4 ms·

Stock Market Investment is not a skilled ability. Example: Buffett made the bet in December 2007, arguing that a fund holding the same stocks as found in the S

Stock Market Investment is not a skilled ability. Example: Buffett made the bet in December 2007, arguing that a fund holding the same stocks as found in the Standard & Poor's 500 index could beat the combined performance of a group of hedge funds over the following 10 years. Buffet won easily - https://www.usatoday.com/story/money/markets/2018/03/07/warren-buffett-made-10-year-bet-his-market-strategy-heres-how-he-won/402823002/ https://www.usatoday.com/story/money/markets/2018/03/07/warr... Real Life Meaning - You need to diversify so much that you just bet on America's economy and not on intelligence of a manager.

tboyd47 8y ago
What if you do not have confidence in America's economy, long-term? What do you invest in, then?
- geogra4 8y ago
  Gold, or perhaps, CNY/Yuan
- whitepoplar 8y ago
  Note that the best economies don't always equate to the best performing capital markets. Investors in China lost quite a bit of money during periods of immense growth. If you don't have confidence in America, you could diversify by holding a portion of money in indexed international funds. But be careful, no one can predict the future! Best to hold a little bit of everything.
  - granshaw 8y ago
    Yup. The "great" thing about the US is that it's a large developed country with a strong rule of law, but at the same time also perhaps the most corporatist country on earth, allowing companies to act with impunity and lobby when needed, all of which leads to big and sustained profits. Compare this to, e.g. Europe.
    - Tehchops 8y ago
      >with a strong rule of law Not so certain these days.
      - whitepoplar 8y ago
        Can you give an example of a better-functioning legal system?
        AnimalMuppet 8y ago
        Canada? Switzerland? Better examples aren't as easy to come by as cynics think. I think the problem they see is that it's worse than it was ten years ago, rather than that it's worse than most other places.
- pembrook 8y ago
  The question isn't if the region you're investing in is going to have high growth. Most retail investors make the mistake of assuming high growth = it will be a profitable investment. In fact, the companies and countries that are talked about in the press as being "the fastest growing" are typically the worst investments. How is this possible? Because everybody else has also purchased that investment thinking the same thing you are and pushed its valuation beyond even high growth levels.
  - ta1234567890 8y ago
    Sounds like crypto
- pm90 8y ago
  There are really no other good options. The simple fact is that the American economy, and especially American financial instruments absolutely dominate the Global Economy. Consequently, a long term negative growth in the US would, by definition, lead to a Global Economic Downturn.
  - ta1234567890 8y ago
    > There are really no other good options. This is just BS. There might not be other easy/convenient options for people in the US to invest in other economies, but that surely doesn't mean there aren't any options. One option: gold. Sure, you can criticize gold as an investment all you want (and I'm not recommending it), but it's definitely an alternative to investing (directly) in the US economy.
    - namibj 8y ago
      There are Vanguard index funds for other regions, and also iirc some others too. Combine with motifinvesting, and reap the low fees and such. I would certainly run the numbers if they didn't say they don't want me as a client.
    - whitepoplar 8y ago
      Gold is not an investment, as it isn't income producing (in the same way that a house isn't an investment). Gold is a speculative instrument.
      - ta1234567890 8y ago
        Sure, but that's the case for almost the whole stock market (in the US) right now. Fundamentals make almost no difference in the stock market today.
        whitepoplar 8y ago
        It's richly valued, sure, but it's certainly an investment. VTI, for instance, currently yields 1.7% annual dividends, and the companies it holds negate the risk of inflation as they're the companies that charge (inflating) dollars for their goods and services. Gold is an unproductive block of metal that sits there. I'm not saying there's no value for gold at all, I'm saying that it's not an investment in the typical sense. Hold a small percentage of gold as a low-ish correlating asset class to rebalance with? Sounds great. Hold maybe 3-5% of assets in physical gold as a hyper-hedge insurance policy in case the US or world at large collapses? Perhaps a smart move. Holding all one's assets in gold as a perceived investment? No thanks!
whitepoplar 8y ago
It is a skilled ability (price discovery), just not when many other people are also doing it. The real benefit to passive, indexed investments is not just lower fees, but the ability to hold onto your portfolio without losing sleep. Loosely paraphrased from Bill Bernstein: If your active fund has a bad year or five, you don't know whether it's the fund manager's incompetence or just a rough market. In a passive, indexed fund, you can be sure that it's not the fault of an incompetent manager, thus letting you feel secure in holding onto your investments through thick and thin. Churning your portfolio and paying capital gains tax all along the way is a recipe for underperforming the market.
- ta1234567890 8y ago
  > It is a skilled ability (price discovery), just not when many other people are also doing it. Not true. This has been studied and disproven[1] many many times. The only people who keep saying that are either just too stubborn, disinformed or just lying because they have a vested interest. [1]: just one article (there's a lot of research out there) https://www.barrons.com/articles/monkeys-are-better-stockpickers-than-youd-think-1403206862 https://www.barrons.com/articles/monkeys-are-better-stockpic...
  - whitepoplar 8y ago
    Thought experiment: if nobody picks stocks, and everybody invests in passive index funds, how does price discovery happen?
    - ta1234567890 8y ago
      That's definitely an interesting thought experiment, and wish it was a real problem at some point. However, that thought experiment doesn't make individual stock pickers and active fund managers better (skilled) investors in any way.
      - whitepoplar 8y ago
        Not sure what you're trying to say. The market needs a small number of investors who, based on perceived value, engage in price discovery. Once prices are discovered, as per the Efficient Market Hypothesis (which isn't 100% efficient!), one's marginal ability to pick stocks and beat the market is slim to none. For passive index investing to work though, it's necessary to have some people attempt to beat indexed investments. In the end, indexers can be lazy and free-ride on that price discovery. ;)

tboyd47 8y ago

What if you do not have confidence in America's economy, long-term? What do you invest in, then?

