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The second edition of Jack Bogle's "Little Book of Common Sense Investing" came out this last October. It goes into detail in evaluating active investment such

by avar 9y ago

The second edition of Jack Bogle's "Little Book of Common Sense Investing" came out this last October. It goes into detail in evaluating active investment such as what's being recommended in this article v.s. passive investment. Plainly put, I've yet to see any compelling evidence that the supposed experts being quoted in this article can time the market as they're suggesting with their suggestion of getting out of tech stocks now. The percentage of active management firms that can beat the index funds even before you factor in their high fees is so miniscule that random chance could account for those low numbers. The market's almost definitely heading for a bit of a crash in a few years, but it's instructive to look at how passive v.s. active investing did in 2008 (detailed in this book) to see how much these supposed experts really know.

bitxbit 9y ago
Increase in passive/beta investing is not necessarily good for the economy. We are going through an extraordinary period for levered beta.
sliverstorm 9y ago
This isn't about timing the market, it's about rebalancing and maintaining a good diversity of exposure to various sectors. Rebalancing is not antithetical to passive investing.
dbecker 9y ago
This article is talking about diversification to reduce risk, which is unrelated to "timing the market" and which can be consistent with passive investing.
- avar 9y ago
  Some investors described in the article moved from market cap weighted indexes to ones that were disproportionately weighted to disfavor tech stocks, they believe that they're overvalued and that they can get out earlier than everyone else. That's trying to time the market. The firms mentioned in the article will be happy to charge you much higher fees than Vanguard for questionable longer term returns. It's basically a PR piece for managed investment.
  - whack 9y ago
    Even if the average returns and risk are identical for each security individually, you can minimise your portfolio risk by investing equally across many different industries. If a downturn were to occur, different securities in a single industry will be much more correlated, as compared to different securities across different industries.
    - avar 9y ago
      Yes, that makes sense. But that's entirely unrelated to what I'm pointing out here. (Some of) the article is making the argument that investors should decide for themselves how over- or undervalued certain segments of the economy are. So on one hand you'd have a diverse market cap weighted index where you buy into stocks representing the proportional to their portion of the economy. On the other hand you might think you have special knowledge to layer on top of that. Are banks undervalued? By how much? Let's say 10%. Then let's sell something else to buy 10% more banks, now what's 10% overvalued? Tech? I've yet to see any sort of compelling data that this sort of managed investing is a good idea, and that's what it is. Just because you're not buying TSLA and instead just disproportionately buying "car stuff", or not selling AAPL but just selling "tech stuff" you're still trying to pick stocks and trying to beat other stockpickers doing the same thing. You're just picking subsets of the economy instead of individual stocks.
      - perl4ever 9y ago
        I don't think it's a good idea to guess what's over/undervalued. But equal weighting different industries is not quite the same thing. No matter how you weight things (by capitalization, by company, by industry, whatever) you are making assumptions about correlations. No dogma can tell you which is right a priori, because correlations change, especially in crises when it matters most. Also...the total market, cap weighted, may be the optimal way to invest the whole world's capital - but that doesn't mean that it's the optimal way to invest, say, $50K. If you have $100B, say, you can't put it in a stock that's currently valued at $1B. But if you have $1000, you don't have that constraint. Regardless of how the optimal portfolio may differ, when you're investing a relatively minute amount compared to the entire market, it's hard to imagine the optimum is not going to be different. ...You don't pilot your car under all the same constraints as an 18-wheeler, just because that's optimum for shipping large quantities.
ataturk 9y ago
How many years, exactly do you think? I need to know so I can get to cash just ahead of that time period. What if these "crashes" happen only once a liftetime and we just had a major correction in 2008/9? Seriously, follow Bogle's advice and sleep better at night.

by avar 9y ago

bitxbit 9y ago

Increase in passive/beta investing is not necessarily good for the economy. We are going through an extraordinary period for levered beta.

sliverstorm 9y ago

This isn't about timing the market, it's about rebalancing and maintaining a good diversity of exposure to various sectors. Rebalancing is not antithetical to passive investing.

dbecker 9y ago

This article is talking about diversification to reduce risk, which is unrelated to "timing the market" and which can be consistent with passive investing.

avar 9y ago
Some investors described in the article moved from market cap weighted indexes to ones that were disproportionately weighted to disfavor tech stocks, they believe that they're overvalued and that they can get out earlier than everyone else. That's trying to time the market. The firms mentioned in the article will be happy to charge you much higher fees than Vanguard for questionable longer term returns. It's basically a PR piece for managed investment.
- whack 9y ago
  Even if the average returns and risk are identical for each security individually, you can minimise your portfolio risk by investing equally across many different industries. If a downturn were to occur, different securities in a single industry will be much more correlated, as compared to different securities across different industries.
  - avar 9y ago
    Yes, that makes sense. But that's entirely unrelated to what I'm pointing out here. (Some of) the article is making the argument that investors should decide for themselves how over- or undervalued certain segments of the economy are. So on one hand you'd have a diverse market cap weighted index where you buy into stocks representing the proportional to their portion of the economy. On the other hand you might think you have special knowledge to layer on top of that. Are banks undervalued? By how much? Let's say 10%. Then let's sell something else to buy 10% more banks, now what's 10% overvalued? Tech? I've yet to see any sort of compelling data that this sort of managed investing is a good idea, and that's what it is. Just because you're not buying TSLA and instead just disproportionately buying "car stuff", or not selling AAPL but just selling "tech stuff" you're still trying to pick stocks and trying to beat other stockpickers doing the same thing. You're just picking subsets of the economy instead of individual stocks.
    - perl4ever 9y ago
      I don't think it's a good idea to guess what's over/undervalued. But equal weighting different industries is not quite the same thing. No matter how you weight things (by capitalization, by company, by industry, whatever) you are making assumptions about correlations. No dogma can tell you which is right a priori, because correlations change, especially in crises when it matters most. Also...the total market, cap weighted, may be the optimal way to invest the whole world's capital - but that doesn't mean that it's the optimal way to invest, say, $50K. If you have $100B, say, you can't put it in a stock that's currently valued at $1B. But if you have $1000, you don't have that constraint. Regardless of how the optimal portfolio may differ, when you're investing a relatively minute amount compared to the entire market, it's hard to imagine the optimum is not going to be different. ...You don't pilot your car under all the same constraints as an 18-wheeler, just because that's optimum for shipping large quantities.

ataturk 9y ago

How many years, exactly do you think? I need to know so I can get to cash just ahead of that time period. What if these "crashes" happen only once a liftetime and we just had a major correction in 2008/9? Seriously, follow Bogle's advice and sleep better at night.