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I don’t understand this sentiment - that generally the best investing return is just index funds. Really? The dominant strategy in investing is also the easiest

by tjs8rj 5y ago

I don’t understand this sentiment - that generally the best investing return is just index funds. Really? The dominant strategy in investing is also the easiest one by far, while also simultaneously being the definition of “average returns”? No, if Angel investing didn’t have a commensurate premium, no one would do it. They would just do the easy way. Eventually markets progress to 0 profit (in theory - this has never been observed afaik), but in the mean time people make plenty of return. The magic of index funds is dead-simple passive avg returns with a solid track record. They promise average returns - which is nothing to scoff at for sure and very appreciated, but they aren’t the end all of investing. Also: that stellar track record (100+ years) of stellar growth also happens to be over the most economically successful period in the entire history of humanity. So many miracles have happened in the last 100 years that makes our society so different from the previous 10s of thousands of years of human history. For a 5% annualized avg real return over the next 100 years, we’d need a global stock market of $7.5 quadrillion - 131x the current global market. For 10% we’d need a stock market of ~$785 quadrillion - almost 14,000x the current global market. We’d have to multiply our projected-to-stagnate population by orders of magnitude and pull off many incredible and increasingly insane miracles to pull that off: colonizing the entire solar system, AGI, aliens donating everything to us, and so on - while contending with ever depleting resources. Relying on the passive growth of the global economy to invest is a “cheat code” quickly closing as it is, much less the best way to get returns. End rant

Cilvic 5y ago
>No, if Angel investing didn’t have a commensurate premium, no one would do it. It could be the same thing as (day) trading, where many people overestimate their ability to generate a return. Also the "return" might not be financial, some people might just enjoy paying it forward, having the intellectual stimulation, taking part in a lottery, loads of reasons.
- tjs8rj 5y ago
  But it isn’t. There’s entire firms dedicated to it with internal returns far higher than the stock market. There are just shy of an infinite of investments and investing strategies that have beat the s&p in average returns for decades on avg you can construct with historical backtest data without foresight (ie not just picking the winners given hindsight). There are published papers presenting these. In your perspective, is getting rich (or even just doing better than the index over any time period) just a matter of time or luck with no room for any skill? Because the index fund beating all other investments would have that conclusion.
andruby 5y ago
Some people enjoy it. A lot of people think they are smarter and will beat the average. Some might, most probably won’t. Investing in an index fund is easy. Angel investing on the other hand takes a lot of effort. I hope that on average there is some return for it. A lot of people do things that make little economic sense. (start a vineyard, airline, space company :)
sombremesa 5y ago
> that generally the best investing return is just index funds It's not, and I don't see anyone saying that here. It will give better returns than angel investing for the average person (i.e. people not investing in Uber, Stripe, etc.), though. > No, if Angel investing didn’t have a commensurate premium, no one would do it. If no one won the lottery, no one would play. That doesn't make playing the lottery a good investment strategy.
- tjs8rj 5y ago
  Exactly. These are power law economics vs index funds uniform distribution of rewards - but that’s a relevant caveat! The trope of “should’ve just put your money in the index” is an implicit suggestion that index funds are the best place for it, but it should be noted that perhaps index funds are the best place unless you’re willing to undergo the effort to obtain the premium in returns considering the fact that those market beating returns aren’t uniformly distributed. The lottery analogy doesn’t map here because there are no lottery firms, there are no lottery syndicates, there is no lottery-playing industry on the buy side because you’ve correctly noted there is no repeatable process to generate profits. There is with venture capital and angel investing because there ARE repeatable strategies to generate profits - and many do.
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by tjs8rj 5y ago

Cilvic 5y ago

>No, if Angel investing didn’t have a commensurate premium, no one would do it. It could be the same thing as (day) trading, where many people overestimate their ability to generate a return. Also the "return" might not be financial, some people might just enjoy paying it forward, having the intellectual stimulation, taking part in a lottery, loads of reasons.

tjs8rj 5y ago
But it isn’t. There’s entire firms dedicated to it with internal returns far higher than the stock market. There are just shy of an infinite of investments and investing strategies that have beat the s&p in average returns for decades on avg you can construct with historical backtest data without foresight (ie not just picking the winners given hindsight). There are published papers presenting these. In your perspective, is getting rich (or even just doing better than the index over any time period) just a matter of time or luck with no room for any skill? Because the index fund beating all other investments would have that conclusion.

andruby 5y ago

Some people enjoy it. A lot of people think they are smarter and will beat the average. Some might, most probably won’t. Investing in an index fund is easy. Angel investing on the other hand takes a lot of effort. I hope that on average there is some return for it. A lot of people do things that make little economic sense. (start a vineyard, airline, space company :)

sombremesa 5y ago

> that generally the best investing return is just index funds It's not, and I don't see anyone saying that here. It will give better returns than angel investing for the average person (i.e. people not investing in Uber, Stripe, etc.), though. > No, if Angel investing didn’t have a commensurate premium, no one would do it. If no one won the lottery, no one would play. That doesn't make playing the lottery a good investment strategy.

tjs8rj 5y ago
Exactly. These are power law economics vs index funds uniform distribution of rewards - but that’s a relevant caveat! The trope of “should’ve just put your money in the index” is an implicit suggestion that index funds are the best place for it, but it should be noted that perhaps index funds are the best place unless you’re willing to undergo the effort to obtain the premium in returns considering the fact that those market beating returns aren’t uniformly distributed. The lottery analogy doesn’t map here because there are no lottery firms, there are no lottery syndicates, there is no lottery-playing industry on the buy side because you’ve correctly noted there is no repeatable process to generate profits. There is with venture capital and angel investing because there ARE repeatable strategies to generate profits - and many do.
- deleted 5y ago
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