Please! Make it stop! (Stock market crash)

airdale said:
(To be clear here, we are talking about index funds and ETFs, most of which are index funds.)No. An index fund's holdings are based on an "index" like the S&P 500 (example: SPY) or on holding the total US market (Example: VTSMX), 3600 stocks. No index fund uses "performance based measures." That is the complete opposite of what they do. Funds that chase performance are called "actively managed funds" or, commonly, as "stock pickers.Yes. Fund holdings are based on a stock's market capitalization; the number of shares outstanding times the market price. Stocks with a big price and a big float are held in larger quantities. This is in fact one of the criticisms of straight S&P 500 funds; there are a few large companies that dominate.Nope. All shares in the underlying index are are bought and sold only as as investors buy or sell the funds. If you want the details for ETFs, google "ETF authorized participant." For conventional mutual funds, the fund manager does the buying and selling.Nope. Actually they do very little trading. That is a big cost advantage and one of the reasons they routinely beat the stock pickers' performance. There is occasionally trading if, for example, S&P drops a stock from the 500 and substitutes anther one. Then the fund manager must sell the dear departed and buy the new kid. But that is infrequent.You always get exactly what is included in the fund's index, which is described in the fund's prospectus.Happy to. I teach an Adult-Ed investing course, actually. Six hours just to cover the very basic stuff.
Actually you are not correct. The page you read lists only SPY's top 15 holdings. That's why the table is titled: "Top 15 Holdings." You really need to learn to read more carefully. SPY actually holds every stock in the S&P 500 on a cap weighted basis.Allocations change only as the stock prices change and drive the cap weighting. Holdings change only if the index creator changes his list. There is a small number of funds that are not cap weighted; allocations there are a little more complicated but you would just be confused by trying to understand them since you don't understand the basics of index funds.

Sheese! Where did you get these goofy ideas, anyway?
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So while we are throwing credentials out there- I teach high school economics. Now that we got that out of the way— I made a point to mention that you buy “at least” these holdings. Not that the top 15 are the entire list of holdings Second, the SPY attempts to track the performance of the S and P 500. To me, what that means is, the efforts of the fund must meet the returns of the S and P 500- which means the fund will adjust its holdings to at the very least, meet the returns you can make just by having the 500 individual stocks.

So let’s move away from the SPY because it’s a poor example because it is designed to mimic the S and P 500.

If you go to Sector ETF’s my original point stands. If you buy these ETF’s you are forced to have stocks that make up that sector. So let’s take the one industry we all know pretty well— aviation. If you look at the JETS ETF( linked below) you will see exactly what I’m trying to say. The ETF is made up of a whole load of airlines that, as we know, are not all created equally. To me, if you are saying that ETF’s are a way for investors to lower costs since you don’t pay a manager to actively manage your accounts you are misleading those you are trying to educate. ETF’s are passive investments but they also limit your returns when the market goes up. It’s honestly not hard to understand.

Back to the JETS ETF for a moment. If you were advising people right now, I’d really say that buying this ETF would be a terrible idea. Some airlines may never recover from this, some will do much better and some will go bankrupt. If you can’t fogure out which those are then I’m sorry to say you should not be investing in anything.

You are also misleading people by saying these are not managed funds— they are— someone sets up the allocation amounts and someone decides which stocks get the most money in them. I never said that thes ETF’s we’re actively managed( which actually could be way worse in times of struggle- but that’s another discussion.) The difference being that the ETF funds are not “actively managed”( as you correctly said) but that does not mean the investor in the ETF gets to decide how they want their particular contribution to the fund allocated. So again in the JETS ETF if you believe United Airlines will recover quicker and do better than say, Delta, you can’t allocate more of your funds to United. You get both( which means if you are correct and United recovers quicker and the stock goes up quicker your investment in the JETS ETF is weighed down by the fact that it also allocates funds to Delta( which was my entire original point that ETF’s contain both the bad and the good.) The degree to which these funds are “managed” misses the entire point which is, you— as the investor have no say in how your ETF allocates the total money in the fund.

Again, if people are comfortable with that— cool. It’s not really my thing as I like to be in control of my own money.

JETS Holdings in 2020

https://www.usglobaletfs.com/fund/jets/#holdings

JETS holdings in 2020
 
Life is too short. Not interested in your changing the subject and trying to start a new argument. Agree, though, that sector ETFs are a very bad idea. If you want to control how your investment is allocated, all you have to do is to buy individual stocks. No need to ***** about the fundamental idea of mutual funds, that they do the allocation.
 
airdale said:
Life is too short. Not interested in your changing the subject and trying to start a new argument. Agree, though, that sector ETFs are a very bad idea. If you want to control how your investment is allocated, all you have to do is to buy individual stocks. No need to ***** about the fundamental idea of mutual funds, that they do the allocation.
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I don’t want to argue either I just did not appreciate you going after me saying I made many mistakes in my first post. I may not have worded it totally 100% correctly but the general concept of ETF’s was accurate in the sense that you can’t actually allocate your own funds and the ETF must allocate funds in a way that tracks an index( I used set benchmarks I believe in the first post.)

