5 ms·

I can't help but think of confidence and the illusion of control: http://www.nytimes.com/2011/10/23/magazine/dont-blink-the-hazards-of-confidence.html?pagewant

by wazoox 12y ago

I can't help but think of confidence and the illusion of control: http://www.nytimes.com/2011/10/23/magazine/dont-blink-the-hazards-of-confidence.html?pagewanted=all&_r=0 http://www.nytimes.com/2011/10/23/magazine/dont-blink-the-ha... "Mutual funds are run by highly experienced and hard-working professionals who buy and sell stocks to achieve the best possible results for their clients. Nevertheless, the evidence from more than 50 years of research is conclusive: for a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker. At least two out of every three mutual funds underperform the overall market in any given year. More important, the year-to-year correlation among the outcomes of mutual funds is very small, barely different from zero. The funds that were successful in any given year were mostly lucky; they had a good roll of the dice. There is general agreement among researchers that this is true for nearly all stock pickers, whether they know it or not — and most do not. The subjective experience of traders is that they are making sensible, educated guesses in a situation of great uncertainty. In highly efficient markets, however, educated guesses are not more accurate than blind guesses. "

porker 12y ago
To me this is depressing as my future pension is invested in funds. Given the rest of the comments: how best to invest it for long-term grown above the rate it'd have in a savings account?
- im2w1l 12y ago
  Invest directly in stock and bonds. And if that is not available, than invest in low fee funds.
  - kasey_junk 12y ago
    "Invest directly in stock and bonds." That is pretty much the opposite advice you should take from those findings. In general, investors now have the widest array of low cost, diversified instruments available at any point in history. Most advisors who know what they are talking about, will tell you to take one of these options (a non-managed index fund, a highly diversified etf) and invest in that. Rebalance once a year and don't worry about beating the market.
    - porker 12y ago
      > Most advisors who know what they are talking about, will tell you to take one of these options (a non-managed index fund, a highly diversified etf) and invest in that. Thanks, do you have any references for this, or more details on such options?
      - kasey_junk 12y ago
        http://www.bogleheads.org/ http://www.bogleheads.org/ Also "A Random Walk Down Wall Street" is a central book in this genre. I will say, you can't generally control how your pension is run (and they run the gamut from wonderful to nearly criminal). It's one of the reasons I highly discount pension funds as a benefit.
        porker 12y ago
        In the UK the latest hot thing is Self-Invested Pension Plans (SIPPs) and being self-employed all of mine is in that. Hopefully better performance in the long run, but a lot more faff/stress making good decisions :)
        n72 12y ago
        A Random Walk is great, as is Bill Bernstein's the 4 Pillars of Investment.
    - im2w1l 12y ago
      Well I do not advocate stock picking to beat the market. Just to construct the index tracker yourself instead of paying a fee for someone else to do it.
      - kasey_junk 12y ago
        That is still phenomenally bad advice. You aren't paying index funds or etfs for their stock picking, heck most of that is in publicly available documents. What you are paying them for is their operational capabilities and economies of scale. I would be amazed if a retail consumer could put together a balanced, diversified portfolio with the same cost as an actively managed fund. To try and compete with an etf or non-managed index fund is crazy.
- cmdkeen 12y ago
  Go with fund managers who genuinely invest over the long term, there are surprisingly few, and over 10+ years it is possible to generate better returns. Picking companies you think will beat the market over 10+ years is about fundamentals and research, not "playing the market". Too many fund managers aim for consistent shorter term performance, which is getting into dice rolling territory. Have a look at the fund managers that big pension schemes use. Some of them do genuinely perform well over the long run by not being distracted by short term issues.
- joshuahedlund 12y ago
  I've done some recent reading from financial independence evangelists (ex. Mr. Money Mustache, etc[0]) who advocate low-fee index funds like Vanguard's. The idea (which generally makes sense to me) is that the overall stock market has historically significantly beat inflation over basically any period over 10 (20?) years, so an investment that has that overall profile is fairly low-risk. There are various things you can do with 'target retirement' funds or other methods of allocating more towards bonds as you age to reduce your short-term volatility risk as you near the age you want to use the funds. [0]http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/ http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-...
