gave above applies.

But if markets fall into eternal ruin I do have some challenges to overcome. I'm just not a prepper.

Scott 2
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Re: Anti-Index Fund Literature

Post by Scott 2 » Wed Feb 07, 2018 8:44 am

The investing blog post is recommending self study of what's essentially a minor in finance, followed by years of practical experience applying that education.

Along the way, I picked up a recommendation for the book Investment Science by David Luenberger. I believe it was here. I read it. The math is hard. I'm a smart person. And I did a reasonable amount of math in college, including multi-variable calculus and linear algebra.

Someone needs the constitution to get in and out, based on confidence in their understanding.

Also reading 10-k's sucks. It's awful. Making a habit of that? I'd rather work. I have a decent tolerance for tedium.

The barriers of entry to successful active investment are high. You should all go do it though :)


For the purpose of conversation, I assume indexing is holding a variety of asset categories that are regularly re-balanced, not just buying the Dow and calling it a day. It's what I settled on for now. Hopefully I fall under the smart enough to have a clue bucket, when things go south. I don't know if I do. It did look to me like the math limits my down side risk pretty well, even in the event of an irrational populous (ie today?), which is my primary concern. My biggest problem is if all asset classes crash at once, together. That would hurt.

suomalainen
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Re: Anti-Index Fund Literature

Post by suomalainen » Wed Feb 07, 2018 8:48 am

frommi wrote:
Wed Feb 07, 2018 7:35 am
"dividend yield"+"growth"+"change in valuation" you have everything at your disposal to roughly estimate the return on any stable stock, real estate or bond. How is that hard?
Fixed it for you:
(future) "dividend yield"+(future) "growth"+(future) "change in valuation" you have everything at your disposal to roughly estimate the (future) return on any stable stock, real estate or bond.
Is predicting the future hard? It is for me.

But let me press you a bit more to move from platitudes to specifics. Adopting your paradigm, how do you get from "roughly estimating the return on any stable [asset]" to "I hereby choose THIS asset"? What is your investment process? If you like, offer up your investment thesis for your most recent trade.
frommi wrote:
Wed Feb 07, 2018 7:35 am
Did you notice that i didn`t even mention "beat the market"? Because that is totally irrelevant. At least to me, i just want to get a good return on my investment and with an index fund on the S&P500 at the current point in time i don`t get that!
Ah, but beating the market isn't irrelevant, even to you. I think the point here is that you *considered* it, but find it to be lacking. If it was irrelevant, why would you even consider it? "A market return" just means that you can buy an asset - an ETF that owns a share of (for example) each of the S&P500 companies. If you don't like the asset, fine, I get that. But it's not an "irrelevant" asset any more than IBM stock is "irrelevant" or US TIPS are "irrelevant" or the duplex down the street is "irrelevant".

In one sense, there is no such thing as "passive" investing. Even if you're in it for a "market return", you still have to actively decide which market! Am I buying an S&P500 ETF? Russell 3000? European equities? Developing countries? What about bonds? Government, corporate or municipal? Which countries? Etc.

My point is and has always been that if you don't have the expertise to evaluate and purchase single names, buy the ETF. Like equities based on your "rough estimate of future returns"? Super! Buy the S&P500! Dislike equities? Super! Buy bonds! or REITs! or gold! or bitcoin or whatever it is the kids are doing these days.

EDIT: +1 to @Scott's point

frommi
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Re: Anti-Index Fund Literature

Post by frommi » Wed Feb 07, 2018 9:36 am

suomalainen wrote:
Wed Feb 07, 2018 8:48 am

If you like, offer up your investment thesis for your most recent trade.
Why should i? I am not under the impression that that changes anything. Those that are willing to put in the time and effort will learn to find investments, those that ask for recent trades just want a hop tip. These type of people rarely make money in the market long term. I don`t even have the impression that you read the link that i posted otherwise you wouldn`t have felt the need to correct my statement. :)

arcyallen
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Re: Anti-Index Fund Literature

Post by arcyallen » Wed Feb 07, 2018 9:52 am

Mister Imperceptible wrote:
Thu Feb 01, 2018 2:04 pm
Given my level of ignorance compared to the wise minds here, can someone point me to a source of information that details the inherent risks associated with index funds?
You're not getting much direct help here yet, are you? :)

It's often quoted that the vast majority of actively managed funds lag the index. That's technically true. If you're looking for total return, that is. Sometimes you might want less volatility instead to smooth out the ride. If you can get both, fantastic.