I maintain that the ETF’s are a major reason for the incredible difficulty right now. Even good stocks are getting taken down because of their connection to crummy ones.

I apologize if I came across as a jerk. Not my intention at all. We all know there are a lot more important things going on than this discussion right now.
 
@jspilot

Actively managed funds have generally performed worse than ETFs. There are exceptions.
Now, for the average investor. Do you expect them to pick stocks? Or handle correct asset diversification? Or be able to read Q and K filings?
Because that is what your advice reads.

Compounded by your bad examples. Even the JETS uses a simple weighted market capital value (average over time). The only management like previously stated is to determine the members of the sector in this case. And if you read the details of the fund, you will see how they determine membership. Not likely to change much.

You seem to have badly conflated active managed funds with indexed or ETFs.

That is sort like confusing fiscal vs monetary policy.

Tim
 
tspear said:
@jspilot

Actively managed funds have generally performed worse than ETFs. There are exceptions.
Now, for the average investor. Do you expect them to pick stocks? Or handle correct asset diversification? Or be able to read Q and K filings?
Because that is what your advice reads.

Compounded by your bad examples. Even the JETS uses a simple weighted market capital value (average over time). The only management like previously stated is to determine the members of the sector in this case. And if you read the details of the fund, you will see how they determine membership. Not likely to change much.

You seem to have badly conflated active managed funds with indexed or ETFs.

That is sort like confusing fiscal vs monetary policy.

Tim
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I totally understand what you mean and you are correct that actively managed funds have done worse than ETF’s over the past several years. A lot of that has to do with a rising tide lifts all boats and I firmly believe we will not be in that same situation. I think what got people thinking that I am conflating the two was when I said ETF’s are forced to liquidate certain positions just to meet set expectations and benchmarks. Liquidate was a poor choice of words but the idea that these ETF’s do not make adjustments based on the performance of the fund is misleading. They have to inorder to meet performance expectations of the fund.

My whole original point though is Sector ETF’s are largerly groups of stocks that trade like a basket and you get all those stocks whether you want them or not. I think the general investor just thinks “ ETF’s go up so let me buy them.” All I was trying to point out is people should educate themselves on what they are actually buying when they purchase one. Also, we have had a stock market for 10 years where passive investing has become a way of life and I think ETF’s have contributed to lazy investing. I also maintain that if you have the ability to invest you ought to be able to pick stocks. Now yes it is hard to invest well and involves some timing and education and some( not most) can’t or won’t do the required work. Yeah those people probably won’t do that well or as well as they can. However, investing in a Sector ETF is like going down a cereal isle in a supermarket and buying every brand of cereal because you know you like cereal. People would not do that with small purchases like buying cereal but somehow they think it makes sense in investing. Everyone knows their favorite cereal and everyone should know their favorite or best airline for example. Yes it’s not exactly the same but the point is if you invest in companies you know and use you can likely pick some pretty good stocks.

These ETF’s won’t perform as well as single stock picking over the next few years because, as I’ve highlighted with the JETS ETF there is no way all these airlines will recover the same way. We all probably can say with confidence that some airlines will recover way faster than others( particularly those with better balance sheets, better schedules, better passenger to seat ratio). In my very humble opinion, I just don’t think Sector ETF’s are a smart investment right now.

Now Index ETF’s that track the S and P or the Russell 2000 might make some sense to the individual investor who has no experience and just wants to throw money into a market they believe is very low right now. The truth is though if you can’t understand what you are investing in you should at least know what you are actually buying. That was and is my point.
 
Mutual funds and ETF's are basically the same thing. One is "exchange traded" (ETF), meaning it's value moves during the day. Mutual fund sets a value once a day. What you are arguing about is the difference between Actively and Passively managed funds. Actively managed funds have a smart guy trying to beat the market, charge a higher fee and generally aren't that great except for a few that have an exceptionally talented manager (think Peter Lynch from Fidelity). Passive funds follow an index (S&P 500) or a sector (biotech). They do actively trade within the fund to match the market cap of the individual stocks. An S&P stock goes up relative to the rest, they buy a bit more to keep the % market cap the same. A sector fund is a way of making a bet on a sector, but spreading the risk across the sector. Energy is a good example, pretty much moves with the price of oil, but has a bit of downside protection relative to betting on crude futures.
 
The only time an actively managed fund has an advantage....is in a severe downturn.
 
For most of us, the time for selling stocks has passed. Either sit tight, or maybe buy a little more with the dips.
 
jspilot said:
Liquidate was a poor choice of words but the idea that these ETF’s do not make adjustments based on the performance of the fund is misleading. They have to inorder to meet performance expectations of the fund.
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As written, this is the opposite of the way index funds work. The funds take no action based on “performance expectations”. They make no adjustments based on the performance of the fund. They do exactly the opposite. They do nothing based on the performance of the fund (I.e. the performance of the underlying companies). In fact, it is exactly that non-action which is one of the negative aspects of index funds. As @airdale pointed out, a company’s weight in the s&p 500 is capitalization based. Therefore, as a company performs well (e.g. Apple), it has an outsized impact on the performance of the fund.
 