- n72 12y ago
  1. Minimize fees a. This means staying far away from advisors. Either do it yourself somewhere like Vanguard or let something like betterment.com do it for you. 2. Minimize taxes a. Max out your 401K, make sure you're using your IRA to full advantage 3. Diversify a. Own a domestic and international index and that's it. Don't focus on market sectors. 4. Set it and forget it — namely don't let your emotions make you do stupid things 5. Rebalance every year or so 6. Consider tax loss harvesting each year 7. Perhaps add two types of funds which have a low correlation to stocks - REITS and precious metals. Each should be under 5% of your portfolio, though. It's all quite easy, actually. For pretty much all you need to know in condensed form read Allan Roth's "How a Second Grader Beats Wallstreet" or Bill Bernstein's "If You Can."
ljf 12y ago
To add to that, a friend 'got into being a trader' as a friend of his simply needed a large number of bodies to manage trades. Of a year the majority would fail, but would would do great - he would then tout all the 'good' traders out as being new super star traders, and use them to get new business. As long as he had a large enough pool he'd be sure to have a few that became multi-year profitable, and now command large fees. Basically they are able to make it seem like they know what they are doing, when really they are just hiding failure.
- Fuzzwah 12y ago
  This reminds me of Derren Brown's awesome "The System" special: http://www.youtube.com/watch?v=9R5OWh7luL4 http://www.youtube.com/watch?v=9R5OWh7luL4 More info for anyone who hasn't had the pleasure of knowing who Derren Brown is: http://en.wikipedia.org/wiki/Derren_Brown http://en.wikipedia.org/wiki/Derren_Brown Derren Brown is a British illusionist, mentalist, trickster, hypnotist, painter, writer, and sceptic. He is known for his appearances in television specials, stage productions, and British television series such as Trick of the Mind and Trick or Treat. Since the first broadcast of his show Derren Brown: Mind Control in 2000, Brown has become increasingly well known for his mind-reading act. He has written books for magicians as well as the general public. Though his performances of mind-reading and other feats of mentalism may appear to be the result of psychic or paranormal practices, he claims no such abilities and frequently denounces those who do. Brown states at the beginning of his Trick of the Mind programmes that he achieves his results using a combination of "magic, suggestion, psychology, misdirection and showmanship".
  - blahblah7777 12y ago
    TL;DW for The System (courtesy of Wikipedia): The System, a Channel 4 special in which Brown shared his "100 percent guaranteed" method for winning on the horses, was first shown on 1 February 2008. The show was based around the idea that a system could be developed to "guarantee a winner" of horse races. Cameras followed a member of the public, Khadisha, as Brown anonymously sent her correct predictions of five races in a row, before encouraging her to place as much money as she could on the sixth race. To demonstrate the system to the viewer, Brown tossed a coin showing ten heads in a row to prove it was not impossible, just highly improbable. After Brown had placed a bet of £4,000 of Khadisha's money on a horse in the final race, he explained that "The System" did not really exist. He had started by contacting 7,776 people and split them into six groups, giving each group a different horse. As each race had taken place 5⁄6 of the people had lost and were dropped from the system. Brown had a different person backing each horse in each race, and one individual, Khadisha, won five times in a row. This was similar to the coin flipping earlier: rather than having a predictive technique, Brown had tossed a coin repeatedly until ten heads had come up in a row, taking over nine hours to produce the required film. Brown expressed the opinion that the principle behind "The System" (essentially confirmation bias or survivorship bias) is what is behind belief in spiritualism or homoeopathic and alternative medicine. After the selected horse in the final race lost, and Khadisha was convinced that she had lost all her borrowed money, Brown told Khadisha to look again at the betting slip in her hand. The ticket showed the winning horse's name, meaning Khadisha kept her stake and received winnings of £13,000. Brown claimed that he had decided to bet on a different horse when he got to the booth. At the end of the show, a title card explained that "at each stage of the process, participants who did not make it to the next round were offered a complete refund of any bets they had placed."