There ARE funds that consistently outperform the market in either category. I am a big fan of American Funds and am very intimate with them. I offered them when I was a financial advisor and still own and purchase them now. This link is a good example (and here's my "direct help"):
https://www.americanfunds.com/individua ... .html.html

This doesn't mean index funds are bad, but shows you there -are- alternatives. Sane, safe alternatives that may help you achieve your goals better. Jacob is right in recommending some research to figure out the "whys", not just the "whats". I -am- a big fan of buy and hold investing, and that's what most truly good funds actually do. Most funds (the bad ones) typically try to dance in and out of positions and suck doing so.

As an aside, specifically for American Funds you can buy them with an up-front commission if you want the advice through a full service firm or through Fidelity with no load if you want to do it on your own. I'm happy to have calm and reasonable discussion about them. On other boards it's been a crapfest if I mention any alternative to "VTSAX! VTSAX!" so I look forward to sanity here.

suomalainen
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Re: Anti-Index Fund Literature

Post by suomalainen » Wed Feb 07, 2018 10:20 am

@frommi selectively quoting me now? I did read your link. Very pedestrian. You know, what strikes me is that people make these assertions that it’s sooooo easy to beat the market, but they can’t even be bothered to explain. A dismissal isn’t persuasive. Why all the mysticism? If it’s so easy just tell us what you do! “Explain your process” is not “give me a hot tip that comes out of your process”.

Why should you? Because you participate in a forum where people are trying to be educated and when pressed, you can’t or won’t back up your assertions. I am clearly not trolling here, and I asked for your investment process, and said you could provide your investment thesis if you prefer to illustrate your process, yet you dismiss.

As an example, at my institution, we have a credit committee where an analyst has to present and defend their investment thesis for buying X. They read a prospectus, they ask followup questions of management, they read market studies or reports, they run base case and downside case scenarios, etc. Every single bit of due diligence is analyzed and integrated into a buy recommendation. What is your process?

Many “investors” seem to have their favorite “indicators”, like your link’s market cap to gnp ratio. And there’s a quote or two by someone famous. Maybe the cap/gnp ratio is warren’s favorite, but is it his only? And is it a timing indicator as well? Do you think Warren Buffett invests based on a single metric? A single variable? I suspect @jacob’s job in Chicago had to do with very sophisticated multi-variate analysis of just mounds and mounds and mounds of data. In his personal account, he is NOT looking at a single ratio.

I am not remotely looking for a “hot tip”. Give me a break. :roll:

IlliniDave
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Re: Anti-Index Fund Literature

Post by IlliniDave » Wed Feb 07, 2018 11:23 am

arcyallen wrote:
Wed Feb 07, 2018 9:52 am
...
I -am- a big fan of buy and hold investing, and that's what most truly good funds actually do. Most funds (the bad ones) typically try to dance in and out of positions and suck doing so.
+1

When I consider investing in a mutual fund, the first thing I look at is the portfolio turnover. If it is not low (below say, ~20% for a stock fund) I won't buy it.

Even Jack Bogle has good things to say about American Funds (because they are managed with long-term investors in mind). I'm convinced that is why Vanguard "active" funds often have excellent long-haul track records against the competition. Active funds that are managed relatively passively (it's a continuum, not a binary thing) I believe can hold their own with index funds if they limit ERs/12-1b costs, so I have no qualms about owning such when the fees are sufficiently low. There really is no magic about an index, the sauce is that the funds can be managed cheaply (to include lowered trading costs as turnover decreases).

frommi
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Re: Anti-Index Fund Literature

Post by frommi » Wed Feb 07, 2018 12:29 pm

@suomalainen Sorry if i made that impression and you are right i was not fair in my post. While the link may be about the marketcap/gnp ratio, that was not my point. Its the methology to calculate returns that matters. With that method you can calculate returns for every investment. It works for real estate, stocks, index funds, bonds etc. You just have to make educated guesses for the growth rate and that is not *that* hard. I have a watchlist with 250 stocks for one part of my portfolio where i estimated growth rates and rank them by the estimated return. Stocks that i don`t understand or don`t have a stable business model don`t make it onto my list. But i know that i will not be exactly right on every stock so i diversify into the top 20-30 names. On average i will be right and that is enough to provide a decent return.
But the biggest contributor to my returns in the past was my netnet portfolio where i have a list of around 120 stocks that trade or have traded below net current asset value and i try to be invested into the 20 stocks that have the biggest discount to net current asset value. With these type of stocks returns purely come from "change in valuation", they trade below what you would get if the business gets liquidated tomorrow. But of course these are the ugliest of the ugliest stocks. I posted links with studies in the CAPE thread if you are interested. I only read/open 10K`s or 10Q`s to get the numbers i need, most a the stuff in these reports is only fill material.
And then i have a system to hedge currencies into the most undervalued currencies and a system to short stocks with options. I use the marketcap/GNP ratio along with Tobin`s Q ratio and the adjusted trendline methology to roughly estimate how much market exposure i want to have, so in a heavily overvalued market like today my system to short stocks gets more money. My net exposure right now for example is around 20% and at a "fair" marketcap/gdp ratio of 85-100% i would be 100% long. Below that i would even think about using selling put options to get additional leverage of up to 120%.
Is all of the stuff that i do necessary? No! Even my system with the simple list of dividend growth stocks has delivered slightly better returns than the market in the past years. But with the market being so overvalued right now i am pretty sure that i will run circles around every index fund investor for the next years. Btw. there were lots of active funds and hedge funds that outperformed the "market" from 2000-2007, its just that nobody looks at that time frame anymore. From 2009 on it was hard to beat the market because the "market" was pretty cheap at that point. In investment nearly everything moves in cycles and retail investors typically are late to the party.

