4 ms·

> If someone (or some company) is claiming to be better than me at using my money to make money, surely they'd agree to put skin in the game, and only profit wh

by jzwinck 11y ago

> If someone (or some company) is claiming to be better than me at using my money to make money, surely they'd agree to put skin in the game, and only profit when I do? Imagine you believe that mail order companies are poised for rapid growth in coming years. You don't know which ones specifically, and there are thousands. So you buy a mutual fund which holds hundreds of these companies. This gives you some diversification and lets you make your bet with only a single commission to buy and sell. But the fund manager may disagree with your investment thesis. She may be fully convinced that online shopping has already destroyed the mail order business permanently. She would therefore gladly run a fund for you, but she would not bet on its performance herself. For a somewhat more real-life example of this, watch or read "The Big Short." The protagonist wants to buy something that the banks think will lose money.

optimusclimb 11y ago
> But the fund manager may disagree with your investment thesis. I'm referring to funds managed for me with the proposition that they will beat the market, i.e. the fund manager has a thesis which they agree with (because it is theirs.) So while what you're referring to of course exists, it's not what I was talking about. Apologies for being too vague in my post, however I thought the underlying assumption of this discussion of actively managed funds being chipped away by passive ones was that we were talking about the types of investment vehicles used by a "normal" person that wants to put their money in something that will grow over time, without having to pick stocks on their own.
- jzwinck 11y ago
  This normal person who has no strategy at all had better just buy a broad index fund. It's made for them! If a person's only belief in the market is that they want to beat it, they are out of luck before the opening bell.
rdtsc 11y ago
That's a good way to put it. Wonder then if most fund managers fundamentally don't believe that they can beat the market. They say they can for marketing purposes, but their fee structure indicates they can't. What about this, a mutual fund that users don't really care about what industry it goes into (as long as it is legal) and then the manager decides? In reality are grandma and grampa really deeply insistent that their money should go into mail order businesses so to speak or are they more interested into getting a certain return and would rather have a fund manager "professional" decide? I see the second choice as more plausable somehow.
- ktRolster 11y ago
  That's a good way to put it. Wonder then if most fund managers fundamentally don't believe that they can beat the market. The wall street journal interviews fund managers every year or so, and asks them, if someone gave you all their money in return for a fixed, guaranteed annual interest rate, how much would you promise them? Generally the answers are in the 1-2% range
  - optimusclimb 11y ago
    So going back to the last dip in 2008, that would be roughly equivalent to average inflation, no?
    - ktRolster 11y ago
      The question includes the phrasing, "after inflation"

by jzwinck 11y ago

optimusclimb 11y ago

> But the fund manager may disagree with your investment thesis. I'm referring to funds managed for me with the proposition that they will beat the market, i.e. the fund manager has a thesis which they agree with (because it is theirs.) So while what you're referring to of course exists, it's not what I was talking about. Apologies for being too vague in my post, however I thought the underlying assumption of this discussion of actively managed funds being chipped away by passive ones was that we were talking about the types of investment vehicles used by a "normal" person that wants to put their money in something that will grow over time, without having to pick stocks on their own.

jzwinck 11y ago
This normal person who has no strategy at all had better just buy a broad index fund. It's made for them! If a person's only belief in the market is that they want to beat it, they are out of luck before the opening bell.

rdtsc 11y ago

That's a good way to put it. Wonder then if most fund managers fundamentally don't believe that they can beat the market. They say they can for marketing purposes, but their fee structure indicates they can't. What about this, a mutual fund that users don't really care about what industry it goes into (as long as it is legal) and then the manager decides? In reality are grandma and grampa really deeply insistent that their money should go into mail order businesses so to speak or are they more interested into getting a certain return and would rather have a fund manager "professional" decide? I see the second choice as more plausable somehow.

ktRolster 11y ago
That's a good way to put it. Wonder then if most fund managers fundamentally don't believe that they can beat the market. The wall street journal interviews fund managers every year or so, and asks them, if someone gave you all their money in return for a fixed, guaranteed annual interest rate, how much would you promise them? Generally the answers are in the 1-2% range
- optimusclimb 11y ago
  So going back to the last dip in 2008, that would be roughly equivalent to average inflation, no?
  - ktRolster 11y ago
    The question includes the phrasing, "after inflation"