by wazoox 12y ago

porker 12y ago

To me this is depressing as my future pension is invested in funds. Given the rest of the comments: how best to invest it for long-term grown above the rate it'd have in a savings account?

im2w1l 12y ago
Invest directly in stock and bonds. And if that is not available, than invest in low fee funds.
- kasey_junk 12y ago
  "Invest directly in stock and bonds." That is pretty much the opposite advice you should take from those findings. In general, investors now have the widest array of low cost, diversified instruments available at any point in history. Most advisors who know what they are talking about, will tell you to take one of these options (a non-managed index fund, a highly diversified etf) and invest in that. Rebalance once a year and don't worry about beating the market.
  - porker 12y ago
    > Most advisors who know what they are talking about, will tell you to take one of these options (a non-managed index fund, a highly diversified etf) and invest in that. Thanks, do you have any references for this, or more details on such options?
    - kasey_junk 12y ago
      http://www.bogleheads.org/ http://www.bogleheads.org/ Also "A Random Walk Down Wall Street" is a central book in this genre. I will say, you can't generally control how your pension is run (and they run the gamut from wonderful to nearly criminal). It's one of the reasons I highly discount pension funds as a benefit.
      - porker 12y ago
        In the UK the latest hot thing is Self-Invested Pension Plans (SIPPs) and being self-employed all of mine is in that. Hopefully better performance in the long run, but a lot more faff/stress making good decisions :)
      - n72 12y ago
        A Random Walk is great, as is Bill Bernstein's the 4 Pillars of Investment.
  - im2w1l 12y ago
    Well I do not advocate stock picking to beat the market. Just to construct the index tracker yourself instead of paying a fee for someone else to do it.
    - kasey_junk 12y ago
      That is still phenomenally bad advice. You aren't paying index funds or etfs for their stock picking, heck most of that is in publicly available documents. What you are paying them for is their operational capabilities and economies of scale. I would be amazed if a retail consumer could put together a balanced, diversified portfolio with the same cost as an actively managed fund. To try and compete with an etf or non-managed index fund is crazy.
cmdkeen 12y ago
Go with fund managers who genuinely invest over the long term, there are surprisingly few, and over 10+ years it is possible to generate better returns. Picking companies you think will beat the market over 10+ years is about fundamentals and research, not "playing the market". Too many fund managers aim for consistent shorter term performance, which is getting into dice rolling territory. Have a look at the fund managers that big pension schemes use. Some of them do genuinely perform well over the long run by not being distracted by short term issues.
joshuahedlund 12y ago
I've done some recent reading from financial independence evangelists (ex. Mr. Money Mustache, etc[0]) who advocate low-fee index funds like Vanguard's. The idea (which generally makes sense to me) is that the overall stock market has historically significantly beat inflation over basically any period over 10 (20?) years, so an investment that has that overall profile is fairly low-risk. There are various things you can do with 'target retirement' funds or other methods of allocating more towards bonds as you age to reduce your short-term volatility risk as you near the age you want to use the funds. [0]http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/ http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-...
n72 12y ago
1. Minimize fees a. This means staying far away from advisors. Either do it yourself somewhere like Vanguard or let something like betterment.com do it for you. 2. Minimize taxes a. Max out your 401K, make sure you're using your IRA to full advantage 3. Diversify a. Own a domestic and international index and that's it. Don't focus on market sectors. 4. Set it and forget it — namely don't let your emotions make you do stupid things 5. Rebalance every year or so 6. Consider tax loss harvesting each year 7. Perhaps add two types of funds which have a low correlation to stocks - REITS and precious metals. Each should be under 5% of your portfolio, though. It's all quite easy, actually. For pretty much all you need to know in condensed form read Allan Roth's "How a Second Grader Beats Wallstreet" or Bill Bernstein's "If You Can."

ljf 12y ago

To add to that, a friend 'got into being a trader' as a friend of his simply needed a large number of bodies to manage trades. Of a year the majority would fail, but would would do great - he would then tout all the 'good' traders out as being new super star traders, and use them to get new business. As long as he had a large enough pool he'd be sure to have a few that became multi-year profitable, and now command large fees. Basically they are able to make it seem like they know what they are doing, when really they are just hiding failure.

Fuzzwah 12y ago
This reminds me of Derren Brown's awesome "The System" special: http://www.youtube.com/watch?v=9R5OWh7luL4 http://www.youtube.com/watch?v=9R5OWh7luL4 More info for anyone who hasn't had the pleasure of knowing who Derren Brown is: http://en.wikipedia.org/wiki/Derren_Brown http://en.wikipedia.org/wiki/Derren_Brown Derren Brown is a British illusionist, mentalist, trickster, hypnotist, painter, writer, and sceptic. He is known for his appearances in television specials, stage productions, and British television series such as Trick of the Mind and Trick or Treat. Since the first broadcast of his show Derren Brown: Mind Control in 2000, Brown has become increasingly well known for his mind-reading act. He has written books for magicians as well as the general public. Though his performances of mind-reading and other feats of mentalism may appear to be the result of psychic or paranormal practices, he claims no such abilities and frequently denounces those who do. Brown states at the beginning of his Trick of the Mind programmes that he achieves his results using a combination of "magic, suggestion, psychology, misdirection and showmanship".
- blahblah7777 12y ago
  TL;DW for The System (courtesy of Wikipedia): The System, a Channel 4 special in which Brown shared his "100 percent guaranteed" method for winning on the horses, was first shown on 1 February 2008. The show was based around the idea that a system could be developed to "guarantee a winner" of horse races. Cameras followed a member of the public, Khadisha, as Brown anonymously sent her correct predictions of five races in a row, before encouraging her to place as much money as she could on the sixth race. To demonstrate the system to the viewer, Brown tossed a coin showing ten heads in a row to prove it was not impossible, just highly improbable. After Brown had placed a bet of £4,000 of Khadisha's money on a horse in the final race, he explained that "The System" did not really exist. He had started by contacting 7,776 people and split them into six groups, giving each group a different horse. As each race had taken place 5⁄6 of the people had lost and were dropped from the system. Brown had a different person backing each horse in each race, and one individual, Khadisha, won five times in a row. This was similar to the coin flipping earlier: rather than having a predictive technique, Brown had tossed a coin repeatedly until ten heads had come up in a row, taking over nine hours to produce the required film. Brown expressed the opinion that the principle behind "The System" (essentially confirmation bias or survivorship bias) is what is behind belief in spiritualism or homoeopathic and alternative medicine. After the selected horse in the final race lost, and Khadisha was convinced that she had lost all her borrowed money, Brown told Khadisha to look again at the betting slip in her hand. The ticket showed the winning horse's name, meaning Khadisha kept her stake and received winnings of £13,000. Brown claimed that he had decided to bet on a different horse when he got to the booth. At the end of the show, a title card explained that "at each stage of the process, participants who did not make it to the next round were offered a complete refund of any bets they had placed."