Wow ... thread drift! I'll add some points:

Most people don't understand that stock prices are essentially random. Markowitz' original paper, in 1952, is the foundation of Modern Portfolio Theory which is based on an assumption of randomness. From that came, for example, the notion of an Efficient Frontier. The most famous book, Burton Malkiel's "A Random Walk Down Wall Street," is pretty good but I like Charles Ellis' "Winning the Losers Game." Ellis argues that while stock picking (the Ben Graham approach) used to work, it no longer does because all the smart people, smart computers, and infinitely fast information flows all cancel each other out, leaving only randomness. Another way to look at this is to observe that there are about 3,500 listed stocks in the US and about 10,000 mutual funds. Stock picker funds are the majority and they are all frantically studying these 3,500 stocks looking for mispricing. So any mispricing gets detected and arbitraged away almost instantly, again leaving randomness.

Once one understands this it becomes easier to understand why, on average, stock picking funds are losers. Here, from another angle, is Nobel Prize winner Dr. WIlliam Sharpe's explanation of why the average stock picker will always deliver results that are below his benchmark: https://web.stanford.edu/~wfsharpe/art/active/active.htm

Re @jspilot's point that investors don't control how a fund is invested: Of course not, that is the fundamental idea of a mutual fund. A bunch of people get together and hire a manager to run their money according to an agreed-on set of rules. By hiring a manager they delegate investment decisions in hopes that the manager can produce better results than they could produce on their own. Don't like that? Don't buy mutual funds.

The idea that actively managed funds do better in downturns has long been pushed by (guess who?) the people who sell actively managed funds. Until now, there has never been any statistical evidence that this is true (Dr. Sharpe says it is impossible) but it has been a long, long time since we have had a real downturn. The virus has fixed that problem for us, so it will be interesting to see what emerges from the data, yea or nay, on this argument. Personally I think it fails.

Once you have accepted randomness, it becomes obvious that sector funds are simply gambling. The only guaranteed strategy is to buy the whole market and count on the fact that for more than 100 years the market has moved inexorably upward at a few percent a year. Lots of zigs and zags, but to buy and hold everything is as close to a guaranteed winning strategy as there is. My wife and I have 90% of our assets in VTWAX. Look it up.

The idea that stock picking works can be easily debunked by studying the "SPIVA" reports from Standard & Poors. These have been published every 6 months for close to 20 years and all of the reports show basically the same thing: Over short periods/1 year, about 1/3 of the stock pickers will beat their benchmarks. This is more or less what randomness predicts. Go to two years and the number of winners drops by about one-half. Go to ten years and the number of stock pickers beating their benchmarks is in the single-digit percentages. Few stock pickers are consistently lucky for such a long time, but randomness does predict that there will be a few. Read a few of the SPIVA reports to see for yourself.

"No problem," you say. "I will just invest with the winners, the ones with the good track records." S&P publishes another series of reports for you: the "Manager Persistence" reports. These studies examine the "persistence" of manager performance. Is there a statistical likelihood that a manager who did well last year will do well next year? Alas, there is not. Read a few of the Manager Persistence reports to see for yourself.

Do index fund have deleterious effects on the markets? No one really knows, though again the virus may have helped us with new data here. The way I think about it is this: Hypothesize a market where index funds do not exist and all of the investors who would buy them are instead buying individual stocks. I think it's reasonable to assume that these investors have, in aggregate, bought the whole market. As they buy and sell through bubbles and panics, they are in aggregate thus buying and selling the whole market just as the index funds do. So ... no effect. The only possible effect would be if these buyers of individual stocks are buying and selling a different mix than would have been held by the index funds. But if they had access to index funds wouldn't these investors have bought a similar mix to what they are buying as individual stocks? No way to know for sure on this, but people making the "stupid index fund investor" argument tend to forget that, without index funds, these investor would probably not be much smarter. So probably the existence of index funds has little or no effect.

Professors Eugene Fama and Kenneth French are two of the acknowledged gurus in investing. Here is a short video with Ken French on stock-picking/aka active management: https://famafrench.dimensional.com/videos/is-this-a-good-time-for-active-investing.aspx and one on trying to find winning managers: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

Shiny side up, don't land on the blue lights.
 
airdale said:
Wow ... thread drift! I'll add some points:

Most people don't understand that stock prices are essentially random. Markowitz' original paper, in 1952, is the foundation of Modern Portfolio Theory which is based on an assumption of randomness. From that came, for example, the notion of an Efficient Frontier. The most famous book, Burton Malkiel's "A Random Walk Down Wall Street," is pretty good but I like Charles Ellis' "Winning the Losers Game." Ellis argues that while stock picking (the Ben Graham approach) used to work, it no longer does because all the smart people, smart computers, and infinitely fast information flows all cancel each other out, leaving only randomness. Another way to look at this is to observe that there are about 3,500 listed stocks in the US and about 10,000 mutual funds. Stock picker funds are the majority and they are all frantically studying these 3,500 stocks looking for mispricing. So any mispricing gets detected and arbitraged away almost instantly, again leaving randomness.

