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A well-written article, but really? Investing in a low-cost broad index fund is the /only/ investment advice I get nowadays.
A well-written article, but really? Investing in a low-cost broad index fund is the /only/ investment advice I get nowadays.
true, you get this advice everywhere. but actually implementing it for realz isn't for the faint of heart. it's not impossible either, especially if you don't mind horseshoes-and-hand-grenades approximation. If you want optimal as in mathematically optimal fund selection, then Bill Sharpe's startup, Financial Engines, does that (if you have at least $100k at Vanguard, you get it for free, also through many employers)…
A well-written article, but really? Investing in a low-cost broad index fund is the /only/ investment advice I get nowadays.
Having also read this a lot, it makes me wonder how the clever financial world will find a way to take a lot of people owning index funds and somehow fleece them. I also find myself pondering the macroeconomic effects of a lot of the market simply being in index funds, though I'm sure we're a long ways from that. My personal rule-of-thumb "By the time you've heard of it, it's too late to get in on it" is also trigger…
There are strategies to do this now, but they're hard to execute. One example is to target stocks that are likely to enter or drop off indicies. Index funds will be looking to buy or sell them soon.
Mostly these strategies depend on your ability to set up a very high speed link to the computers that clear trades and interpret the algorithms that index funds use to establish their samples of the market. If you can get in just ahead of the index funds and their monster volume, you can shave a few tenths of pennies from the investors.
You can make millions with those strategies but it's a drop in the index fund bucket. Quite a lot of "quant" trading activity is about ripping off ordinary people by unnoticed fractions by getting in ahead of them. Much more innocuous than the large scale bribery and fraud that makes up so much of the financial industry.
Just a question that popped into my head: what would happen if everyone followed a passive strategy, ie, no one was active? Isn't some sort of active strategy required, somewhere, for funds to be directed at all? Though, I do think on average fund managers probably don't actually make anything like useful predictions. But perhaps we do need someone, somewhere, looking for good investment. My guess is that there is a…
Just a question that popped into my head: what would happen if everyone followed a passive strategy, ie, no one was active? Isn't some sort of active strategy required, somewhere, for funds to be directed at all? Though, I do think on average fund managers probably don't actually make anything like useful predictions. But perhaps we do need someone, somewhere, looking for good investment. My guess is that there is a…
Do programs on investment-bank servers perform this function?
Just a question that popped into my head: what would happen if everyone followed a passive strategy, ie, no one was active? Isn't some sort of active strategy required, somewhere, for funds to be directed at all? Though, I do think on average fund managers probably don't actually make anything like useful predictions. But perhaps we do need someone, somewhere, looking for good investment. My guess is that there is a…
If no one was trying to beat the market, it would be easy to beat the market. But since so many people are busy trying, it's silly to try to compete unless you want to take it as seriously as the professionals do and get plugged in the way they are.
The "random walk" hypothesis says you can beat the professionals. About half the time. By flipping a coin. But the professionals are insiders, and as well-regulated as the stock market is, I would assume that an outsider playing against insiders in a 50/50 game will not quite win his full 50% share.
The hope that a person can price stocks better than the market as a whole rests on a couple of possibilities:
1. Beating full-time professional analysts at analysis in your spare time, because you're just so bad-ass.
2. Identifying a price that is heavily influenced by ignorant people and beating them by just being reasonably well-informed -- but this is not an original idea and hence is a special case of #1.
3. Finding a niche that you know intimately for some reason, and in which you have no professional competition. Oh, wait, this is just #2 again. Or maybe you found a niche small enough that it doesn't get a lot of attention from professional analysts, and you can make a little bit of money at it. That might work!
4. Being the first one to take into account a new idea or source of information. This one will make you wildly rich, and it's fun to dream, but while you're looking for that brilliant idea, there's no reason to risk real money on your ideas-in-progress.
Earlier quoted context omitted.
I suppose index funds are fine if you can time buys/sells with the booms and busts. These days I sure don't feel like holding them. It's sad but the best bet is just picking the hot algo stocks.
it's impossible to time the market, so instead you use dollar cost averaging to invest at a constant rate, regardless of how things are in the market. put money in both when it's expensive and cheap to do so.
That depends very much on exactly what you mean by "time the market".
It is impossible to reliably predict whether the market will go up or down on any given day. It is also impossible to reliably predict exactly when a market will hit a peak or trough. Dollar-cost averaging is a great strategy to reduce the risk associated with the inability to "time" markets in this sense.
But it is completely possible to recognize that a particular asset (or class) is over- or under-valued, as long as you have good enough information. You can't necessarily predict how long it will take for its value to be more accurately reflected in the price (another sense in which you "can't time the market"), but you can recognize that certain assets are on sale or commanding a premium price, and therefore get a good price on/for certain assets.
Portfolio rebalancing is, in part, meant to help capture this. Investing more in assets that have fallen behind, and less in those that have gotten ahead, is a (very rough) mechanism for selling high and buying low. Value investing is even more about this -- explicitly putting money into assets when it is cheap to do so, and selling assets that people are putting money into when it's expensive to do so. The idea is not to "time the market" in the sense of knowing exactly what day the market will turn, but simply to take advantage of really good deals (in the long-term sense) when they present themselves.
A well-written article, but really? Investing in a low-cost broad index fund is the /only/ investment advice I get nowadays.
Having also read this a lot, it makes me wonder how the clever financial world will find a way to take a lot of people owning index funds and somehow fleece them. I also find myself pondering the macroeconomic effects of a lot of the market simply being in index funds, though I'm sure we're a long ways from that. My personal rule-of-thumb "By the time you've heard of it, it's too late to get in on it" is also trigger…
I think a lot of companies are setting up index funds now with high fees, because they know index funds have become a buzz word.
Always read the fine print.