7 ms·

I agree with the (downvoted) guy who said, I'm an index fund skeptic. Something is true with index funds that was less true historically, which is the concentr

I agree with the (downvoted) guy who said, I'm an index fund skeptic. Something is true with index funds that was less true historically, which is the concentration of a few large companies in the largest indexes - as in, the amount of percentage of capital they have. Fact, FAANG make up 10% of the s&p 500 index, tech makes up 20+ %. It's NOT at all averaged out in the way the Bogleheads might think it is. Is it a "bet on the economy," or is it a bet on the stocks of big tech? Which brings me to something else that appears to have changed: big tech stocks are viewed as a safe haven, increasingly. With the overall economy being in a shambles combined with a virtual work world, this is even more important. Put those two things together, and the S&P 500 index isn't diversified. Edit: we're at the top of the cycle right now, or so it seems. We're all waiting for the other shoe to drop. But it's worse. What happens if you stick everything in there, you need the money in 5 or 10 years and you just hit the bad part of the cycle (look what happened in March). I'm doing the opposite of what the Bogleheads do, even though I'm extremely familiar with this extremely conservative approach. What's the fun in risking my capital with some index fund that's tied to concentrated entities like that, when I can risk a small percentage of my capital on highly volatile stocks, and make a similar return? You can repeatedly swing trade stocks like SPCE and some of the biopharma stocks and make money over and over again with a tiny percentage of your capital. I'm more interested in understanding how the bond market will work now in this strange new reality. Are bonds not a safe haven place to park cash?

