A Professor Who Was Right About Index Funds All Along • Hacker News Board

Re: A Professor Who Was Right About Index Funds All Along

#161

Post by adwn » Sat, Oct 22, 2016, 7:25 PM UTC

saryant wrote: post #145

tommynicholas wrote: post #135

Earlier quoted context omitted.

Agreed - it's what the average investor should do. Even if it's really hard to beat Index Funds consistently, there are two factors that will make active trading always important: 1. Some people will beat the market, and regardless, someone has to try or there's a massive opportunity left on the table. 2. Indexing actually has more of a certain type of risk than passive investing, because if you take a huge loss for…

Your second point has nothing to do with indexing and everything to do with asset allocation. If you're nearing retirement, you shouldn't be holding risky assets like equities.

> If you're nearing retirement, you shouldn't be holding risky assets like equities.

That is not quite right. When entering retirement, most people can expect to live for at least 20 more years, which means they should hold a non-insignificant fraction of their wealth in stocks.

Re: A Professor Who Was Right About Index Funds All Along

#162

Post by tim333 » Sat, Oct 22, 2016, 7:28 PM UTC

nostromo wrote: post #112

joezydeco wrote: post #93

Earlier quoted context omitted.

Buffett is close to winning a $1 million, 10-year bet he made with the head of the hedge fund Protege Partners. The bet was simple. Buffett would invest in a Vanguard S&P 500 index fund, and the hedge fund could do anything they wanted. http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/ http://www.npr.org/2016/03/10/469897691/armed-with-an-index-...

The irony of course is that Buffett became one of the world's richest people by being an active investor.

Buffett's main argument against the hedge funds was that their fees are too high and services too poor rather than active investment never works. He started running the Buffett Partnership which was basically a hedge fund and did great for his investors and charged modest fees by modern standards - zero on the first 6% of return and 25% above that. Try finding a modern fund that doesn't charge anything if they only make a 5% return. Your typical 2 and 20 fund would charge 3% out of the 5 splitting the real return after inflation approx 100% to the manager and 0% to the investor.

Re: A Professor Who Was Right About Index Funds All Along

#163

Post by digi_owl » Sat, Oct 22, 2016, 7:29 PM UTC

jganetsk wrote: post #89

jbuzbee wrote: post #23

I'm a big believer in index funds and have been putting my money into them for a long time. But... you have to wonder where this is all ending up as more and more people move to passive index funds. The power of the market is based on millions of individual opinions on the price of a company's stock. On average, over time, these collective opinions will be correct. But say in the extreme case, it got to the point whe…

Warren Buffett says it's OK, and has an excellent explanation for this. If I recall correctly: imagine you take all the investors in the US economy and put them in a room. Divide the room in halves. One side contains all the active investors, the other side contains all the passive investors. If each side owns roughly half of the economy, their returns will be equal. In that case, it's better to sit on the side with…

I seem to recall a claim that companies no longer issue stock to raise capital. Instead they issue bonds, much the same way as a government or municipality.

Re: A Professor Who Was Right About Index Funds All Along

#164

Post by jganetsk » Sat, Oct 22, 2016, 7:31 PM UTC

digi_owl wrote: post #163

jganetsk wrote: post #89

Earlier quoted context omitted.

Warren Buffett says it's OK, and has an excellent explanation for this. If I recall correctly: imagine you take all the investors in the US economy and put them in a room. Divide the room in halves. One side contains all the active investors, the other side contains all the passive investors. If each side owns roughly half of the economy, their returns will be equal. In that case, it's better to sit on the side with…

I seem to recall a claim that companies no longer issue stock to raise capital. Instead they issue bonds, much the same way as a government or municipality.

Every IPO is a company issuing stock to raise capital.

Re: A Professor Who Was Right About Index Funds All Along

#165

Post by tim333 » Sat, Oct 22, 2016, 7:36 PM UTC

grondilu wrote: post #11

Me, I don't even believe in funds. If managers are not better than blindfolded monkeys, why should we even pay them? Just buy diversified stocks, and never sell unless you need cash. https://en.wikipedia.org/wiki/Buy_and_hold

I agree buy and hold diversified stocks is good. As well as no ongoing fees it can be more tax efficient for capital gains tax. If you buy a S&P tracker, it doubles and you sell, some you have a gain. If you buy 10 stocks and they double on average and you need cash just sell the one that didn't go up.

Re: A Professor Who Was Right About Index Funds All Along

#166

Post by digi_owl » Sat, Oct 22, 2016, 7:41 PM UTC

jganetsk wrote: post #164

digi_owl wrote: post #163

Earlier quoted context omitted.

I seem to recall a claim that companies no longer issue stock to raise capital. Instead they issue bonds, much the same way as a government or municipality.

Every IPO is a company issuing stock to raise capital.

My impression is that these days an IPO is for the founder and VCs to cash in and bail the ship.

Re: A Professor Who Was Right About Index Funds All Along

#167

Post by walshemj » Sat, Oct 22, 2016, 7:59 PM UTC

saryant wrote: post #118

walshemj wrote: post #73

Earlier quoted context omitted.

I suspect that if there is a big bond crash which is likely to happen a lot of those invested in index funds that robotically invested in bonds will be taking some big losses.

Yeah, that's the point. You rise with the market, you fall with the market.

and if you pension fund is 50/50 and theirs a bond crash shortly before you retire?

Re: A Professor Who Was Right About Index Funds All Along

#168

Post by jganetsk » Sat, Oct 22, 2016, 8:08 PM UTC

digi_owl wrote: post #166

jganetsk wrote: post #164

Earlier quoted context omitted.

Every IPO is a company issuing stock to raise capital.

My impression is that these days an IPO is for the founder and VCs to cash in and bail the ship.

Well, you are right that capital has had net outflow

http://www.theatlantic.com/politics/archive/2015/02/kill-sto...

Re: A Professor Who Was Right About Index Funds All Along

#169

Post by 0xCMP » Sat, Oct 22, 2016, 8:09 PM UTC

Applejinx wrote: post #130

tedmiston wrote: post #85

Earlier quoted context omitted.

One of the two companies actually says in their FAQ (paraphrasing): "Couldn't I just invest a small amount of money with you, then manage a second much larger account myself by hand, mirroring each trade? Yes, but we think our fees are cheaper than the time you'd spend doing that."

What if you get a computer to do it?

Still has fees. Unless you use something like Robinhood through a partner.

Re: A Professor Who Was Right About Index Funds All Along

#170

Post by alecco » Sat, Oct 22, 2016, 8:14 PM UTC

Yeah, that is all fine a few decades back. But today we are experiencing huge bubbles caused by central banks.

Stocks are hyper-inflated by QE and near-zero rates. When all that stops it will pop violently. And sooner or later, they will have to stop. This affects bonds even more, of course.