Once one understands this it becomes easier to understand why, on average, stock picking funds are losers. Here, from another angle, is Nobel Prize winner Dr. WIlliam Sharpe's explanation of why the average stock picker will always deliver results that are below his benchmark: https://web.stanford.edu/~wfsharpe/art/active/active.htm

Re @jspilot's point that investors don't control how a fund is invested: Of course not, that is the fundamental idea of a mutual fund. A bunch of people get together and hire a manager to run their money according to an agreed-on set of rules. By hiring a manager they delegate investment decisions in hopes that the manager can produce better results than they could produce on their own. Don't like that? Don't buy mutual funds.

The idea that actively managed funds do better in downturns has long been pushed by (guess who?) the people who sell actively managed funds. Until now, there has never been any statistical evidence that this is true (Dr. Sharpe says it is impossible) but it has been a long, long time since we have had a real downturn. The virus has fixed that problem for us, so it will be interesting to see what emerges from the data, yea or nay, on this argument. Personally I think it fails.

Once you have accepted randomness, it becomes obvious that sector funds are simply gambling. The only guaranteed strategy is to buy the whole market and count on the fact that for more than 100 years the market has moved inexorably upward at a few percent a year. Lots of zigs and zags, but to buy and hold everything is as close to a guaranteed winning strategy as there is. My wife and I have 90% of our assets in VTWAX. Look it up.

The idea that stock picking works can be easily debunked by studying the "SPIVA" reports from Standard & Poors. These have been published every 6 months for close to 20 years and all of the reports show basically the same thing: Over short periods/1 year, about 1/3 of the stock pickers will beat their benchmarks. This is more or less what randomness predicts. Go to two years and the number of winners drops by about one-half. Go to ten years and the number of stock pickers beating their benchmarks is in the single-digit percentages. Few stock pickers are consistently lucky for such a long time, but randomness does predict that there will be a few. Read a few of the SPIVA reports to see for yourself.

"No problem," you say. "I will just invest with the winners, the ones with the good track records." S&P publishes another series of reports for you: the "Manager Persistence" reports. These studies examine the "persistence" of manager performance. Is there a statistical likelihood that a manager who did well last year will do well next year? Alas, there is not. Read a few of the Manager Persistence reports to see for yourself.

Do index fund have deleterious effects on the markets? No one really knows, though again the virus may have helped us with new data here. The way I think about it is this: Hypothesize a market where index funds do not exist and all of the investors who would buy them are instead buying individual stocks. I think it's reasonable to assume that these investors have, in aggregate, bought the whole market. As they buy and sell through bubbles and panics, they are in aggregate thus buying and selling the whole market just as the index funds do. So ... no effect. The only possible effect would be if these buyers of individual stocks are buying and selling a different mix than would have been held by the index funds. But if they had access to index funds wouldn't these investors have bought a similar mix to what they are buying as individual stocks? No way to know for sure on this, but people making the "stupid index fund investor" argument tend to forget that, without index funds, these investor would probably not be much smarter. So probably the existence of index funds has little or no effect.

Professors Eugene Fama and Kenneth French are two of the acknowledged gurus in investing. Here is a short video with Ken French on stock-picking/aka active management: https://famafrench.dimensional.com/videos/is-this-a-good-time-for-active-investing.aspx and one on trying to find winning managers: https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx

Shiny side up, don't land on the blue lights.
Click to expand...

So in short, are you advocating for people to buy ETF’s or pick individual stocks? I mean we can all quote from famous investors and money managers who have done well for themselves who point out that stock picking serves a function too in the market.

My problem with ETF’s is it suggests to people that they can’t manage their own money and this is exactly why people fork thousands of dollars into these things. It’s confusing to me why people trust people they have no idea what they think or what they do and have never met to do a better job managing their money than themselves. Again if that’s your idea of managing your money- cool. I’m fine with that— it would not and is not my way.

Also, these funds are forced to allocate set percentages to specific stocks so they can’t even say “wow this company is set to do well- let’s buy it.” Well that’s not allowed because of set index benchmarks they are designed to track.