hydroreadsstuff 6y ago
The historic worst case for the inflation-adjusted S&P 500 is not being up from 1929 - 1987 - 58 years. https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat... Edit: This ignores dividend reinvestment as ummonk noted. https://www.officialdata.org/us/stocks/s-p-500/1900 https://www.officialdata.org/us/stocks/s-p-500/1900 suggests 1929 - 1944 was probably the longest time. We are in unprecedented times. Highest debt, lowest bond yields, crazy P/Es, historic GDP drop (worst since 1929, or since WW2 for some). We don't yet know how inflation/deflation will play out. CPI is useless. A lot "inflation" is going into real estate / land and the stock market. I don't think past wisdom applies anymore. If you put money into most products (including most index funds) on the stock market today you are in fact stock-picking / gambling. Also tech companies are partially up for a good reason. Small caps have lost a lot earnings power. https://twitter.com/NorthmanTrader/status/1283353116973432832 https://twitter.com/NorthmanTrader/status/128335311697343283... Much much more than tech stocks. E.g. tech stocks were almost the only ones doing any buybacks last quarter. Stay-at-home companies, solid/value companies, and cheap stocks is where hedgefunds seem to move to. But yes, some valuations are bonkers. EV stocks, CVNA, W, ... Personally, I've been late to the party, and needed to learn on the fly, BUT: I now own a portion of gold and royalty and streaming companies (mining exposure with less risk of badly run mining companies. They lend money to miners in return for metal. I.e. miners don't need to worry about the price of the metal.) Mind that GLD and SLV are not fully backed by gold and silver. There is significant counter-party risk (E.g. if the bank goes bankrupt you might not receive anything). They also haven't really been audited, and JP Morgan employees have been charged for price manipulation of metals. I reduced my bond exposure, and I will probably soon move into gov bonds exclusively. I don't want to gamble on MBSs, CLOs, corporate bonds being bailed out. (The Fed and ECB's policies skew the bond market. Ratings and yields are (increasingly) not great indicators of company health). There is little room for lower yields. Real yields (bond yield - inflation) will turn negative or are already. When rates eventually will be hiked, both stocks and bonds will fall. (See 2019 / December 2019) I started stock picking. Mainly value, but really random stuff I find on Youtube investment channels and Reddit (Of course I read up on them, listen to financial calls. Balance sheet. Cash flow. Exposure to potential problems.). I sleep better at night with a cheaper stock that has less downside, even if it isn't riding the current trend/bubble. Other than that I'd keep a good amount of cash for potential opportunities. In the current climate, stocks could fall any week, real estate will likely be on sale (depending on how many rich people will try scoop it up at the same time), or perhaps you can buy a share in a local business.
- ummonk 6y ago
  I think that worst case looks worse than it was because it is ignoring dividends.
  - hydroreadsstuff 6y ago
    Good point. I found this here: https://www.officialdata.org/us/stocks/s-p-500/1900 https://www.officialdata.org/us/stocks/s-p-500/1900 1929 - 1944 seems to be the worst.
- mancerayder 6y ago
  I tend to agree with this and I'm also long several gold miners, and I've swing traded some of them (one was a value buy with a long-standing issue with the Greek government that I was watching the news on for years). It baffles me how this Bogleheads philosophy has taken tech people. People can't wrap their heads around the idea that gold goes up in times of trouble, or that work from home tech is likely to go up, or that oil is likely to go down, or whatever other myriad bets one can make. My approach is to maintain almost all cash and to trade a small percentage of the cash on extremely volatile stocks, preparing to hold long-term if necessary. I rarely invest in fully scammy pump and dumps (but lately pharma has paid off, for obvious reasons). I use the news cycle and try to anticipate what others are doing. You don't need to sell at the top and buy at the bottom to make money. In contrast, I'm looking at my work 401K which is managed with those mathemetically unstoppable index funds. It's down 2 percent while I'm up 30. Now what am I to do with the cash portion of my investment. I'm leaning in bond funds (because bond picking is something I have no idea about).
  - marvin 6y ago
    How many years have you been doing this?
  - humanlion87 6y ago
    How long do you think you can keep up the 30% returns? How many active investors/traders do you know have had 30% returns year after year? I think it is easy to lose sight of the long term possibilities when you are thinking about the short term.
stu2b50 6y ago
You're conflating index funds with S&P 500 Index funds, though. You can buy an index fund with _zero_ tech stocks. You can buy something like VINIX which has considerably less weight on the BigN tech firms.
- mancerayder 6y ago
  The VINIX is down 3% YTD while the rest of the market ballooned. Looks like we "picked stocks" by picking the indexes here, too? I just don't understand the insistence on indexes. We're afraid of picking stocks that go bankrupt? We work in tech, and a lot of us are science nerds. Surely we can pick names based on how we think those technologies are likely to be successful. We have access to a lot more information than people did in the 1990's with this Boglehead stuff.
  - stu2b50 6y ago
    Well, yeah, that's absolutely expected. The promise of index funds isn't "you'll always make money!!" over any short-term period, the promise is that if the stock market as a whole increase, which it tends to do, you'll also benefit from that. >Surely we can pick names based on how we think those technologies are likely to be successful. Time and time again, especially now, "fundamentals" has proven to be a poor predictor, at least in the short term. You have companies with P/E ratios of 20-30 right now. It's not just about the underlying product, perception and all kinds of human effects also matter, which makes it a perilous place to be. Throw your money in a big bucket and over 20-30 years, you'll be up. That's the point.
    - mancerayder 6y ago
      Fine, over 20-30 years. I'll be too old in 20-30 years to enjoy that money. I'd rather swing trade and buy myself a new couch. :-)
      - ta17711771 6y ago
        Founder here - can I have your old one?
deleted 6y ago
[deleted]
Noumenon72 6y ago
Why do you think an index that is 20% tech stocks "isn't diversified"? The S&P 500 has had more than 20% in several different sectors over its history, from transport to energy to communications. With indexing, you have whatever investments are worth making in the current economy. You don't have to predict the trends or decide what's overinvested in.
throw0101a 6y ago
> Something is true with index funds that was less true historically, which is the concentration of a few large companies in the largest indexes Which is to say, exactly like has been for the last several decades: * https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and-the-old-normal/ https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and... * https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty/ https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty... * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty * https://etfdb.com/history-of-the-s-and-p-500/ https://etfdb.com/history-of-the-s-and-p-500/ * https://www.qad.com/blog/2019/10/sp-500-companies-over-time https://www.qad.com/blog/2019/10/sp-500-companies-over-time That's the definition of the S&P 500: the largest five hundred companies publicly traded companies. > Fact, FAANG make up 10% of the s&p 500 index, tech makes up 20+ %. It's NOT at all averaged out in the way the Bogleheads might think it is. Why do you fixate on the S&P 500? If you want something more diversified, you can own a piece of all ~3000 publicly traded companies in the US: * https://en.wikipedia.org/wiki/Russell_3000_Index https://en.wikipedia.org/wiki/Russell_3000_Index John Bogle and Vanguard themselves recognize(d) this: * https://www.marketwatch.com/story/vanguard-thinks-its-own-employees-should-own-this-fund-not-the-sp-500-theyre-right-2018-06-08 https://www.marketwatch.com/story/vanguard-thinks-its-own-em... * https://www.marketwatch.com/story/bogle-explains-why-vanguard-employees-wont-have-a-flagship-sp-500-fund-in-their-401k-2018-06-07 https://www.marketwatch.com/story/bogle-explains-why-vanguar... And many Bogleheads also examine the performance of many different types of indexes: * https://www.bogleheads.org/wiki/US_total_market_index_returns https://www.bogleheads.org/wiki/US_total_market_index_return... > Put those two things together, and the S&P 500 index isn't diversified. You're not wrong, but trying to explain to the layman about all this technical minutiae will cause their eyes to glaze over. So for the average Joe the Plumber the easiest message to get across is "invest in 'index fund' (=S&P 500)". Once you get people to actually save on a regular/monthly basis in low-fee funds, you're >80% of the way to a somewhat successful retirement strategy. If you want to argue about &P 500 vs 400 vs 600 vs 1500 vs Russell 3000: that's for later once people actually have something going into a retirement account.
cft 6y ago
There's also a possibility of (hyper) inflation. I would buy certain hand picked large stocks, Bitcoin, gold and Fx.
itsoktocry 6y ago
>" It's NOT at all averaged out in the way the Bogleheads might think it is." Correct. There are smart people doing research out there right now demonstrating that "passive" isn't really passive, and that people regularly buying into indices at any price is skewing the market. No one is clear on what the ramifications of this are, but as the old adage says, "past performance no guarantee of future success". The same goes for buying the SPY and forgetting about it.
- throw0101a 6y ago
  > […] and that people regularly buying into indices at any price is skewing the market. And at what price should people be investing in the market? Sitting on the side in cash, waiting for the dips and crashes to occur, will give you mediocre results: * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co... Further, trying to miss the worst days on market down turns often means missing the days with the best returns: * https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-days-miss-the-best-days/ https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-... For most people, most of the time, the best thing they can do is just chug along putting a little bit of money away every month. Put in what you can, but a good goal (if you can afford it) is to put away at least 5% of your income (and maybe up to 10%). > The same goes for buying the SPY and forgetting about it. You're not wrong, but: what's the alternative? Unless you can show something that's demonstratively better than a low-fee S&P 500 or Russell 3000 index fund (perhaps tempered with some bonds for risk/volatility management), bemoaning the situation is not very productive.
- kokey 6y ago
  I'm also an index fund skeptic mainly because it's now such a convention that taxi drivers and shoeshine boys will tell you that's where you should put your money. People used to say the same things about investing in real estate and many other things and for a time in history those things were demonstrably the best investment long term, until it wasn't. It looks like now is that time again for the stock market to look good. It still doesn't mean it's a bad investment either and no one will blame you if you suffer with everyone else when it goes wrong. However, it's also never worth putting all your money into unless you can afford to ride through a slump that could last well over a decade.