suomalainen
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Re: Anti-Index Fund Literature

Post by suomalainen » Wed Feb 07, 2018 1:04 pm

@frommi Thank you. That was a much more thoughtful response, which is much appreciated. I understand what you're saying. Well, most of it anyway. I stay away from currencies. I will still respectfully disagree with the idea that making an educated guess for growth rate isn't that hard. 1 year out? Sure, why not. 3 years? Mmmm, starting to get uncomfortable. 5 years? 10? I still think predicting the future that far out is pretty damn hard. If you can do it, great, but I can't.

One question - you say "stocks that have the biggest discount to net current asset value". Are you talking about single names and book value or about mutual funds/etf and their underlying asset value? I'll take a look at the CAPE thread at some point, maybe it's answered there.

frommi
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Re: Anti-Index Fund Literature

Post by frommi » Wed Feb 07, 2018 1:18 pm

Single names. The idea comes from Ben Graham and is 80 years old and will probably work for a long time because these type of stocks are too small for the typical hedge or mutual fund. These are typically stocks with 10-50 million USD marketcap. Warren Buffet has used this technique in his partnership days where he achieved returns above 30% per year. Most people believe that this isn`t working anymore but i can tell you that it does. You just have to exclude stocks that burn through ncav too fast or that are issuing tons of stock.

Riggerjack
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Re: Anti-Index Fund Literature

Post by Riggerjack » Wed Feb 07, 2018 1:20 pm

I really like index funds, and the majority of my savings is in index funds and RE. And I have a solid, consistent track record of picking individual stocks that perform SPECTACULARLY badly.

Maybe I have watched "Rudy" too many times, but I have a taste for stocks in deep trouble, and that hasn't worked out as I hoped. I'm talking about 90% losses on stocks I am still holding today. Mainly, because of the reasons Jacob mentioned, not doing my homework. Coupling overconfidence and not enough research and money is likely to work out like you would think it would.

There, I think I have laid out plenty of good reasons to dismiss what I am about to say.

Professional funds have big disadvantages over amateurs. Moving more money means moving the market when you move. Popularity is far more important than being slightly more profitable. Overhead. Etc, etc. So, if you remove ALL of those disadvantages, professional funds would beat the market at about 50%. That only 10% do is a measurement of that disadvantage. But that also means that most of the failures to beat the market are failing by about what those disadvantages add up to. All the 90% number really means is that most actively managed funds don't consistently add more value than cost. And most failures to beat the market will be very close to market performance.

And index funds are cheap, not free. Index funds always trail their index, so if beating the index is your goal, index funds are the wrong way to do that. You go from roughly 10% chance down to roughly 0%. If beating the market is the goal, well, how good are you at picking indexes? (Feel free to insert all market timing and stock picking arguments here, but change terms to index.)

So, buying an index fund won't beat the market. And an actively managed fund won't beat the market 90% of the time. It kinda seems like beating the market is a bit of a red herring used to sell funds to the casual saver. And all this noise and fury is really about loyalty to ideas.

Personally, I don't know or care about how the market does, I care about how I do. So I have index funds, and RE, and a foolishness fund, where I learn about me, and my reaction to the unexpected. I will do my research, and study and get better at picking, and all of that takes time, and money.

Which may leave you wondering why I would do such foolishness. I suck a stock picking. I know this. Index funds work. I know this. Why would I want to dedicate time and money to something that will so clearly and obviously fail?

First, I don't think it will. My very risky investments we're chosen to be very risky. Because my comfort with risk measures off the charts, I need personal experience with the downside of risky choices. My picks on a larger scale will be far more conservative.