I’ll yield on the way ETF’s are run and or managed as I think we are talking in circles and basically saying the same thing just in a different way. Just to be clear to those reading— actively managed ETF’s are also a thing. Those saying they are not are misleading you— yes most ETF’s are passive investments but not all!

https://www.fidelity.com/learning-center/investment-products/etf/types-of-etfs-actively-managed
 
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jspilot said:
So in short, are you advocating for people to buy ETF’s or pick individual stocks?
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Well "ETF" is not precise enough. The statistically proven winning strategy is to buy low cost, broad market funds. Individual stock picking is a fine hobby but it is not a sound investing strategy. On the equity side my wife and I have very serious money, 90% of our portfolio, in VTWAX, which basically holds all the stocks in the world. That represents a zero home country bias, something that many investors are not comfortable with. Ken French: https://famafrench.dimensional.com/videos/home-bias.aspx Also some reading:
https://www.morningstar.com/articles/752485/fund-fees-predict-future-success-or-failure.html

Most ETFs are silly contraptions designed to snare naive investors who have been told that "buying indexes" is the way to go.

jspilot said:
My problem with ETF’s is it suggests to people that they can’t manage their own money and this is exactly why people fork thousands of dollars into these things. It’s confusing to me why people trust people they have no idea what they think or what they do and have never met to do a better job managing their money than themselves. Again if that’s your idea of managing your money- cool. I’m fine with that— it would not and is not my way. ...
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Well, it wouldn't be the first time that passion ignored logic. I actually agree with you when talking about active managers, not because it is hard on my ego but because they are proven failures over the long haul.

jspilot said:
I’ll yield on the way ETF’s are run and or managed as I think we are talking in circles and basically saying the same thing just in a different way. Just to be clear to those reading— actively managed ETF’s are also a thing. Those saying they are not are misleading you— yes most ETF’s are passive investments but not all!

https://www.fidelity.com/learning-center/investment-products/etf/types-of-etfs-actively-managed
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Yup, there are actively managed ETFs, though not a huge number. Many people use the term ETF interchangeably with "index fund," which is inaccurate. Using "index fund" picks up both conventional funds and index ETFs, so it is somewhat more accurate. The problem remains, though, that the hucksters are out there using the word "index" in the title of a lot of funds that are narrow and completely ridiculous sector funds. They are only not ridiculous to the the hucksters who charge large fees to manage them.

So back to your initial question and being very specific: Buy VTWAX or buy a combination of VTSMX and VGTSX in proportions that suit you desire for home country bias. (Since I've introduced that home country bias here, be sure to look at the Ken French video and read this: Vanguard on International Investments )
 
Inverse ETF's are nice too. That way you an "short" certain sectors or indexes without a margin account. Most peoples 401k's are not margin accounts. Inverse ETF's prices goes up when a sector or index goes down. Example SPY follows the S&P500 while SH is an inverse.

Then of course there are leveraged ETF's. These can really get people in trouble. They generally provide 2x or 3x the return of certain index or sector ETF's. Examples would be: SPXL and NUGT.
 
airdale said:
Well "ETF" is not precise enough. The statistically proven winning strategy is to buy low cost, broad market funds. Individual stock picking is a fine hobby but it is not a sound investing strategy. On the equity side my wife and I have very serious money, 90% of our portfolio, in VTWAX, which basically holds all the stocks in the world. That represents a zero home country bias, something that many investors are not comfortable with. Ken French: https://famafrench.dimensional.com/videos/home-bias.aspx Also some reading:
https://www.morningstar.com/articles/752485/fund-fees-predict-future-success-or-failure.html

Most ETFs are silly contraptions designed to snare naive investors who have been told that "buying indexes" is the way to go.

Well, it wouldn't be the first time that passion ignored logic. I actually agree with you when talking about active managers, not because it is hard on my ego but because they are proven failures over the long haul.

Yup, there are actively managed ETFs, though not a huge number. Many people use the term ETF interchangeably with "index fund," which is inaccurate. Using "index fund" picks up both conventional funds and index ETFs, so it is somewhat more accurate. The problem remains, though, that the hucksters are out there using the word "index" in the title of a lot of funds that are narrow and completely ridiculous sector funds. They are only not ridiculous to the the hucksters who charge large fees to manage them.

So back to your initial question and being very specific: Buy VTWAX or buy a combination of VTSMX and VGTSX in proportions that suit you desire for home country bias. (Since I've introduced that home country bias here, be sure to look at the Ken French video and read this: Vanguard on International Investments )
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Cool- this is really good advice I think. I’m just curious, if you own every stock through this fund, do you find your returns to more closely reflect the Dow Jones, S and P or the Russel 2000 or none of the above. I’m wondering because I’ve always thought the Dow Jones was a pretty poor way to evaluate overall stock performance especially given the really outdated stocks that make up the dow( for the most part.). I wonder why the markets don’t just use these funds you point out since they obviously are better representations.
 
There are so many permutations of ETF's now they are really no different that what used to be called sector funds. No management fee is a huge advantage, The Dow was never meant to be a broad market index. It's a fair representation of industrials. It's not static, companies are dropped and added fairly regularly.
 
And headed for another crash tomorrow. Futures hit the lower stop tonight.
 
