4 ms·

Sure, it costs money, but it also costs money to be in an index fund that falls 40-50%. No-load, low-expense index funds are extremely useful but not foolproof

by mcknz 16y ago

Sure, it costs money, but it also costs money to be in an index fund that falls 40-50%. No-load, low-expense index funds are extremely useful but not foolproof. Something to be said for cash right about now as well....

beagle3 16y ago
You commit the fallacy of assuming that if you pay someone to do a job he claims to be competent at, you'll get a better-than-random performance. Statistics for active fund managers show that 85% do strictly worse than the benchmark index (usually S&P or DJ), 5% or so are comparable with the index (i.e., they do better but that gets eaten away by their cost), and only 10% beat the benchmark. And fewer than 3% or so consistently beat their benchmark year after year. (Those that know what they are doing are not fund managers; they run hedge funds and make a lot more for themselves. Which should _not_ be taken to mean the reverse - i.e. that people who run hedge funds know what they are doing). Do read "A random walk down wall street"
- mcknz 16y ago
  Not suggesting that there are many good active funds, but the ones with long-term managers are worth at least some research -- you don't have to beat the benchmark each year to be a long-term success.
  - beagle3 16y ago
    Actually, you mostly do need to beat the benchmark each year to be a long term success. Make 1% each year more than the benchmark for 10 years, and then lose 30% compared to the benchmark in one year, and you are a horrible failure. And that happens often. And if you could name some of these "long term managers" it might actually be helpful for the discussion. I don't know what your background is, but you come off this discussion as someone who knows how the world works, evidence be damned. I've been working in this field successfully for the last 8 years, and no one who _is_ successful (in the beating-the-benchmark sense) stays in index/mutual fund management -- they all go to "success fee" management (think private equity, hedge funds, etc). If you're any good, why earn 1% of AUM per year, when you can earn 2% of AUM + 20% of profits?
    - mcknz 16y ago
      At risk of a further beatdown: Certainly not my intention to pretend special knowledge here, and I don't mean to be argumentative. Specifically I was thinking a long-short mutual fund like HSGFX might work as a hedge for a small investor in a situation such as now, where there's the possibility of futher downside risk (in the spirit of using the right tool for the right purpose). Now I could be completely wrong, and please correct me or suggest alternatives if I am. I guess what concerns me about answering the OP's question with "buy index funds" is that it's only part of the equation, and it seems too many people just buy the index and never think about it again (the buy-and-hold scenario). As someone with experience, what would you recommend the OP (or any index investor) do to help preserve capital?
      - beagle3 16y ago
        I'm not familiar with HSGFX specifically. I've just compared them in Google Finance. If you put your money into HSGFX in the beginning of 2003, you would have been at +7% today; the SPY (benchmark) would be at +18% today. Depending on where you put your start date, you would sometimes be better off in HSGFX and sometimes better off in SPY. I see no indication from this past performance that there is any reason to believe it is any better than the SPY benchmark. I was replying to "active managed mutual fund is better than index", which statistically speaking is WRONG approximately 5 times more often than it is right. "Buy index fund" is (statstically) the right answer to "which stocks should I buy" which was more or less the original question. > As someone with experience, what would you recommend the OP (or any index investor) do to help preserve capital? Stay away from the stock market until 2013 at least, possibly later. The stock market has completely decoupled from fundamentals and performance. Last year's rally had no fundamental support whatsoever. The things that are likely to preserve capital are gold, and some government bonds. My personal strategy is to diversify on currencies (counting gold as a currency here), using strictly CDs and government bonds. I'm trying to make sure I have RETURN OF CAPITAL, rather than maximize RETURN ON CAPITAL at the moment. Some governments _will_ default on some of their obligations in the next 5 years. Many banks, bond and debt issuers will too. The stock market at the moment is, as far as the non-professional is concerned, an HFT casino. Stay away, unless you like gambling. Investment is a foreign concept to this stock market. If you want to learn more about the market, read Denninger ("the market ticker"), ZeroHedge and Michael Shedlock ("global economic analysis"). Only listen to CNBC, CNN, Jim Cramer and friends if you plan on losing money.

