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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

#131

Post by belval »

Traster wrote: post #94

So there's two things I don't really understand this article. Firstly, what is the difference between you "value investing" your own money, and sticking your money in a hedge fund which does "value investing" for you? Other than the fact that you're doing this in your spare time whilst the hedge fund manager is doing it full time. Surely what this article is basically saying is "89% of hedge funds underperform the in…

1) Management fees. A fund will usually get ~1% as a management fee. That means that if their allocation strategy gives return of 5%, you will see a return of 4%. Index funds have really low fees (You can think of it as moving your average return up by 0.8%, that's very significant, especially when you consider that on average funds don't beat the market.

2) Correct, the article is either written by someone with a lot of time to pick stock and do due diligences or someone who convinced himself that their "gut feel" can beat the market. Either way historically those takes are not great.

EDIT: One thing I didn't add. Funds still have a good reason to exist, and that is risk management. Not all financial products want to replicate the SP500 index. You don't want your retirement fund to drop ~25% during a pandemic. That's where funds will shine. They can get you the right mix of bonds, banks and natural resources to stabilize your portfolio to +-4% every year. Some index funds do offer something similar (XCNS, XBAL) but it can still be worth having something actively managed.

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

#132

Post by Auracle »

JKCalhoun wrote: post #61
Auracle wrote: post #56

Earlier quoted context omitted.

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.

I agree with you there, but I certainly don't want it expanded and taking more of my income. When you're self employed it really hurts.

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

#133

Post by throw0101a »

paulpauper wrote: post #111
throw0101a wrote: post #83

Earlier quoted context omitted.

Berkshire Hathaway has under-performed the S&P 500 for >10 years now. And one of the main reasons why they're doing so well at all is probably because they have a sizeable holding of AAPL.

i don't think it has. also, it has less volatility.

As of late 2021, if you invested ten years back:

* https://seekingalpha.com/article/4423498-berkshire-hathaway-...

Note: price only comparison. S&P 500 funds generally give dividends (which can be re-invested). The (very) recent pull back has evened things out a bit:

> Over the past year, Berkshire is up 33%, double the gain in the S&P 500. The stock is now ahead of the S&P 500 over the past 10 years, 15.4% annualized versus 14.5% for the index, but still behind in the past five years, 13.3% annualized against 14.9% for the index.

* https://www.barrons.com/articles/warren-buffetts-berkshire-h...

Ten years can be a long slog to stick with a particular stock if your future retirement / financial future depends on it.

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

#134

Post by glofish »

Go to Fidelity.com and search for VTV (Vanguard Value Index Funds)

Plot the stock price then select compare to SP500. You can select 1 year, 2 year, 5 year, 10 year, Max range

What will you find?

For all of those ranges SP500 outperformed VTV. The longer the the period, the larger the margin. As an example over 10 years SP500 went up 220% VTV went up 160%

Now your choice is to trust paranoidvalueinvestor.substack.com or actual observations.

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

#135

Post by vishnugupta »

lordnacho wrote: post #82
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).

If you have a Bloomberg terminal, you can look up the corresponding total return indices. German DAX is a rare example of a total return index IIRC. I don't think it changes his conclusions much, the indices can easily fluctuate by more than what you bank in dividends.

> If you have a Bloomberg terminal

Sorry, but I must point out that if you have access to Bloomberg terminal then it almost certainly implies that your full time job is market research & investment. A Bloomberg terminal costs between $20K - $24K per year.

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

#136

Post by bluGill »

Traster wrote: post #94

So there's two things I don't really understand this article. Firstly, what is the difference between you "value investing" your own money, and sticking your money in a hedge fund which does "value investing" for you? Other than the fact that you're doing this in your spare time whilst the hedge fund manager is doing it full time. Surely what this article is basically saying is "89% of hedge funds underperform the in…

Many funds don't try to track the s&p index. For most people the index is a better benchmark and most funds are automatically wrong, but that doesn't mean the fund itself is at fault for not meeting your goals.

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

#137

Post by dhosek »

lordnacho wrote: post #82
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).

If you have a Bloomberg terminal, you can look up the corresponding total return indices. German DAX is a rare example of a total return index IIRC. I don't think it changes his conclusions much, the indices can easily fluctuate by more than what you bank in dividends.

Whenever I hear the words “Bloomberg terminal” I get a mental image of a VT-series CRT and keyboard connected to a distant mainframe sitting off to the side of a room full of traders with men in suits waiting their turn to type in their queries.

I’ve assumed that it’s actually just software these days but it turns out that it also requires a specialized keyboard (which includes biometric authorization based on my quick skim of the webpage). It’s apparently $2000/month which is probably reasonable for those who need it and also a clear indication that I don't need it.

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

#138

Post by zhdc1 »

eatsyourtacos wrote: post #39
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.

This is 1000000% true. The entire system is completely broken. It is literally designed to make the markets keep going up, which as usual benefits the wealthy far more than the average person. And people who are even middle class barely really benefit from it. While the lower class and poor don't benefit at all. I choose not to participate in "investing" because it's not investing. It's literally gambling. You can't…

> Instead of real retirement plans, higher guaranteed social security.

This comes out in practice as PAYGO, or "pay as you go". A lot of countries use this model, and it goes bad quickly when tax receipts aren't enough to cover retirement outlays. With poor demographics in almost all large economies, PAYGO plans are going to cause a lot of pain in the next couple of decades.

> They have shifted nearly all the risk to the individual...

The risk comes down to 1. is either the individual, their employer, or the state investing for that individual's retirement and 2. how is that money invested.

The US has more than 150% of its GDP invested in retirement savings. Some of these savings are invested in equities. It has to go somewhere.

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

#139

Post by discardedrefuse »

bleuchase wrote: post #52
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.

> There's something really insidious about tying 401ks and other retirement accounts to the stock market. Insidious? That’s a bit rich. You can allocate money in your 401k however you want. It’s self-directed. If you don’t like stocks keep it in bonds or cash.

> If you don’t like stocks keep it in bonds or cash.

This is disingenuous advice considering all financial vehicles for savers have been gutted. You can't even hedge inflation without the stock market (or real estate, if you can afford the buy-in).

Take a look at some historical CD rates. https://www.bankrate.com/banking/cds/historical-cd-interest-...

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

#140

Post by fknorangesite »

oarsinsync wrote: post #125
nerdponx wrote: post #29

Earlier quoted context omitted.

I appreciate that you're trying to be charitable to the author, but this sounds more like a retroactive justification than a new and valid usage. Yes, I know that plenty of our words today evolved out of mistakes, solecisms, misspellings, etc. But that doesn't mean we shouldn't at least try to be kind-of correct.

> Yes, I know that plenty of our words today evolved out of mistakes, solecisms, misspellings, etc. But that doesn't mean we shouldn't at least try to be kind-of correct. This is literally the worst misuse of the language. (This is a joke about the way the word literally has evolved, badly)

> the word literally has evolved, badly

How do you feel about the words "really" and "very"?

I never really understood this fad of harping on the metaphorical usage of "literally" - it's hardly a new development:

> The use of literally in a fashion that is hyperbolic or metaphoric is not new—evidence of this use dates back to 1769.

https://www.merriam-webster.com/words-at-play/misuse-of-lite...

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