Probably a rough ride Monday since Congress can't agree on an initial relief bill. For those with diversified portfolios, periodic rebalancing is going to prime folks for some excellent gains when we get to the other end of this. Happened last time in 2008 for me. Sitting tight. A temporary 40% down will be annoying, but not critical. One way or another, we will reemerge from this after 12-18 months. Maybe not overnight, but slowly better.
 
What do you call a stock that's down 90%?

A stock that was down 80% and then got cut in half.
 
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jspilot said:
My problem with ETF’s is it suggests to people that they can’t manage their own money and this is exactly why people fork thousands of dollars into these things.
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That's because for the most part, it's true. They can't.

In the research I've done, the top two contributors to an individual's returns are: asset allocation and controlling costs. And even asset allocation does not make a big difference (i.e. the ol' 60/40 stocks/bonds is not significantly different than say 70/30). Low costs have been a huge benefit that ETFs have brought to the common investor, after mutual funds had been bending them over for 2% fees for decades!

The remainder of returns are behavioral; chasing the hot stuff, and panic selling into declines. For example, https://alephblog.com/2019/11/06/we-eat-dollar-weighted-returns-iii-update/
 
rpadula said:
That's because for the most part, it's true. They can't.

In the research I've done, the top two contributors to an individual's returns are: asset allocation and controlling costs. And even asset allocation does not make a big difference (i.e. the ol' 60/40 stocks/bonds is not significantly different than say 70/30). Low costs have been a huge benefit that ETFs have brought to the common investor, after mutual funds had been bending them over for 2% fees for decades!

The remainder of returns are behavioral; chasing the hot stuff, and panic selling into declines. For example, https://alephblog.com/2019/11/06/we-eat-dollar-weighted-returns-iii-update/
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Right I get that it’s hard to invest and surely the average investor probably makes a lot of mistakes. I’m fine saying I am far from perfect in my investments. Again, I don’t have an issue with ETF’s as a whole exsisting but I just struggle with the appeal and find the concept of why people find it appealing to have someone else manage their money under the belief they will do it better than themselves. I just find that fascinating.

My prediction for the markets is we are going to see continued pressure and later this week we are finally going to start to hear a real discussion about balancing the economic situation with the health situation. Down another 10% from here sure does look possible. My sense is even if this Congress can get together a bill it will be far from enough. Not trying to swing the conversation into politics but this 1,000 bucks to those making 100,000 or less is a poor idea. Most people will just stick the money in the bank and that generates 0 for the economy. Those funds should be given to expediting the vaccine or giving money to get tests out to every American( including testing for those of us who already have anti bodies in our system.). That will get the economy back on track real soon.

Give rent forgiveness, loan forgiveness, general expense forgiveness for up to 12 months or whenever the person fired agrees to begin repaying as normally- this allows the fires people to just live this out without worrying about bills.

I think the Federal government is forgetting that unemployment already has benefits( bad word in my opinion, under normal circumstances.
 
jspilot said:
Not trying to swing the conversation into politics but this 1,000 bucks to those making 100,000 or less is a poor idea. Most people will just stick the money in the bank and that generates 0 for the economy. Those funds should be given to expediting the vaccine or giving money to get tests out to every American( including testing for those of us who already have anti bodies in our system.). That will get the economy back on track real soon.

Give rent forgiveness, loan forgiveness, general expense forgiveness for up to 12 months or whenever the person fired agrees to begin repaying as normally- this allows the fires people to just live this out without worrying about bills.

I think the Federal government is forgetting that unemployment already has benefits( bad word in my opinion, under normal circumstances.
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Those making less than 100K generally live paycheck to paycheck. Compounded by the fact you can probably count as just a few percent who make over a 100K that are going to be laid off by COVID-19.
The result, you can pretty much guarantee that 98% or higher of the money sent out will either go to pay bills, or pay debt.

Tim
 
jspilot said:
Cool- this is really good advice I think.
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Thank you. I hope you're right since we have a lot of money bet on this horse.
jspilot said:
I’m just curious, if you own every stock through this fund, do you find your returns to more closely reflect the Dow Jones, S and P or the Russel 2000 or none of the above.
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None of the above. Those are all US stock market indices. VTWAX probably tracks the MSCI ACWI (All Country World Index) fairly closely. But the nice thing about passive investing is I don't have to worry about any of that stuff. I know I'm going to get the world market's performance less a few basis points and I know that history predicts that I will be beating 90+% of the professionals over time. We look at our portfolio once a year between Christmas and New Year while we are at our lake place. Some years we even make a trade. I tell my Adult-Ed investing class students this: "Investing is boring. If you're not bored, you're not doing it right."
jspilot said:
I’m wondering because I’ve always thought the Dow Jones was a pretty poor way to evaluate overall stock performance especially given the really outdated stocks that make up the dow( for the most part.).
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You're spot on. The Dow is particularly stupid, with only 30 large cap US stocks. The S&P 500 can be called stupid since it includes only 15% of listed stocks but that 15% is about 80% of the US market cap, so the objection is more theoretical than practical. The US indices I like cover everything: Russell 3000 and Wilshire 5000.
jspilot said:
I wonder why the markets don’t just use these funds you point out since they obviously are better representations.
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Ah, grasshopper, you misunderstand the game. :D The investment industry doesn't want their customers to have good measuring sticks. This would expose bad managers and debunk the myth that stock picking works. That is the myth that keeps the Porsches and the Benzes in their garages. I call this Myth #1.

