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I'm Too Risk-Averse for Index Investing

paranoidvalueinvestor.substack.com

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Re: I'm Too Risk-Averse for Index Investing

#61

Post by JKCalhoun »

Auracle wrote: post #56
eatsyourtacos wrote: post #46

Earlier quoted context omitted.

Why should that be how it works though? We should be taxing people more, and guaranteeing much higher social security so we don't have to gamble our savings in a giant ponzi scheme. It shouldn't be on the individual to be lucky that a massive recession doesn't hit when they want to retire.. or depend on the market making a few percent a year just to survive.

Most 401ks are probably in funds that automatically start allocating more and more bonds as they approach retirement age. And frankly, if I could stop contributing to social security and invest it instead I would in a heartbeat. It’s effectively a Ponzi scheme that relies on more and more citizens paying in. That’s unsustainable, and by the time I retire I’m sure they’re at least going to move the age to collect up.

I've learned to relax about Social Security. I look at it as "diversification" of my retirement sources. I don't want all my eggs in the 401K basket either.

Re: I'm Too Risk-Averse for Index Investing

#62

Post by fennecfoxen »

assbuttbuttass wrote: post #15

There's something really insidious about tying 401ks and other retirement accounts to the stock market. People including myself end up with a large portion of our assets essentially gambled on the future success of US corporations. It gives some false legitimacy to this idea that our media is constantly pushing, that if the stock market is going well then regular Americans are doing well.

Much (but not all) of US economic activity occurs at publicly traded US corporations. Even tax revenues are reasonably well correlated to their success. A major exception is real estate, but if you own a home, then you are implicitly basing part of your retirement on that ownership already.

So what else would you base a retirement based upon? Empty promises from politicians whose have no incentive to deliver on them because their term ends long before these promises are fulfilled? We have that in the public sector already, that's why there's dozens of pension crises looming, from Sacramento to Boston and half the states in between. We also have that to a limited extent with Social Security, which is likewise heading for a major shortfall. And nobody really actually likes Social Security — I mean, they may be in favor of it existing, but everyone who can afford it has a private pension with a lot of holdings in the stock market, to supplement Social Security, and cover its shortcomings, and no one would trade that for more Social Security, because it would mean they end up with a lot less in the end.

Re: I'm Too Risk-Averse for Index Investing

#63

Post by FredPret »

pydry wrote: post #35
assbuttbuttass wrote: post #15

There's something really insidious about tying 401ks and other retirement accounts to the stock market. People including myself end up with a large portion of our assets essentially gambled on the future success of US corporations. It gives some false legitimacy to this idea that our media is constantly pushing, that if the stock market is going well then regular Americans are doing well.

If you're an elite you want to tie the fortunes of the wider population to your own. It's a good way to secure your position. The stock market doesnt keep going up because of the economy. It does so because of politics.

Maybe it goes up because the businesses it represents keep making more money?

And they make more and more money thanks to the exponential forward march of technology, thanks in part to the people on this forum. This has held true through thick and thin from the Industrial Revolution on

Re: I'm Too Risk-Averse for Index Investing

#64

Post by tut-urut-utut »

gargarplex wrote: post #20
cissou wrote: post #16

Earlier quoted context omitted.

100%. European markets are known to pay out more dividends whereas the US market is known to prioritize stock price growth. Return-wise that makes no theoretical difference.

Makes a huge difference when considering the tax implications.

That largely depends on the tax laws where you live.

Re: I'm Too Risk-Averse for Index Investing

#65

Post by throw0101a »

blockwriter wrote: post #23

Reading the Intelligent Investor, it is striking to see how many stocks there were with a P/E ratio under 15 and with sound financials and that paid good dividends, I.e. a value stock, in the 1950s, when the book was written. If you try to apply the value investing principles today, you will end up spending an inordinate amount of time looking for a stock like this. The risk of an index fund is less than the amount o…

In his last published interview even Graham himself said you probably shouldn't bother with Graham (and Dodd):

>> In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?

> In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.

* http://www.grahamanddoddsville.net/wordpress/Files/Gurus/Ben...

That was in 1976.

Re: I'm Too Risk-Averse for Index Investing

#67

Post by JKCalhoun »

blockwriter wrote: post #23

Reading the Intelligent Investor, it is striking to see how many stocks there were with a P/E ratio under 15 and with sound financials and that paid good dividends, I.e. a value stock, in the 1950s, when the book was written. If you try to apply the value investing principles today, you will end up spending an inordinate amount of time looking for a stock like this. The risk of an index fund is less than the amount o…

I agree, but you can Google "dividend aristocrat" stocks to find a list of stocks that are paying dividends above their weight.

Just don't expect better than a 5% ROI.

Re: I'm Too Risk-Averse for Index Investing

#68

Post by unmole »

eatsyourtacos wrote: post #46
sbelskie wrote: post #32

Earlier quoted context omitted.

I can understand that feeling but what offers average Americans a better option for growing and securing wealth than investing (most) savings in the stock market?

Why should that be how it works though? We should be taxing people more, and guaranteeing much higher social security so we don't have to gamble our savings in a giant ponzi scheme. It shouldn't be on the individual to be lucky that a massive recession doesn't hit when they want to retire.. or depend on the market making a few percent a year just to survive.

> We should be taxing people more, and guaranteeing much higher social security

What you're saying is young working age people should pay for those who didn't save for retirement? And what happens when a recession hits anyways and the tax base takes a hit?

Re: I'm Too Risk-Averse for Index Investing

#69

Post by Archelaos »

joosters wrote: post #12

You can't look at a chart of an index price and simply say "it's down from the peak, I would have lost money". If you do that, you are forgetting that stocks pay dividends, and they aren't included in the index price. Instead, you should be looking at index tracking fund / ETF prices, which will include the value of dividends (and also account for fees).

> ... you are forgetting that stocks pay dividends, and they aren't included in the index price.

That depends of the index. The DAX, for example, has two versions: The performance index, which is usually quoted, includes dividends, the price index does not.

Re: I'm Too Risk-Averse for Index Investing

#70

Post by thomasfl »

impostervt wrote: post #2

Buying value stocks may be better than buying an index, but identifying value stocks is hard and time consuming. Wouldn't the average investor be better off buying index funds, since the average investor does not have the time, inclination, or training to find value stocks?

Actively managed funds with low costs and a value investment style, can be a good alternative to picking stocks.

It can be a good idea to identify actively managed funds that have performed better than the market in the past (ie. they have got alpha). Which investment style the fund has used, can be identified using number crunching (using fama french factor analysis). For example Warren Buffet uses a mixture of value and quality investement style.

I work for a Fintech startup. We are working on a tool to do quantitative fund analysis.

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