151–160 of 496 posts
It was Richard Thaler's Misbehaving: The Making of Behavioral Economics book that finally broke through my thick, anxiety ridden skull and convinced me to stop reading economic news everyday and just forget the the retirement accounts existed. If I'd read that book earlier, I'd be up 3X on my positions.
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You’re probably aware that no fund manager would accept your offer. But it doesn’t prove that they don’t think they can beat the market (as misguided as that belief might be), it just means they’re not willing to take on an absurd amount of risk to prove it.
I don't think the risk is "absurd". Or, at least it's no different than the risk they ask any investor to take by charging them 1% of their portfolio for it to be "actively managed". Plus, they are being compensated. I'm offering 90% of the returns above the index :-)
Active funds ask investors to accept 100% of the downside and get taxed on the upside. Actually it’s worse: they’re taxed on both the up and down sides.
If this is a terrible deal for fund managers then virtually by definition actively-managed funds are a terrible deal for investors.
All this is true, and there are many good comments in the thread here. But this "hey dude, stock picking is for idiots and all non idiots but index funds" should be treated with caution. Index funds are an extremely clever idea but were never meant to be used on such a scale. To give you some ideas: https://www.forbes.com/sites/chriscarosa/2024/04/02/index-fu...
One of my big brain investing ideas is to pick the stocks at the top of the index instead of buying the whole index. If index funds continue to rise in popularity, the stocks that are at the top will benefit most from passive investment volume. Plus, index funds follow a kind of Pareto principle where the top stocks contribute disproportionately to the total return anyway. As I’ve gotten older though, one of my reali…
I’d be cautious that you are about to get a wicked mean reversion.
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
Sounds similar to recently launched buffer ETF products, specifically BlackRock and Innovator that hedge 100% of downside while capping your upside across different time horizons indexed to the S&P500.[1] [1] https://www.bloomberg.com/news/articles/2024-07-01/blackrock...
It's relatively easy to achieve a return profile like these promise with some combination of Treasuries and index options (at least while Treasuries pay 5%!), and the ETFs are doing this kind of financial engineering rather than promising to beat the market through stock-picking skill.
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
Why would anyone take the other side of this bet? It's an incredible financial instrument, that anyone on the buyside would buy in an instant (as formulated -- ignored fees/tcosts etc).
People accept this bet every single day… when they buy actively-managed funds.
Actually they accept a worse bet. Instead of taking 100% downside risk and being taxed on anything above the index, they’re taxed on both gains and losses.
You’re right that it’s an incredible financial instrument. Actively-managed funds are extremely profitable… for fund managers, who get paid out of investors’ assets in bad years and also get to skim off the gains in good years.
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I've done well (39% annual returns) investing in 2-3 individual stocks in addition to index funds for the rest of my investments. More than that would be IMO too much to pay attention to. Admittedly my choices for stocks are a bit on the high-risk side, but it's worked out well so far. Picking up lots of AMD in 2017, and Rivian 6 weeks ago, seems to have been decent calls.
Sorry but I never believe these online claims given with no evidence about ridiculously high returns. It’s not to say you are lying but it’s easy to miscalculate these things.
To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…
On average, the S&P500 has returned about 7% annually. If I had a strategy that returned 5% on average but was totally uncorrelated with the S&P, then you'd get the best overall long-term returns (maximize the geometric average of annual returns) by investing in a combination of my strategy and the S&P.
Fidelity: Successful investors forget they have an account: https://www.bogleheads.org/forum/viewtopic.php?t=146347
Your link has John O'Shaughnessy being interviewed by Barry Ritholtz (two respected folks in finance), and O'Shaughnessy later corrected himself: * https://twitter.com/jposhaughnessy/status/115517108366392524... While I do believe set-and-forget passive investing is best for the vast majority of people, last time I checked that Fidelity study does not actually exist, and the story is apocryphal (no one seems to be ab…
There are too many of these apocryphal stories out there of various kinds. Sorry that this one appears to be too.
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You’re missing the word ”expect” in the original claim. You can beat the house at blackjack, but you can’t reliably expect to do it.
Investment is hardly a zero sum game. If it were nobody would make anything buy investing passively either. So how is that a reasonable analogy? > you can’t reliably expect to do it. Sure, I can't. But assuming that it's not entirely random chance some proportion of people certainly can.
I think you’re reading too much into the analogy, which is maybe my fault for using an analogy. The point was just that it’s not that you can’t win, just that you very likely don’t have an edge - not because it’s mathematically impossible like in blackjack with a shoe that’s continuously shuffled, but because it’s so difficult.
> Sure, I can't. But assuming that it's not entirely random chance some proportion of people certainly can.
Yes, but the bar is very high.