geogra4 8y ago
Gold, or perhaps, CNY/Yuan
whitepoplar 8y ago
Note that the best economies don't always equate to the best performing capital markets. Investors in China lost quite a bit of money during periods of immense growth. If you don't have confidence in America, you could diversify by holding a portion of money in indexed international funds. But be careful, no one can predict the future! Best to hold a little bit of everything.
- granshaw 8y ago
  Yup. The "great" thing about the US is that it's a large developed country with a strong rule of law, but at the same time also perhaps the most corporatist country on earth, allowing companies to act with impunity and lobby when needed, all of which leads to big and sustained profits. Compare this to, e.g. Europe.
  - Tehchops 8y ago
    >with a strong rule of law Not so certain these days.
    - whitepoplar 8y ago
      Can you give an example of a better-functioning legal system?
      - AnimalMuppet 8y ago
        Canada? Switzerland? Better examples aren't as easy to come by as cynics think. I think the problem they see is that it's worse than it was ten years ago, rather than that it's worse than most other places.
pembrook 8y ago
The question isn't if the region you're investing in is going to have high growth. Most retail investors make the mistake of assuming high growth = it will be a profitable investment. In fact, the companies and countries that are talked about in the press as being "the fastest growing" are typically the worst investments. How is this possible? Because everybody else has also purchased that investment thinking the same thing you are and pushed its valuation beyond even high growth levels.
- ta1234567890 8y ago
  Sounds like crypto
pm90 8y ago
There are really no other good options. The simple fact is that the American economy, and especially American financial instruments absolutely dominate the Global Economy. Consequently, a long term negative growth in the US would, by definition, lead to a Global Economic Downturn.
- ta1234567890 8y ago
  > There are really no other good options. This is just BS. There might not be other easy/convenient options for people in the US to invest in other economies, but that surely doesn't mean there aren't any options. One option: gold. Sure, you can criticize gold as an investment all you want (and I'm not recommending it), but it's definitely an alternative to investing (directly) in the US economy.
  - namibj 8y ago
    There are Vanguard index funds for other regions, and also iirc some others too. Combine with motifinvesting, and reap the low fees and such. I would certainly run the numbers if they didn't say they don't want me as a client.
  - whitepoplar 8y ago
    Gold is not an investment, as it isn't income producing (in the same way that a house isn't an investment). Gold is a speculative instrument.
    - ta1234567890 8y ago
      Sure, but that's the case for almost the whole stock market (in the US) right now. Fundamentals make almost no difference in the stock market today.
      - whitepoplar 8y ago
        It's richly valued, sure, but it's certainly an investment. VTI, for instance, currently yields 1.7% annual dividends, and the companies it holds negate the risk of inflation as they're the companies that charge (inflating) dollars for their goods and services. Gold is an unproductive block of metal that sits there. I'm not saying there's no value for gold at all, I'm saying that it's not an investment in the typical sense. Hold a small percentage of gold as a low-ish correlating asset class to rebalance with? Sounds great. Hold maybe 3-5% of assets in physical gold as a hyper-hedge insurance policy in case the US or world at large collapses? Perhaps a smart move. Holding all one's assets in gold as a perceived investment? No thanks!

whitepoplar 8y ago

It is a skilled ability (price discovery), just not when many other people are also doing it. The real benefit to passive, indexed investments is not just lower fees, but the ability to hold onto your portfolio without losing sleep. Loosely paraphrased from Bill Bernstein: If your active fund has a bad year or five, you don't know whether it's the fund manager's incompetence or just a rough market. In a passive, indexed fund, you can be sure that it's not the fault of an incompetent manager, thus letting you feel secure in holding onto your investments through thick and thin. Churning your portfolio and paying capital gains tax all along the way is a recipe for underperforming the market.

ta1234567890 8y ago
> It is a skilled ability (price discovery), just not when many other people are also doing it. Not true. This has been studied and disproven[1] many many times. The only people who keep saying that are either just too stubborn, disinformed or just lying because they have a vested interest. [1]: just one article (there's a lot of research out there) https://www.barrons.com/articles/monkeys-are-better-stockpickers-than-youd-think-1403206862 https://www.barrons.com/articles/monkeys-are-better-stockpic...
- whitepoplar 8y ago
  Thought experiment: if nobody picks stocks, and everybody invests in passive index funds, how does price discovery happen?
  - ta1234567890 8y ago
    That's definitely an interesting thought experiment, and wish it was a real problem at some point. However, that thought experiment doesn't make individual stock pickers and active fund managers better (skilled) investors in any way.
    - whitepoplar 8y ago
      Not sure what you're trying to say. The market needs a small number of investors who, based on perceived value, engage in price discovery. Once prices are discovered, as per the Efficient Market Hypothesis (which isn't 100% efficient!), one's marginal ability to pick stocks and beat the market is slim to none. For passive index investing to work though, it's necessary to have some people attempt to beat indexed investments. In the end, indexers can be lazy and free-ride on that price discovery. ;)