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A Professor Who Was Right About Index Funds All Along

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181–190 of 221 posts

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

#181

Post by toephu2 »

mrwinalot wrote: post #63
n72 wrote: post #22

I recommend Weathfront and Betterment to all my less mathematically inclined friends. However, if you spend only a few hours getting acquainted with asset allocation and rebalancing principles, you can do pretty everything that these services do without their fees.

And what do you recommend for your mathematically inclined friends? Any books you recommend for asset allocation and rebalancing principles?

None, just put your money in an S&P 500 fund. I doubt you will be able to beat that in the long run anywhere else (Even though there are flaws w/ how the S&P 500 is run now [1]).

[1] http://www.joshuakennon.com/sp-500s-dirty-little-secret/

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

#182

Post by toephu2 »

nodesocket wrote: post #108

Here is a graph of my personal account which I manage myself vs the S&P 500 index. I am currently beating it with gains on the year of 7.3%, but only thanks to the last couple of strong months. I was deep in the red early on. http://imgur.com/a/XHNTZ

So? You must haven't been investing for very long. Try keeping that up for 10 years straight then come report to us.

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

#183

Post by JulianRaphael »

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…

Even if you would only have passively invested funds, you'd still have the pricing mechanism. Each index fund has an individual portfolio distribution and different rules of how to adjust it to market changes. Passive investing doesn't mean that there is no "active" part to it. Furthermore, a great number of stocks won't be part of any index fund, hence you'd still have active investors (humans and/or machines).

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

#184

Post by Teodolfo »

shubhamjain wrote: post #2

Being lucky doesn't explain the existence of Renaissance Technologies[1], one of the very first quant fund companies, which has averaged a 71.8% annual return from 1994 through mid-2014. In fact, "the fund’s worst year was a 21 percent gain, after subtracting fees". Of course, it's very much of an outlier — just like Facebook / Google / Uber, if we retrospectively see startup funding and hedge fund investing. [1]: ht…

Amusing trivia: Peter Brown, co-CEO of Renaissance Technologies, got his PhD under the supervision of Geoffrey Hinton.

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

#185

Post by dasil003 »

lordnacho wrote: post #171
dasil003 wrote: post #154

Earlier quoted context omitted.

Wow, this is the height of hubris. Of course luck can play a factor. There's no law of the universe that a correlation you observe over the past century of human activity is going to hold indefinitely. Obviously some quant funds have better models than others and it's not wrong to attribute that to intelligence and skill, but they absolutely can have the rug pulled out from under them by changing market conditions ma…

They trade very, very often. You can be lucky if you buy a couple of stocks and wait around a few years. Someone I know had parents who bought Nokia in the 1980s and sat on it until the mid 200s. That's luck. You can guess a coin flip 5 times in a row. A few people out of a hundred will do so. But you cannot get significantly over 50% correct on millions of coin flips. That's not luck.

First of all, I explicitly said that it's not wrong to attribute winners to skill, but you still feel the need to put my argument in a binary box, very well.

Your mistake is treating each trade as an independent event. But in reality all those trades may share a single methodology which can be invalidated by a single unprecedented market change. Yeah, a fund is a perennial winner until it's not. You can call it being unlucky or you can say they went from being smart to stupid. It doesn't really matter what you call it, the point is past performance is no guarantee of future returns.

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

#186

Post by wutbrodo »

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…

There are _always_ investors trying to beat the market on fundamentals, even if many of them are just overconfident. We'll never got to the point where the entire market is index funds because, as more people invest in index funds, the possibility (and pay-off) of actual alpha by picking stocks rises. This isn't sustainable because people will notice the sustained performance difference between stock-picking and index funds (the same way we do now) and the opposite tendency will push things back towards an equilibrium

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

#188

Post by tanderson92 »

Applejinx wrote: post #127
kolbe wrote: post #111

I'm going to use this as an opportunity to yet again rail against the idea of indexing. It's a good thing in theory, but like most things, when it's taken to extremes, it's horrible. Passive investments wherein the investor takes zero interest in these investments are and have always been a terrible idea, and nothing in modern history has facilitated this more than index funds. When you give a friend of a friend $10,…

On the contrary, they are a leap forward into an age of abstraction. They address the reality that what people really want is for their capital to increase, period. As such, if you can do an index fund where everything is going to increase because it's part of the index fund and everybody knows index funds beat the market, the consensus opinion is that if you're in the index fund your value is going to increase, and…

> everybody knows index funds beat the market

Nobody knows this, and it is false. Index funds seek to match the market return, less fees.

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

#189

Post by nstj »

yborg wrote: post #119
nostromo wrote: post #112

Earlier quoted context omitted.

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

Precisely by being an investor in the old sense, the sense of being a businessman who allocates capital. He buys entire companies based on his analysis of their financials and management, and then operates them as businesses. He tries to take stakes in companies in deals where he holds an advantage, such as his Goldman Sachs investment. I don't consider him a stock picker, he's a very shrewd businessman.

Buffett does very little business as you describe. He takes no real active role in the companies which he purchases and definitely doesn't "operate" them.

The advantage he had in the GS preferred stock offering in 2008 was his ability to provide liquidity and his name - if GS told people that Warren was investing in them then it was a real vote of confidence.

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

#190

Post by saryant »

walshemj wrote: post #167
saryant wrote: post #118

Earlier quoted context omitted.

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?

You're arguing against a strawman. Index funds do not protect you from market crashes, that's not the point and never was. Index funds save you from forking over tens or hundreds of thousands of dollars in fees to active managers who may or may not outperform the market as a whole.
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