51–60 of 496 posts
Fidelity: Successful investors forget they have an account: https://www.bogleheads.org/forum/viewtopic.php?t=146347
I've been harboring a suspicion for several years that I've forgotten an account or two. Maybe I'm one of the fidelity investors.
I sometimes worry if I have a forgotten paid subscription on an e-mail of mine I don't check, that slowly drains a bank account I forgot I have. There's just Too Many Accounts, and Too Many Subscriptions.
Earlier quoted context omitted.
Short answer re: investing in active managers (based on my many years listening to rationalreminder.ca) is that, if you eliminate some of the worst active managers, the average returns net of fees are the same. However, eliminating the worst managers is challenging (but not impossible) to do ex-ante. Even then, you’re only getting the same average returns as indexing, not better. Plus, you will experience a higher di…
> There’s strong evidence no individual trader can expect to beat the market. I don't understand that. If you just bought Apple instead of SPY 20 years ago wouldn't you be doing great?
Earlier quoted context omitted.
Short answer re: investing in active managers (based on my many years listening to rationalreminder.ca) is that, if you eliminate some of the worst active managers, the average returns net of fees are the same. However, eliminating the worst managers is challenging (but not impossible) to do ex-ante. Even then, you’re only getting the same average returns as indexing, not better. Plus, you will experience a higher di…
There's more dimensions to an investment than average returns. Volatility adjusted returns (or Sharpe ratio) for instance, will tell you how much returns you have per unit of risk you take. This is important because getting 10% average annual returns with 10% annual volatility is worst than getting 5% returns with 1% annual volatility. You can only compare investments at equal amount of risk. An other factor to take…
Doesn't this depend on how long you're planning on investing for, and what your criteria for selling your investments are?
If you're planning on investing for at least 10 years, and you're willing to give yourself a 2-3 year window for selling your investments once they reach a threshhold you decide on ahead of time, isn't the 10%/10% investment better?
(e.g. if retirement is 20 years away, you might consider putting your funds in that sort of investment for 10 years, with a view to moving them to something less volatile in the 5 years after that, as soon as they cross a 10% annualised return threshhold during that window.)
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Except this is a myth. You will not win the lottery without taking crazy amounts of risk. The active managers who do beat a major index for a long, long time almost do not exist in retail space, and they beat the market by a tiny amount (~1%). In my era Legg Mason was the most famous, but even they fell too.
How does that explain Warren Buffet’s spectacular success?
Buffett buys “cheap, safe, high-quality stocks” with leveraged “financed partly using insurance float with a low financing rate” [1]. TL; DR He’s doing private equity with discipline.
[1] https://www.aqr.com/Insights/Research/Journal-Article/Buffet...
Earlier quoted context omitted.
Short answer re: investing in active managers (based on my many years listening to rationalreminder.ca) is that, if you eliminate some of the worst active managers, the average returns net of fees are the same. However, eliminating the worst managers is challenging (but not impossible) to do ex-ante. Even then, you’re only getting the same average returns as indexing, not better. Plus, you will experience a higher di…
There's more dimensions to an investment than average returns. Volatility adjusted returns (or Sharpe ratio) for instance, will tell you how much returns you have per unit of risk you take. This is important because getting 10% average annual returns with 10% annual volatility is worst than getting 5% returns with 1% annual volatility. You can only compare investments at equal amount of risk. An other factor to take…
>- Don't compare investments one against an other, instead look at the addivity of one on top of another.
I don’t think either of these matter to 90% of investors whose goal is to build up a nest egg for retirement which means not spending for decades in the future.
Sharpe ratios and all those “risk” adjusted calculations all involve assumptions that may or may not be true.
Comparisons of just annualized returns over long periods of time seems fine for broad market index funds, especially if you are assuming the federal US government will provide a backstop.
Earlier quoted context omitted.
There's more dimensions to an investment than average returns. Volatility adjusted returns (or Sharpe ratio) for instance, will tell you how much returns you have per unit of risk you take. This is important because getting 10% average annual returns with 10% annual volatility is worst than getting 5% returns with 1% annual volatility. You can only compare investments at equal amount of risk. An other factor to take…
> getting 10% average annual returns with 10% annual volatility is worst than getting 5% returns with 1% annual volatility. Doesn't this depend on how long you're planning on investing for, and what your criteria for selling your investments are? If you're planning on investing for at least 10 years, and you're willing to give yourself a 2-3 year window for selling your investments once they reach a threshhold you de…
If you consider that "you don't know any better" and returns are normally distributed (i.e. you don't have some secret sauce nobody else knows about), then there is no dimension in which the 10/10 is better.