by mcknz 16y ago

beagle3 16y ago

You commit the fallacy of assuming that if you pay someone to do a job he claims to be competent at, you'll get a better-than-random performance. Statistics for active fund managers show that 85% do strictly worse than the benchmark index (usually S&P or DJ), 5% or so are comparable with the index (i.e., they do better but that gets eaten away by their cost), and only 10% beat the benchmark. And fewer than 3% or so consistently beat their benchmark year after year. (Those that know what they are doing are not fund managers; they run hedge funds and make a lot more for themselves. Which should _not_ be taken to mean the reverse - i.e. that people who run hedge funds know what they are doing). Do read "A random walk down wall street"

mcknz 16y ago
Not suggesting that there are many good active funds, but the ones with long-term managers are worth at least some research -- you don't have to beat the benchmark each year to be a long-term success.
- beagle3 16y ago
  Actually, you mostly do need to beat the benchmark each year to be a long term success. Make 1% each year more than the benchmark for 10 years, and then lose 30% compared to the benchmark in one year, and you are a horrible failure. And that happens often. And if you could name some of these "long term managers" it might actually be helpful for the discussion. I don't know what your background is, but you come off this discussion as someone who knows how the world works, evidence be damned. I've been working in this field successfully for the last 8 years, and no one who _is_ successful (in the beating-the-benchmark sense) stays in index/mutual fund management -- they all go to "success fee" management (think private equity, hedge funds, etc). If you're any good, why earn 1% of AUM per year, when you can earn 2% of AUM + 20% of profits?
  - mcknz 16y ago
    At risk of a further beatdown: Certainly not my intention to pretend special knowledge here, and I don't mean to be argumentative. Specifically I was thinking a long-short mutual fund like HSGFX might work as a hedge for a small investor in a situation such as now, where there's the possibility of futher downside risk (in the spirit of using the right tool for the right purpose). Now I could be completely wrong, and please correct me or suggest alternatives if I am. I guess what concerns me about answering the OP's question with "buy index funds" is that it's only part of the equation, and it seems too many people just buy the index and never think about it again (the buy-and-hold scenario). As someone with experience, what would you recommend the OP (or any index investor) do to help preserve capital?
    - beagle3 16y ago
      I'm not familiar with HSGFX specifically. I've just compared them in Google Finance. If you put your money into HSGFX in the beginning of 2003, you would have been at +7% today; the SPY (benchmark) would be at +18% today. Depending on where you put your start date, you would sometimes be better off in HSGFX and sometimes better off in SPY. I see no indication from this past performance that there is any reason to believe it is any better than the SPY benchmark. I was replying to "active managed mutual fund is better than index", which statistically speaking is WRONG approximately 5 times more often than it is right. "Buy index fund" is (statstically) the right answer to "which stocks should I buy" which was more or less the original question. > As someone with experience, what would you recommend the OP (or any index investor) do to help preserve capital? Stay away from the stock market until 2013 at least, possibly later. The stock market has completely decoupled from fundamentals and performance. Last year's rally had no fundamental support whatsoever. The things that are likely to preserve capital are gold, and some government bonds. My personal strategy is to diversify on currencies (counting gold as a currency here), using strictly CDs and government bonds. I'm trying to make sure I have RETURN OF CAPITAL, rather than maximize RETURN ON CAPITAL at the moment. Some governments _will_ default on some of their obligations in the next 5 years. Many banks, bond and debt issuers will too. The stock market at the moment is, as far as the non-professional is concerned, an HFT casino. Stay away, unless you like gambling. Investment is a foreign concept to this stock market. If you want to learn more about the market, read Denninger ("the market ticker"), ZeroHedge and Michael Shedlock ("global economic analysis"). Only listen to CNBC, CNN, Jim Cramer and friends if you plan on losing money.