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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

#261

Post by bradlys »

fennecfoxen wrote: post #38
gargarplex wrote: post #20

Earlier quoted context omitted.

Makes a huge difference when considering the tax implications.

Many retirement funds are in a tax shelter either way, though.

Many but not all and that is the important detail.

Also I keep money in index funds even if I don't plan on using that money for retirement. (e.g. downpayment on a house, saving for another large purchase, financial buffer, etc.) I also keep money in index funds that are in regular brokerage accounts because 401k + backdoor roth ira isn't sufficient for retirement if you make $200k+/yr. (True for even lower amounts too but whatever)

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

#262

Post by dbsmith83 »

throw0101a wrote: post #133
paulpauper wrote: post #111

Earlier quoted context omitted.

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% annualize…

The article is all about the really long overview though. It is basically arguing that the market gaining is not a given. See the Japan example starting around 1990. That was over 30 years ago. If you look at Berkshire Hathaway 20 years back, it is clearly beating out the S&P500 by a lot.

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

Agreed. I hope to not be very invested in the stock market when I only have 10 years of work left. Seems too risky.

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

#263

Post by MacroChip »

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).

Expectations around dividends could be priced in though. https://www.investopedia.com/terms/d/dividendirrelevance.asp

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

#264

Post by jebus989 »

discardedrefuse wrote: post #226
jebus989 wrote: post #191

Earlier quoted context omitted.

> 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).

The shortest maturing TIPS is 5 years. While you can sell your TIPS early, it has to be through the secondary market. And that involves transferring your TIPS to a 3rd party broker (and fees). I can't imagine its worth the trouble unless you need to get out of a 10 or 30 year TIPS. TIPS doesn't compare at all to a personal savings account.

Erm, just buy a TIPS fund like VIPSX from Vanguard.

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

#265

Post by skybrian »

ericmay wrote: post #220
skybrian wrote: post #175

Earlier quoted context omitted.

In Buffett's case, he sometimes gets to buy investments at discounts not available to the general public, and then the stock goes up on the news that he bought them.

Yes, but Buffet doesn't then turn around and sell at that higher price, and even if he did the price would start going down as he sold his position. If his purchase is bad, in the long run the market will punish him, even if the stock price goes up in the short-term due to the positive signal from his purchase. I certainly agree that Buffet can make moves that normal people can't, though. Goldman Sachs in 2008 is a g…

Value investing (promoted by Benjamin Graham and adopted by Buffett) is largely about understanding when you're buying at a discount. Getting a discount is better even if you buy and hold.

It's harder to do these days because everyone does it, so there are fewer bargains. But Buffett can still do it more often, due to the halo effect.

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

#266

Post by skybrian »

marcosdumay wrote: post #192
oliv__ wrote: post #166

Earlier quoted context omitted.

"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…

One advantage that small investors might have is that you can go after investments that are too small for larger investors to bother with. You need some way to find out about them, though, and some way to avoid averse selection where you only see deals that more sophisticated investors passed over.

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

#267

Post by scarface74 »

maskil wrote: post #256
lottin wrote: post #117

This is not very good advice. An index investor is exposed to systemic risk, that is, risks that affect the market as a whole, but the problem is you can't escape systemic risk by investing in individual stocks, because individual stocks also have the same systemic risk... in addition to other risks which are collectively known as idiosyncratic risk. In short, stock-picking is always inherently more risky than index…

His point is that value stocks are less affected by those systematic risks

We had a systemic risk March 2020. Which companies were able to throw money at the problem? Which companies were able to deal with supply chain issues better?

The companies that are considered value stocks don’t have billions in the bank to weather storms (Apple) or a cloud services business to offset expenses on the retail side.

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

#268

Post by scarface74 »

ericmay wrote: post #220
skybrian wrote: post #175

Earlier quoted context omitted.

In Buffett's case, he sometimes gets to buy investments at discounts not available to the general public, and then the stock goes up on the news that he bought them.

Yes, but Buffet doesn't then turn around and sell at that higher price, and even if he did the price would start going down as he sold his position. If his purchase is bad, in the long run the market will punish him, even if the stock price goes up in the short-term due to the positive signal from his purchase. I certainly agree that Buffet can make moves that normal people can't, though. Goldman Sachs in 2008 is a g…

He makes deals to limit his downside risks.

https://www.forbes.com/sites/adamhartung/2014/11/19/why-you-...

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

#269

Post by _ink_ »

IMHO if there would be an objective way (e.g. some kind of algorithm) to look at the company data and spot value stocks that will outperform the market, then somebody would have created a tool to detect these. Probably there would even be an index and an ETF to invest in.

The lack of these indicates to me that stock movement is rather random and that some people are more lucky than others.

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

#270

Post by discardedrefuse »

jebus989 wrote: post #264
discardedrefuse wrote: post #226

Earlier quoted context omitted.

The shortest maturing TIPS is 5 years. While you can sell your TIPS early, it has to be through the secondary market. And that involves transferring your TIPS to a 3rd party broker (and fees). I can't imagine its worth the trouble unless you need to get out of a 10 or 30 year TIPS. TIPS doesn't compare at all to a personal savings account.

Erm, just buy a TIPS fund like VIPSX from Vanguard.

First, my whole point is to stay out of the markets. Your suggestion to buy VIPSX is the exact opposite.

Second, go compare the past year of VIPSX vs inflation you'll see that VIPSX is shit. Inflation has steadily increased by 5%, but VIPSX has been all over the place (it was actually down 2% last month) and is currently only up 1%. This is, again, not what normal people need.

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