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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

#271

Post by imtringued »

The whole article is quite weird. It's almost as if he hasn't heard of the MSCI world or factor investing. The latter beats conventional market cap index strategies at the expense of having long bad streaks/droughts followed by a few years of good performance. Yes, that means increased risk but you also see higher returns. The MSCI World Value Index beats the MSCI World Index.

The reason why factor indices see droughts is that most of them don't do momentum trading, i.e. they don't surf/coast on the bubble which means they lose out over the short term. For most people, there is no reason to bother with factor investing if they are happy with the risk/reward profile of their existing portfolio.

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

#272

Post by imtringued »

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?

Smaller players may sell their assets to supplement their income or must pick one specific asset class (often a house) because they don't have enough money to diversify.

A billionaire that already has absolutely everything he wants will simply get richer automatically while retirees funding their retirement by selling stocks will see their wealth diminish year by year.

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

#273

Post by imtringued »

matheusmoreira wrote: post #231
buzzdenver wrote: post #208

Earlier quoted context omitted.

That is an advantage for the little guy though. If I sell 10 shares when the price is $100, then I'll get $100/share. A huge investor selling 1,000,000 of the same shares might move the price to $98 and average $99/share. Obviously these are made up numbers, and you don't sell a million shares by using just one market order, but the principle is the same. Large investors do have advantages, like better information.

Where do they get better information?

It's not really about where, it's that they do it at all. Are you really going to spend 100 hours researching a company before you make a $1000 investment? If you are going to spend millions dollars on a single company long term you're going to spend hundreds of hours on research before you close the deal.

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

#274

Post by imtringued »

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?

It's called factor investing and it's a niche for a reason. (It's worth it, but not for everyone).

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

#275

Post by imtringued »

sbelskie wrote: post #36
colinmhayes wrote: post #10

Earlier quoted context omitted.

There are value index funds. Vanguards is VTV

The article suggests that “value investing” is not just about price ratios (which is mostly all such indexes can offer).

They still offer superior performance by avoiding bubbles.

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

#276

Post by imtringued »

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-...

Well, savings have risen exponentially for a century. Maybe it's time for that to stop? I mean think about all the people that would have to be in debt for you to have savings. The economy clearly has too much debt and therefore too much savings.

If this is driven by demographics, e.g. old people saving for retirement while there are no young people willing to provide for them when they are old, then really the problem isn't the fact that the bank doesn't want to lie to you any longer (the bank is currently lying btw), it's the fact that nobody will be there to take care of you.

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

#277

Post by imtringued »

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…

Well, the gold standard and any currency modeled after it, e.g. fiat is just a gold standard that can be mined infinitely, it's still expensive permanent money. You have these forced contracts that demand permanence in a world without permanence. It's a ponzi scheme because people age and die but gold doesn't.

Imagine running a ledger, you are owed 50 years of work by person A. Person A dies. You are still owed 50 years by the rest of society. Society just lost 50 years of work because person A died so the rest of society must work harder to honor your ledger. That's where the ponzi scheme originates from. The idea that you are owed something that is no longer in this world.

A gold standard is a ponzi scheme and since modern day fiat is just a stretched gold standard it is a ponzi scheme too.

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

#278

Post by imtringued »

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'…

I actually agree. If you asked me 7 years ago I would have wanted to be the winner of the investment treadmill. I.e. I and my children will be living off our investments without having to do any work, while obviously ignoring the fact that other people still have to work and that the money I would earn is obviously only valuable because they are selling their time to me for that money. If everyone started living off investments no work would get done. It's clearly a hierarchical system.

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

#279

Post by imtringued »

eatsyourtacos wrote: post #210
jstx1 wrote: post #200

Earlier quoted context omitted.

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 d…

>Picking those assets over the stock market is still an investment decision, and that decision comes with its set of risks and potential returns. I see your point, but I honestly think it's a nuance you say it's an "investment decision" to say keep it in cash instead of the stock market. Am I almost making a decision to keep money in cash instead of beanie babies? Yeah I guess, but that doesn't really change my argum…

The only real solution to this problem is to actually let the real interest rate on certificates of deposits to be 0% and have a small demurrage fee on liquid demand deposits. The point isn't to be evil and make people lose their money, it's to make the market actually work. The positive range of interest rates tells people to save more and since people have a natural tendency to save (e.g. hoarding instincts) regardless of market conditions, politicians have tried to keep the interest rate positive through inflation targeting and fiscal stimulus (government borrowing raises interest rates). This basically means debt keeps growing endlessly since savers are guaranteed profits through loans that shouldn't exist. The negative range of interest rates essentially says that the economy has enough savings and that they should be allocated away from those who have too much (meaning they will be allocated to those who have too little savings, primarily those who are in debt which then reduces total savings and the money supply).

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

#280

Post by imtringued »

zhdc1 wrote: post #138
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…

> 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…

Well, the stock market is a very complex PAYGO system in the sense that it doesn't solve the demographic problem at all. You still need young people working in those companies for them to maintain their valuations.
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