Author Topic: "Investing should be boring"  (Read 27882 times)

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #50 on: October 24, 2015, 09:58:46 AM »
Anyway....I am sure there will be much more spirited discussion herein where those that are blindly following the indexing mantra will refuse to take a step back and realize that everyone's situation is different and their tidy little view of the investing universe is not flawless.  I'm all for encouraging people to avoid trying to beat teams of people and supercomputers in the securities market.  However, this analysis breaks down when you layer in other types of investing for many people with different goals and circumstances than you have.

I think that's a bit precocious to accuse so many people of blindly following the index mantra.  If anything I've taken from this thread that most people are very consciously following the index mantra for many of the reasons that have been outlined. 

So before calling the kettle black, take a moment to consider that while you may prefer active investing or alternative investments, realize that those of us who have taken the index path have also done so intentionally.  Everyone's situation is different and your tidy little view of the investing universe is not flawless. 

undercover

  • Pencil Stache
  • ****
  • Posts: 927
Re: "Investing should be boring"
« Reply #51 on: October 24, 2015, 12:37:43 PM »
A few people have understood what I mean by "boring" while others have taken it too literally and think that I want to get adrenaline out of investments. I don't believe in gambling. The opposite of "boring" isn't necessarily "excitement". It can be "interesting" which means that since it is interesting it probably will be somewhat of an active endeavor and yield higher returns.

mr_orange hit the nail on the head in that it is about expanding your horizons/knowledge and re-defining what you consider to be an investment. And he's equally right that this will vary based on experience, goals, personality, etc.

For the record, I am not against index investing or holding high quality large cap stocks that pay dividends. I am totally for it. My portfolio will always consist of it.

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #52 on: October 24, 2015, 02:23:19 PM »
I think that's a bit precocious to accuse so many people of blindly following the index mantra.  If anything I've taken from this thread that most people are very consciously following the index mantra for many of the reasons that have been outlined. 

So before calling the kettle black, take a moment to consider that while you may prefer active investing or alternative investments, realize that those of us who have taken the index path have also done so intentionally.  Everyone's situation is different and your tidy little view of the investing universe is not flawless.

And this statement in no way is inconsistent with anything I have written.  If you wish to index and do nothing else there is nothing wrong with it.  What I take exception to is the general advice given on this forum that indexing is the only way to do it and anyone exerting effort investing in any other manner is somehow doing it incorrectly.  It is equally ridiculous when people label certain types of real estate (or other) investing "a job" when many types of investing require 1-2 hours per month of effort on the part of the investor.  This is a way of summarily dismissing activities that deliver outsized returns with minimal effort.  Does index investing require less effort?   Sure.  Is investing in distressed rental property or many other passive investments a job?  No.  That is an argument that people use to justify their current closely-held beliefs and many times is a justification for avoiding exerting any effort to learn new skills that would get them to their goals quicker than those espoused by John Bogle.

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: "Investing should be boring"
« Reply #53 on: October 24, 2015, 02:36:11 PM »
I tend to agree with you. I like index investing as a part of my assets as I believe it has strong virtues (the least of which being an amazing return / effort ratio), but I'm amazed to see how, in the MMM community, so many state that you *must* index because it is proven you *can't* do any better. Sometimes sounds like a religion.

EricL

  • Guest
Re: "Investing should be boring"
« Reply #54 on: October 24, 2015, 03:38:26 PM »
Investing IS boring. Stultifyingly so. All those facts and figures and ratios and jargon usually written by people with poor writing skills. Or worse, people with awesome writing skills (so they can pull the wool over your eyes). It's the making money that's exciting. But rarely does one come in quantity without enduring the other along with considerable patience.  I've read that Warren Buffett slogs through 500 pages of that trash daily to find diamonds to invest in. Most people can't do that.

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #55 on: October 24, 2015, 04:24:21 PM »
What I take exception to is the general advice given on this forum that indexing is the only way to do it and anyone exerting effort investing in any other manner is somehow doing it incorrectly.

That's quite a stretch for the people you find on this forum.  If this were the case, there would not be an Investor Alley category, it would just say "Index investing, the end."  There would also be no Real Estate and Landlording section.  Both of which are highly active categories that generate a lot of interesting discussion and a lot of evidence of Mustachians who value investing in real estate and picking stocks.

I'll go back to an earlier comment I made --- I think if the topic were "Making money can be fun and exciting" you would find 100% agreement on this forum.  I don't think that is the case in the wider world of people who are not so in tune with their financial lives as is the typical commenter here. 

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #56 on: October 24, 2015, 04:53:40 PM »
What I take exception to is the general advice given on this forum that indexing is the only way to do it and anyone exerting effort investing in any other manner is somehow doing it incorrectly.