You can convince yourself intuitively by imagining how you would maximize each strategy. The amount of money you have is a factor of the risk you take, because if you want to do something risky you will not be able to borrow much, whereas if you want to do something safe you can easily borrow.
That is, you objective is to maximize your expected return, under the constraint of not breaking your risk limit.
Suppose you have a 10% annualized volatility risk tolerance. That's your budget.
If you invest it all in a 10% average return / 10% annual vol strategy, that's it.
Now if I propose you a 5% average return / 1% volatility strategy, you just have to go to the bank and borrow 10x your capital. You will have the same risk exposure (in dollar), but 5x the expected returns.
Earlier quoted context omitted.
There's more dimensions to an investment than average returns. Volatility adjusted returns (or Sharpe ratio) for instance, will tell you how much returns you have per unit of risk you take. This is important because getting 10% average annual returns with 10% annual volatility is worst than getting 5% returns with 1% annual volatility. You can only compare investments at equal amount of risk. An other factor to take…
> - Don't compare investments based on annualized returns alone, it really doesn't make any sense. >- Don't compare investments one against an other, instead look at the addivity of one on top of another. I don’t think either of these matter to 90% of investors whose goal is to build up a nest egg for retirement which means not spending for decades in the future. Sharpe ratios and all those “risk” adjusted calculatio…
On the contrary, these risk adjusted measures assume nothing more than a normally distributed random variable.
If you just look at annualized returns, then go ahead and invest in CDOs ETFs.
More seriously, the S&P for instance has around 20% annualized vol, which IMHO is way above what you would want for a retirement fund. I would target something closer to 10%.
> Comparisons of just annualized returns over long periods of time seems fine for broad market index funds
Do you have any sort of reasoning or is it just a gut feeling?
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The common refrain is that "time in the market always beats timing the market". The implicit assumption in that refrain is that, despite periodic dips, the U.S. stock market always goes up over time. This has been true since the Great Depression (see graph of S&P 500 since 1929) https://www.officialdata.org/us/stocks/s-p-500/1929 The implicit assumption behind that is that the American economy always invents a way to…
That is too strong of a condition. The economy doesn't need to grow for passive investing to work. Even when the economy is flat, passive management works. As long as companies are economically productive, capitalism will hand over a chunk of the profits to the owners of the capital. Of course, growth increases the size of that chunk year over year, but capitalism doesn't stop when growth stops. Active investing is w…
Stock prices increase when earnings of the company grow.
In other words: when the economy grows.
You can argue that Amazon and Apple and Google and Facebook etc. will grow earnings even if the overall economy is flat or shrinks but I don't see how that would apply to passive investing i.e. investing in S&P 500 i.e. investing in 500 largest US companies.
S&P 500 is U.S. economy and they all are sensitive to overall economic situation. If people have less money, they buy less stuff. Amazon makes less money, their stock goes down. Apple sells less iPhones, their stock goes down. All other companies make less money, they spend less on advertising, Google and Facebook make less money.
I don't see a scenario where overall U.S. (or world) economy declines and S&P 500 doesn't decline.
In fact, declining economy is an argument for active investing. Even when overall economy declines, among 6000 companies listed on stock market there will be some that will be growing and if you invest in them, you'll make money.
Earlier quoted context omitted.
There's more dimensions to an investment than average returns. Volatility adjusted returns (or Sharpe ratio) for instance, will tell you how much returns you have per unit of risk you take. This is important because getting 10% average annual returns with 10% annual volatility is worst than getting 5% returns with 1% annual volatility. You can only compare investments at equal amount of risk. An other factor to take…
> getting 10% average annual returns with 10% annual volatility is worst than getting 5% returns with 1% annual volatility. Doesn't this depend on how long you're planning on investing for, and what your criteria for selling your investments are? If you're planning on investing for at least 10 years, and you're willing to give yourself a 2-3 year window for selling your investments once they reach a threshhold you de…