Second, if I wanted to pick those conservative stocks, I would look for a few funds that mimic my goals, and what they hold. Then what they sell, and what they buy at what price. ALL of my individual stock research would focus here. I would then decide on the right price for that stock to be bought, and place an order at that price. When the price dips down to my price, I create a sell order for the value I would like to sell at. Then I will collect the dividend until it is reached.

I only have to research a few stocks, and keep up with them. Not such a big deal. And, my costs are limited to transactions. I may lag the market, but that's no concern. The concern is to be efficient, and to know what I have, and why, and when I shouldn't have it anymore. Because, the list of formerly great investments, gold, cryptocurrencies, tulips, dotcoms, inflation, blah blah, will likely eventually include indexes.

If you are a buy and hold investor, paying a percentage of the stocks you hold seems, inefficient. Having 30 or so stocks I actively manage, that just seems like fun. The sort of thing I will enjoy when I have more time. Then the questions are do my returns come near the index, and were my transaction costs less than the fund fees?

None of this seems overly difficult. But I haven't done it yet. It turns out that many of the projects I have undertaken were more difficult than I anticipated. But they get done, and I learn something, what else are you going to do with your life?

Riggerjack
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Re: Anti-Index Fund Literature

Post by Riggerjack » Wed Feb 07, 2018 2:01 pm

@ suomalainen,
I don't really know what's so controversial about this advice. Not everyone is as skilled at investing as apparently everyone on this forum. :roll: Investing is not plumbing. Any idiot can watch a youtube video and go out and successfully fix his toilet the same day. You CANNOT watch one youtube video and successfully beat the market. To compare the two is laughable.
Well, here you will find a rather extreme endorsement of a DIY mentality. Not just in investment, but in everything. Part of that is looking at what professionals do, and how, and what advantage we have over professionals. I have used this mentality to DIY land development and construction, auto repair and upgrades, physical therapy, engineering, legal services, real estate, woodcraft, jeweler, machinist, blah, blah. Diy investment doesn't seem like such a big deal.

But by the same token, I wouldn't consider watching a YouTube video and clearing a toilet to be DIY plumbing, that is DIY homeowner. Calling a plumber to clear a drain is like going to the doctor to get a bandaid. Most professionals spend more than half their time expertly doing minor work that anyone could do with just a bit of time and research. Rarely, there are tasks that require tools and expertise worth purchasing a professional, and this is where professionals shine. Their life and my life are better for finding those tasks, and the right professional, and mating them up. Their time/talents and mine are wasted when applied to the DIY end of the spectrum. Hiring a plumber to clear a drain falls in the waste of my time and a professional's category.

Finding and expanding the DIY range of investing, helps me determine the right place/time for me to hire a professional. It doesn't require me to always do it all myself. And most importantly, it doesn't leave me vulnerable to the limited skills and interests of a professional.

But, that is just a function of being here, where we have an over representation of both DIY and INTJ. Most early retirement sites would be in agreement with you. And as I read it, most of us here also agree with you, for the most part. But the beautiful thing about the market, is every trade is an agreement to disagree. If consensus is as important to you as it seems, I agree that index funds are probably your best option right now.

P_K
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Re: Anti-Index Fund Literature

Post by P_K » Wed Feb 07, 2018 6:53 pm

@suomalainen

I think we are more in agreement than not. I’d also recommend Mister Imperceptible not quit his day job to day trade. And generally I think index funds are the best choice for most people right now. Your advice [of just mindlessly stuffing money into index funds] is controversial because it is the opposite of a skill-based, web of goals strategy. MI asked for resources covering the risks associated with index funds so that he could learn more about investing.
suomalainen wrote:
Tue Feb 06, 2018 4:50 pm
To me, this comes across as a question of your personal ROI. Is your time better spent doing your overtime work or stock-picking? Which is more profitable to you?

To answer that question, ask yourself these: Do you have any expertise in stock picking? Do you have any expectation of being able to consistently outperform the market? If the answer is no, spend your time in profitable overtime endeavors and put your money to work in an index fund. If the answer is yes, what’s the name of your hedge fund and are you accepting outside investors?!
Instead of encouraging him to learn a valuable new skill you tell him to double down on his 60+ hour/week job because it is “more profitable.” Beating the market is irrelevant to this advice. MI doesn’t need to be one of the “10%” to benefit from learning about investing. In fact, I’d argue that anyone who self-admits to knowing nothing about investing would benefit more than anyone from doing some initial reading. In such a case one is still pretty far to the left on that “S” curve. In this too it seems we agree, since in your comment to me you said:
suomalainen wrote:
Wed Feb 07, 2018 6:34 am
My advice to @MI and those in a similar position is NOT to start reading 10Ks. Absolutely get some more general education and knowledge first in your free time. [emphasis mine]
I made my very untactful comment because you were (in the first comment above) encouraging him (and other readers) to be ignorant - in a convincing way. That’s not okay. That’s why Jacob “has” to engage with numerous random internet strangers in this discussion because the message you’re touting is also being screamed by basically everyone in the PF sphere (or maybe he just does it for fun; I don’t know the man). I’m just adding my voice to the detractors. But again, I agree that yes index funds are the right choice for a lot of people right now. However, ignorance in these matters will never be the right choice for anyone. That's why my advice is always "Do your homework/research" and never "Index funds are the greatest thing to ever happen to investing; buy them!"