hydroreadsstuff 6y ago

The historic worst case for the inflation-adjusted S&P 500 is not being up from 1929 - 1987 - 58 years. https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat... Edit: This ignores dividend reinvestment as ummonk noted. https://www.officialdata.org/us/stocks/s-p-500/1900 https://www.officialdata.org/us/stocks/s-p-500/1900 suggests 1929 - 1944 was probably the longest time. We are in unprecedented times. Highest debt, lowest bond yields, crazy P/Es, historic GDP drop (worst since 1929, or since WW2 for some). We don't yet know how inflation/deflation will play out. CPI is useless. A lot "inflation" is going into real estate / land and the stock market. I don't think past wisdom applies anymore. If you put money into most products (including most index funds) on the stock market today you are in fact stock-picking / gambling. Also tech companies are partially up for a good reason. Small caps have lost a lot earnings power. https://twitter.com/NorthmanTrader/status/1283353116973432832 https://twitter.com/NorthmanTrader/status/128335311697343283... Much much more than tech stocks. E.g. tech stocks were almost the only ones doing any buybacks last quarter. Stay-at-home companies, solid/value companies, and cheap stocks is where hedgefunds seem to move to. But yes, some valuations are bonkers. EV stocks, CVNA, W, ... Personally, I've been late to the party, and needed to learn on the fly, BUT: I now own a portion of gold and royalty and streaming companies (mining exposure with less risk of badly run mining companies. They lend money to miners in return for metal. I.e. miners don't need to worry about the price of the metal.) Mind that GLD and SLV are not fully backed by gold and silver. There is significant counter-party risk (E.g. if the bank goes bankrupt you might not receive anything). They also haven't really been audited, and JP Morgan employees have been charged for price manipulation of metals. I reduced my bond exposure, and I will probably soon move into gov bonds exclusively. I don't want to gamble on MBSs, CLOs, corporate bonds being bailed out. (The Fed and ECB's policies skew the bond market. Ratings and yields are (increasingly) not great indicators of company health). There is little room for lower yields. Real yields (bond yield - inflation) will turn negative or are already. When rates eventually will be hiked, both stocks and bonds will fall. (See 2019 / December 2019) I started stock picking. Mainly value, but really random stuff I find on Youtube investment channels and Reddit (Of course I read up on them, listen to financial calls. Balance sheet. Cash flow. Exposure to potential problems.). I sleep better at night with a cheaper stock that has less downside, even if it isn't riding the current trend/bubble. Other than that I'd keep a good amount of cash for potential opportunities. In the current climate, stocks could fall any week, real estate will likely be on sale (depending on how many rich people will try scoop it up at the same time), or perhaps you can buy a share in a local business.

