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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

#191

Post by jebus989 »

discardedrefuse wrote: post #139
bleuchase wrote: post #52

Earlier quoted context omitted.

> 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-...

> You can't even hedge inflation without the stock market (or real estate, if you can afford the buy-in).

See also: treasury inflation-protected securities (TIPS).

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

#192

Post by marcosdumay »

oliv__ wrote: post #166
marcosdumay wrote: post #152

Earlier quoted context omitted.

Even if he does beat the market, and you manage to pick the same stocks as he, at the same time, it doesn't mean you will also beat the market. Investing is heavily biased for favoring large players. A normal person has to take that bias into account too.

"Investing is heavily biased for favoring large players" How?

Between fixed cost fees, things that are sealed behind an accreditation process, investments that need real person to person negotiation, opportunities that aren't widely published, and even data that isn't shared with anybody that shows up, I'm really surprised that anybody can be even be mildly surprised by that phrase.

There is absolutely no investment transaction where it's not obvious that larger players have it better. Even when entering in a shared fund, more money means lower fees.

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

#193

Post by atombender »

zzleeper wrote: post #168
derf_ wrote: post #126

Earlier quoted context omitted.

Maybe from 10,000 feet. Buffett only invests in certain kinds of companies (those within his "circle of competence"), so you only get so much diversity. Also, because Berkshire is a conglomerate, businesses which generate large amounts of cash (e.g., insurance float, or businesses that would pay dividends if they were a stand-alone companies) can be used to fund capital-intensive businesses (railroads, energy compani…

You made me think. The weights of e.g. the SP500 are not ideal then. Berkshire is in the SP500, but so are Apple, Coca Cola, Amex, BoA, etc. which are Berkshire largest investments. So if Coca Cola has an idiosyncratic hit, then you get hit twice by it: first in your KO holdings, then in your BRK.A holdings. At the extreme, if there is a company that then invests in Berkshire and so on, you could end up overweighting…

No. The S&P 500, like most other market-cap-weighted indexes, uses float-adjusted market cap, meaning that they exclude shares owned by other public companies when computing the weightings. So the fact that BRK.A owns shares in other companies in the index is accounted for; you don't get double counting, and so your exposure is not inflated.

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

#194

Post by chx »

When talking about investing you need to read Kahnemann. The entire Thinking Fast And Slow book is very, very good but the relevant part is at https://acquirersmultiple.com/2018/04/daniel-kahneman-the-il...

> Our host, a senior investment manager, had invited us to discuss the role of judgment biases in investing. I knew so little about finance that I did not even know what to ask him, but I remember one exchange. “When you sell a stock,” I asked, “who buys it?” He answered with a wave in the vague direction of the window, indicating that he expected the buyer to be someone else very much like him. That was odd: What made one person buy and the other sell? What did the sellers think they knew that the buyers did not?

> Nevertheless, the evidence from more than fifty years of research is conclusive: for a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker.

> More important, the year-to-year correlation between the outcomes of mutual funds is very small, barely higher than zero.

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

#195

Post by eatsyourtacos »

jstx1 wrote: post #123
eatsyourtacos wrote: post #39

Earlier quoted context omitted.

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…

> I choose not to participate in "investing" because it's not investing. It's literally gambling. You can't control what a company does. You can't control if a pandemic hits just when you want to retire and your assets as cut in half. If you have money, you need to allocate it in some way - how are you allocating yours in a way that isn't investing, isn't gambling and gives you control over the performance of your as…

>If you have money, you need to allocate it in some way

Why do you "need" to allocate it? This is my whole point. Everyone acts like "oh my god, I must have my money making more money!"

What the hell do you think 80% of the country who has no substantial assets do? They can't do anything. The whole concept of getting rich off your own money is honestly sickening to me.

>how are you allocating yours in a way that isn't investing

I'm literally not. Even my house, for example.. I don't consider an "investment". Will it probably 'make money' over the long term? I guess (and well, it has substantially over the last few years, but again I had nothing to do with that- simple luck, just like it would be bad luck if it went down substantially). But that's not the point of me having a home.. I have a home as a place to live with my family.

This mentality of everything being an investment and our whole lives revolve around trying to accumulate assets so those assets can make more money... it's just sad.

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

#196

Post by everfree »

discardedrefuse wrote: post #139
bleuchase wrote: post #52

Earlier quoted context omitted.

> 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-...

> This is disingenuous advice considering all financial vehicles for savers have been gutted.

When you say "all financial vehicles for savers", you're really just referring to liquid savings products tied to the federal funds rate, right? Of course when the government stops handing out money to savings account holders, savings account holders will no longer be making money.

Corporate bonds are an alternative way to earn some interest in a low-rate environment without owning stocks.

Also, REITs are an affordable way to gain exposure to real estate without a minimum buy-in. For people who need real estate exposure but can't afford to buy a whole building, they are really underrated.

Finally, the market is pricing in several rate hikes this year, so your savings account interest rate may actually be revived soon anyways.

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

#197

Post by bleuchase »

discardedrefuse wrote: post #139
bleuchase wrote: post #52

Earlier quoted context omitted.

> 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-...

> This is disingenuous advice

It’s not advice. It’s reality. You don’t need to hold stocks in your 401k if you don’t want to. What happens as a result is your responsibility.

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

#199

Post by eatsyourtacos »

unmole wrote: post #68
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.

> 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?

>What you're saying is young working age people should pay for those who didn't save for retirement?

Nice way to twist my words. If the system worked like I'm describing from the beginning, you wouldn't even be able to say that. Because you wouldn't need to save a substantial amount of money in a better system- everyone would have been paying it all along.

And a new young working age person would be paying more, but it's to benefit themselves in the future. So I don't even understand your point.

>And what happens when a recession hits anyways and the tax base takes a hit?

That should be planned for in whatever various ways it's being paid for. You pull in a little more money from taxes than you need to account for a buffer etc. This isn't rocket science.

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

#200

Post by jstx1 »

eatsyourtacos wrote: post #195
jstx1 wrote: post #123

Earlier quoted context omitted.

> I choose not to participate in "investing" because it's not investing. It's literally gambling. You can't control what a company does. You can't control if a pandemic hits just when you want to retire and your assets as cut in half. If you have money, you need to allocate it in some way - how are you allocating yours in a way that isn't investing, isn't gambling and gives you control over the performance of your as…

>If you have money, you need to allocate it in some way Why do you "need" to allocate it? This is my whole point. Everyone acts like "oh my god, I must have my money making more money!" What the hell do you think 80% of the country who has no substantial assets do? They can't do anything. The whole concept of getting rich off your own money is honestly sickening to me. >how are you allocating yours in a way that isn'…

My point is that not allocating it is not an option. If you have it, it's in something, and that something is an allocation decision that you've made (even if it's cash). You can decide to not participate in the stock market (and that's fine) but then your money will be in cash, in the equity in your house or in anything else you buy with that money. Picking those assets over the stock market is still an investment decision, and that decision comes with its set of risks and potential returns.
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