suomalainen
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Re: Anti-Index Fund Literature

Post by suomalainen » Wed Feb 07, 2018 9:37 pm

@everyone

To perhaps sum up what everyone is saying, I think we are all sort of saying the same thing, but coming at it from different angles. Think of investing skill on a Wheaton type scale. Let's first acknowledge that I am at the more "amateur" end of the investing scale and some (all?) of you are at the more "skilled amateur" end of the scale, some perhaps even tipping the scale into the "professional hobbiest" part of the spectrum. (I'm just making up labels, but you get the point). For someone like me, and I gather someone like @MI, to tell them to go day trade or invest in single names is like telling them to go from a 1 to a 7 on the Wheaton scale in one fell swoop. It ain't happenin. It is not great advice for a beginner who admits he knows nothing to not give guidance on how to start when he asks whether he should read 10Ks in lieu of working the day job, which was the original question to which I responded and how I ended up dragging this thread off track (@MI - sorry about that).

In the meantime, prior to acquiring any sort of measurable investment skill, one has to put one's cash into some asset class, so maybe a scale looks like this:

1 - Savings account
2 - CDs
3 - Knowing about and choosing asset classes and indexing in that asset class
4 - Researching active managers in various asset classes
5 - Researching single names in various asset classes
6 - Fine tuning portfolio allocations
7 - Put it all in gold! (Ha!)

The important first step is to just get started investing rather than sitting in all cash (or worse spending it all). It can be overwhelming enough to even open your first brokerage account! Concurrently there's some basic education that can be undertaken. This thread eventually got there with that list of books that @Jacob had on the blog, pointed to by @P_K and @fish, and some of the other responses. And IMHO (opinions may vary) @MI should start reading those in his free time rather than skipping work to read them. At some point, further education such as "experiential education" as @Jacob discusses in another thread will come into play and, sure, perhaps that would be an appropriate time to scale back the earned income in favor of focusing more on capital income.

I dunno. My point is that you guys and gals need to maybe bridge the gap a little bit better. You know how lots of people start their introductions/journals with "Long time lurker; the level of conversation here is so high that I didn't feel like I could add anything."? And people probably don't want to be embarrassed either? Maybe tone down the responses a bit. I don't think people who come here are looking to troll. Some or probably most of us are trying to learn, and yes, some of us have strong opinions even if we are beginners and when we express them, we can do a better job of bridging the gap as well. I dunno. I told myself so many times to just let it go, but I couldn't. I hope this exchange is helpful to others who also perhaps feel a bit overwhelmed with the "experts only" type attitude that can sometimes be quite prevalent here.

IlliniDave
Posts: 2535
Joined: Wed Apr 02, 2014 7:46 pm

Re: Anti-Index Fund Literature

Post by IlliniDave » Thu Feb 08, 2018 7:42 am

I think the first clause of 3) is often skipped and for many the third clause of 3) is sort of like "enlightenment", or at least a substantial epiphany, after a suboptimal (or worse) journey through the middle clause of 3 and 4-6. At least that's how it went for me I don't do anything right, it seems :) ).

And the candidate scale does not recognize the importance of understanding one's temperament, behavioral factors, and having situational awareness (mainly "where am I in my life's journey and relative to my investing goals").

But that's just me, I can't help but see investing as just a facet in a larger holistic financial life. Maybe if I had the attitude still of my much younger self who thought of it as more of a sport/contest, such a scale would resonate better.

The Old Man
Posts: 379
Joined: Sat Jun 30, 2012 5:55 pm

Re: Anti-Index Fund Literature

Post by The Old Man » Thu Feb 08, 2018 9:28 am

http://www.philosophicaleconomics.com
The above site is well worth a read. A sampling of articles:
(1) The Paradox of Active Management
(2) The Value of Active Management: A Journey Into Indexville
(3) The Impact of Index Investing: A Follow-Up
(4) Index Investing Makes Markets and Economies More Efficient

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