Here is myth #2 that is obviously wrong once you think it through: "There are skilled people who can consistently beat the market and those people will sell their skills for a salary, hence making those skills available to retail investors." C'mon! If you could consistently win, you'd be lounging on a tropical island drinking from a glass garnished with an orchid. Whenever the checkbook got low, you'd amble over to the computer and make a few trades. No one with such skills would be stuffing themselves into a suit and commuting to work in a building where the windows don't even open!

Said another way, anyone who claims to be a successful stock picker and offers sell you advice or an opportunity to subscribe to a newsletter or a web site, has prima facie admitted to you that he doesn't believe his own pitch.
 
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jspilot said:
Right I get that it’s hard to invest ...
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Not once you understand that you are dealing with random events, events that no one can forecast.

jspilot said:
My prediction for the markets is ...
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Yup. You and ten million others. Some of you will be right but it won't be due to skill. It will be due to luck. Nassim Taleb's very good book "Fooled by Randomness" discusses the problems where someone gets lucky and, from that, concludes that he is a genius. I recommend it. Taleb is an entertaining and insightful guy, though he can be a bit of a lunatic from time to time.
 
jspilot said:
Give rent forgiveness, loan forgiveness, general expense forgiveness for up to 12 months or whenever the person fired agrees to begin repaying as normally- this allows the fires people to just live this out without worrying about bills.
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How does one do this without crippling landlords, lenders, etc.? Those folks have to put food on the table, too.
 
You mean "Where are the customer's yachts?"

As far as managers go, Bill Miller's had his ups and downs, but he's done OK by me for the past 35 years. Expensive, yes, but less than the tax hit if I change horses now.
 
Half Fast said:
How does one do this without crippling landlords, lenders, etc.? Those folks have to put food on the table, too.
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Why not expand the rent voucher and food stamp programs. Apply on-line. The infrastructure's in place, and the aid will go specifically for food and housing. Smaller business can remit to the Gov't for cash, larger can take a tax credit. Good accountability, goes directly to those in need.
No one will think of it as a stigma in these circumstances.
 
Chip Sylverne said:
... As far as managers go, Bill Miller's had his ups and downs, but he's done OK by me for the past 35 years. ...
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Bill Miller who was at Legg Mason? The story I remember about him is that he was hailed as a genius for beating his benchmark over ten years and then in the next two years he lost more customer money than he had ever made for people. A statistician calculated that the probability of someone doing this was about 17%. He was the lucky monkey.

Re "done OK" have you compared his total return to a simple passive portfolio of similar composition? Not to insult, but most people who say they have "done OK" have not done this. For good reason; it is very difficult. Usually, when I hear it, "done OK" means the customer has made money, not that the result is necessarily anywhere near optimum. BTDT. I spent 30 years feeling that I had "done OK" and actually did make quite a bit of money. Then I finally figured out the game. Slow learner I guess.
 
airdale said:
Here is myth #2 that is obviously wrong once you think it through: "There are skilled people who can consistently beat the market and those people will sell their skills for a salary, hence making those skills available to retail investors." C'mon! If you could consistently win, you'd be lounging on a tropical island drinking from a glass garnished with an orchid. Whenever the checkbook got low, you'd amble over to the computer and make a few trades. No one with such skills would be stuffing themselves into a suit and commuting to work in a building where the windows don't even open!
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Actually back in the late 80s I met via my grandfather a guy who always beat the market. He had done so for over 30 years and had the record to prove it. He did not have a lot of money, but he did it for the challenge. He loved the work as a wealth manager for a few family trusts (never told me who though).
Overall, he and my grandfather agreed with your assessment. They said just follow the S&P 500; and you will beat almost anyone money manager. The exception is when you find someone who loves the challenge and has the brains.

Tim
 
Anyone here buy up DXD or SDS? They've doubled since the panic started.
 
airdale said:
Bill Miller who was at Legg Mason? The story I remember about him is that he was hailed as a genius for beating his benchmark over ten years and then in the next two years he lost more customer money than he had ever made for people. A statistician calculated that the probability of someone doing this was about 17%. He was the lucky monkey.