ummonk 6y ago
I think that worst case looks worse than it was because it is ignoring dividends.
- hydroreadsstuff 6y ago
  Good point. I found this here: https://www.officialdata.org/us/stocks/s-p-500/1900 https://www.officialdata.org/us/stocks/s-p-500/1900 1929 - 1944 seems to be the worst.
mancerayder 6y ago
I tend to agree with this and I'm also long several gold miners, and I've swing traded some of them (one was a value buy with a long-standing issue with the Greek government that I was watching the news on for years). It baffles me how this Bogleheads philosophy has taken tech people. People can't wrap their heads around the idea that gold goes up in times of trouble, or that work from home tech is likely to go up, or that oil is likely to go down, or whatever other myriad bets one can make. My approach is to maintain almost all cash and to trade a small percentage of the cash on extremely volatile stocks, preparing to hold long-term if necessary. I rarely invest in fully scammy pump and dumps (but lately pharma has paid off, for obvious reasons). I use the news cycle and try to anticipate what others are doing. You don't need to sell at the top and buy at the bottom to make money. In contrast, I'm looking at my work 401K which is managed with those mathemetically unstoppable index funds. It's down 2 percent while I'm up 30. Now what am I to do with the cash portion of my investment. I'm leaning in bond funds (because bond picking is something I have no idea about).
- marvin 6y ago
  How many years have you been doing this?
- humanlion87 6y ago
  How long do you think you can keep up the 30% returns? How many active investors/traders do you know have had 30% returns year after year? I think it is easy to lose sight of the long term possibilities when you are thinking about the short term.

stu2b50 6y ago

You're conflating index funds with S&P 500 Index funds, though. You can buy an index fund with _zero_ tech stocks. You can buy something like VINIX which has considerably less weight on the BigN tech firms.

mancerayder 6y ago
The VINIX is down 3% YTD while the rest of the market ballooned. Looks like we "picked stocks" by picking the indexes here, too? I just don't understand the insistence on indexes. We're afraid of picking stocks that go bankrupt? We work in tech, and a lot of us are science nerds. Surely we can pick names based on how we think those technologies are likely to be successful. We have access to a lot more information than people did in the 1990's with this Boglehead stuff.
- stu2b50 6y ago
  Well, yeah, that's absolutely expected. The promise of index funds isn't "you'll always make money!!" over any short-term period, the promise is that if the stock market as a whole increase, which it tends to do, you'll also benefit from that. >Surely we can pick names based on how we think those technologies are likely to be successful. Time and time again, especially now, "fundamentals" has proven to be a poor predictor, at least in the short term. You have companies with P/E ratios of 20-30 right now. It's not just about the underlying product, perception and all kinds of human effects also matter, which makes it a perilous place to be. Throw your money in a big bucket and over 20-30 years, you'll be up. That's the point.
  - mancerayder 6y ago
    Fine, over 20-30 years. I'll be too old in 20-30 years to enjoy that money. I'd rather swing trade and buy myself a new couch. :-)
    - ta17711771 6y ago
      Founder here - can I have your old one?

deleted 6y ago

[deleted]

Noumenon72 6y ago

Why do you think an index that is 20% tech stocks "isn't diversified"? The S&P 500 has had more than 20% in several different sectors over its history, from transport to energy to communications. With indexing, you have whatever investments are worth making in the current economy. You don't have to predict the trends or decide what's overinvested in.

throw0101a 6y ago

> Something is true with index funds that was less true historically, which is the concentration of a few large companies in the largest indexes Which is to say, exactly like has been for the last several decades: * https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and-the-old-normal/ https://awealthofcommonsense.com/2020/07/the-nifty-fifty-and... * https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty/ https://theirrelevantinvestor.com/2018/11/26/the-nifty-fifty... * https://en.wikipedia.org/wiki/Nifty_Fifty https://en.wikipedia.org/wiki/Nifty_Fifty * https://etfdb.com/history-of-the-s-and-p-500/ https://etfdb.com/history-of-the-s-and-p-500/ * https://www.qad.com/blog/2019/10/sp-500-companies-over-time https://www.qad.com/blog/2019/10/sp-500-companies-over-time That's the definition of the S&P 500: the largest five hundred companies publicly traded companies. > Fact, FAANG make up 10% of the s&p 500 index, tech makes up 20+ %. It's NOT at all averaged out in the way the Bogleheads might think it is. Why do you fixate on the S&P 500? If you want something more diversified, you can own a piece of all ~3000 publicly traded companies in the US: * https://en.wikipedia.org/wiki/Russell_3000_Index https://en.wikipedia.org/wiki/Russell_3000_Index John Bogle and Vanguard themselves recognize(d) this: * https://www.marketwatch.com/story/vanguard-thinks-its-own-employees-should-own-this-fund-not-the-sp-500-theyre-right-2018-06-08 https://www.marketwatch.com/story/vanguard-thinks-its-own-em... * https://www.marketwatch.com/story/bogle-explains-why-vanguard-employees-wont-have-a-flagship-sp-500-fund-in-their-401k-2018-06-07 https://www.marketwatch.com/story/bogle-explains-why-vanguar... And many Bogleheads also examine the performance of many different types of indexes: * https://www.bogleheads.org/wiki/US_total_market_index_returns https://www.bogleheads.org/wiki/US_total_market_index_return... > Put those two things together, and the S&P 500 index isn't diversified. You're not wrong, but trying to explain to the layman about all this technical minutiae will cause their eyes to glaze over. So for the average Joe the Plumber the easiest message to get across is "invest in 'index fund' (=S&P 500)". Once you get people to actually save on a regular/monthly basis in low-fee funds, you're >80% of the way to a somewhat successful retirement strategy. If you want to argue about &P 500 vs 400 vs 600 vs 1500 vs Russell 3000: that's for later once people actually have something going into a retirement account.

cft 6y ago

There's also a possibility of (hyper) inflation. I would buy certain hand picked large stocks, Bitcoin, gold and Fx.

itsoktocry 6y ago

>" It's NOT at all averaged out in the way the Bogleheads might think it is." Correct. There are smart people doing research out there right now demonstrating that "passive" isn't really passive, and that people regularly buying into indices at any price is skewing the market. No one is clear on what the ramifications of this are, but as the old adage says, "past performance no guarantee of future success". The same goes for buying the SPY and forgetting about it.

throw0101a 6y ago
> […] and that people regularly buying into indices at any price is skewing the market. And at what price should people be investing in the market? Sitting on the side in cash, waiting for the dips and crashes to occur, will give you mediocre results: * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averaging/ https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co... Further, trying to miss the worst days on market down turns often means missing the days with the best returns: * https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-days-miss-the-best-days/ https://theirrelevantinvestor.com/2019/02/08/miss-the-worst-... For most people, most of the time, the best thing they can do is just chug along putting a little bit of money away every month. Put in what you can, but a good goal (if you can afford it) is to put away at least 5% of your income (and maybe up to 10%). > The same goes for buying the SPY and forgetting about it. You're not wrong, but: what's the alternative? Unless you can show something that's demonstratively better than a low-fee S&P 500 or Russell 3000 index fund (perhaps tempered with some bonds for risk/volatility management), bemoaning the situation is not very productive.
kokey 6y ago
I'm also an index fund skeptic mainly because it's now such a convention that taxi drivers and shoeshine boys will tell you that's where you should put your money. People used to say the same things about investing in real estate and many other things and for a time in history those things were demonstrably the best investment long term, until it wasn't. It looks like now is that time again for the stock market to look good. It still doesn't mean it's a bad investment either and no one will blame you if you suffer with everyone else when it goes wrong. However, it's also never worth putting all your money into unless you can afford to ride through a slump that could last well over a decade.