Re "done OK" have you compared his total return to a simple passive portfolio of similar composition? Not to insult, but most people who say they have "done OK" have not done this. For good reason; it is very difficult. Usually, when I hear it, "done OK" means the customer has made money, not that the result is necessarily anywhere near optimum. BTDT. I spent 30 years feeling that I had "done OK" and actually did make quite a bit of money. Then I finally figured out the game. Slow learner I guess.
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When I started investing, there were no ETFs. And a passive portfolio of similar composition...sure, had I bought BRK. A at $22k a share, I'd be doing much better than I am. But I didn't. and no Bill Miller never lost more money than he made for people. We did take a hit after 2008, so did everybody. But his philosophy is to take positions in a small number of undervalued stocks. You accept that when you sign on. Last year one of my funds under his management returned over 120%. the last few years he 's returned well above the market return. He's not perfect, but he's pretty good. Being lucky is even better.

https://www.bloomberg.com/news/arti...dge-fund-rose-120-in-19-investor-letter-shows
 
Chip Sylverne said:
... his philosophy is to take positions in a small number of undervalued stocks. ...
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Gee, I wonder why no one ever thought of that before. :D :D

But, hey, if you're happy then that's all that matters in the end.
 
@tspear mentioned the S&P 500 as a benchmark. Given a fairly boring and rainy day, I'll add a few comments on benchmarks:

When the S&P SPIVA reports evaluate active managers each category of fund gets its own benchmark. Large cap funds probably are benchmarked against the S&P or the Russell 1000. EAFE funds are benchmarked against the EAFE. Small cap against a small cap index, etc. This is important because, for example, an emerging market fund might be beating the S&P because it has taken on xignificant risk or because the dollar has dropped significantly in value during the measurement period. IOW the S&P is irrelevant. So be wary of funds that aren't US large cap who measure their performance against a the S&P.

Another more pernicious kind of benchmarking comes when you read something like "Our fund was in the top third of Lipper's fund rankings." That may simply be a claim to being the tallest midget. All the funds in that Lipper category might have been train wrecks relative to the category benchmark, so being in the top really is not a claim to fame. Actually, I think making a reference to Lipper should ring the huckster alarm bell.

Morningstar's "star" ratings are maybe the most misunderstood. M* has around 65 fund categories. Within each category fund performances are rated based on history. The top 10% of funds in the worst performing category get five stars, as do the top 10% of funds in the best performing category. Apples and oranges, IOW. M* has IMO historically kept fairly quiet on this system as investors widely interpreted the stars as being good criteria for fund selection/aka predictive. In the fall of 2018 IIRC there was a major WSJ article showing that the stars were not predictive at all. Morningstar's reaction was basically "Well, we never said they were." More: http://news.morningstar.com/classroom2/course.asp?docId=2943&page=3&CN=com

Finally, a reference to "the market" probably should be to the Russell 3000 or Wilshire 5000 if the author is referring to US stocks. But it is frequently to the S&P 500.
 
Half Fast said:
How does one do this without crippling landlords, lenders, etc.? Those folks have to put food on the table, too.
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Forgiveness for now but not forever. The money will come to them but just not this minute. Those that have can hold out longer than those who have very little. I hate the idea of giving people economic passes here but you can’t have rampant homelessness and you can’t pretend that 1,000 bucks is going to solve that. It’s an absurd notion— especially where I come from in New York. 1,000 dollars will pay for your rent maybe— and that’s it. 1,000 in Montana or lesser cost places might go much further. The only way to make it “fair” is to control the one aspect that fluctuates based on where you live and that’s peoples expenses.
 
tspear said:
Those making less than 100K generally live paycheck to paycheck. Compounded by the fact you can probably count as just a few percent who make over a 100K that are going to be laid off by COVID-19.
The result, you can pretty much guarantee that 98% or higher of the money sent out will either go to pay bills, or pay debt.

Tim
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Ok I think you are making sweeping assumptions here. There are huge differences between someone who makes 30,000 and 99,000. The plan I think I’ve heard takes some of that into account but the person making 30,000 likely is living on little savings but not the guy who makes 99,000. Also, this plan makes little to no adjustment for where you live and just makes a blanket handout.

Certainly this money won’t help the stock market at all.
 
jspilot said:
Ok I think you are making sweeping assumptions here. There are huge differences between someone who makes 30,000 and 99,000. The plan I think I’ve heard takes some of that into account but the person making 30,000 likely is living on little savings but not the guy who makes 99,000. Also, this plan makes little to no adjustment for where you live and just makes a blanket handout.
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Correct. I'm in the under 100k crowd, but I certainly don't live paycheck to paycheck.
 
jspilot said:
Forgiveness for now but not forever. The money will come to them but just not this minute. Those that have can hold out longer than those who have very little. I hate the idea of giving people economic passes here but you can’t have rampant homelessness and you can’t pretend that 1,000 bucks is going to solve that. It’s an absurd notion— especially where I come from in New York. 1,000 dollars will pay for your rent maybe— and that’s it. 1,000 in Montana or lesser cost places might go much further. The only way to make it “fair” is to control the one aspect that fluctuates based on where you live and that’s peoples expenses.
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Those lenders and landlords, etc., are all having to pay employees and suppliers, many of whom are also living paycheck to paycheck. Many of the people you're asking to hold out are themselves highly leveraged. You're making a big assumption here that may not be valid.
 
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