That's quite a stretch for the people you find on this forum.  If this were the case, there would not be an Investor Alley category, it would just say "Index investing, the end."  There would also be no Real Estate and Landlording section.  Both of which are highly active categories that generate a lot of interesting discussion and a lot of evidence of Mustachians who value investing in real estate and picking stocks.

I don't think it is a stretch at all as is evidenced by the vehement push back in this thread and many other similar ones.  The existence of other forums does not mean that a large quantity of the content in them is laden with indexing worship.  Fortunately there are many posters that understand that indexing is not the be-all-end-all and can simply be one tool in the toolbox for people with access to better risk-and-effort-adjusted opportunities in other vehicles. 

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #57 on: October 24, 2015, 06:57:45 PM »
Know your audience, right?  The purpose of the MMM blog is that money is a tool, it is utilitarian, and the ultimate goal of having money is not to get fabulously wealthy, but to use it to live the life that you so choose.  While I disagree that the majority of people on this forum blindly index, I do imagine that the majority index because it falls within the values of the type of person drawn to a "financial" blog that focuses on living a frugal, happy life. 

If you go to the Boglehead forums, you'll get even more push back on a topic like this. 

Go to Financial Samurai and I have little doubt you'll find way more people that would agree with you. 

Not wrong, just different.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #58 on: October 24, 2015, 09:07:03 PM »
What I take exception to is the general advice given on this forum that indexing is the only way to do it and anyone exerting effort investing in any other manner is somehow doing it incorrectly.

That's quite a stretch for the people you find on this forum.  If this were the case, there would not be an Investor Alley category, it would just say "Index investing, the end."  There would also be no Real Estate and Landlording section.  Both of which are highly active categories that generate a lot of interesting discussion and a lot of evidence of Mustachians who value investing in real estate and picking stocks.

I don't think it is a stretch at all as is evidenced by the vehement push back in this thread and many other similar ones.  The existence of other forums does not mean that a large quantity of the content in them is laden with indexing worship.  Fortunately there are many posters that understand that indexing is not the be-all-end-all and can simply be one tool in the toolbox for people with access to better risk-and-effort-adjusted opportunities in other vehicles.

A couple of points:-

1. On average indexing and some form of asset allocation will beat other investment options and that is where the smart money bets. I know that you want to continue to espouse your viewpoint that there are better available options however you have a problem in that historical returns (the data) do not support your viewpoint.
2. Why can't boring and simple also be interesting. I find choosing the right asset allocation for me to be interesting.

If you want to be the richest person in the world or if you want to spend more than the average person and you are prepared to take on more risk then you can do that. You can though even do that with standard index options - just put all your money into stocks. The point is if you want to build and maintain your investment pool in a low risk simple proven approach index investing with some form of asset allocation works great.

Lastly if you want to build up businesses and sell them or whatever go for it. I'm personally not interested. It just sounds like work to me.
« Last Edit: October 25, 2015, 12:48:17 AM by steveo »

libertarian4321

  • Handlebar Stache
  • *****
  • Posts: 1372
Re: "Investing should be boring"
« Reply #59 on: October 25, 2015, 12:48:10 AM »
When I was young and poor, I invested aggressively.  I studied every move.  I invested in individual stocks.  I was master of the universe.  I got pretty darned good returns, either because I was a freakin' genius, or because I happened to get pretty lucky on one or two stocks (e.g. Dell).  Or whatever.

Over time, as my wealth grew, I simply did not want to screw with spending all my time trying to pick stocks.

So I went "boring."  I most invest in mutual funds (largely index funds), with low expense (e.g. Vanguard).  I honestly can't remember the last time I bought an individual stock-  maybe 2005 or so?

And we are doing fine with "boring" investing.

Could I beat the S&P again by spending hours and hours doing research?  Maybe, I did it 25 years ago.  But at some point, you will realize it just ain't worth the hassle.

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: "Investing should be boring"
« Reply #60 on: October 25, 2015, 04:07:37 AM »
A couple of points:-

1. On average indexing and some form of asset allocation will beat other investment options and that is where the smart money bets. I know that you want to continue to espouse your viewpoint that there are better available options however you have a problem in that historical returns (the data) do not support your viewpoint.
2. Why can't boring and simple also be interesting. I find choosing the right asset allocation for me to be interesting.

If you want to be the richest person in the world or if you want to spend more than the average person and you are prepared to take on more risk then you can do that. You can though even do that with standard index options - just put all your money into stocks. The point is if you want to build and maintain your investment pool in a low risk simple proven approach index investing with some form of asset allocation works great.

Lastly if you want to build up businesses and sell them or whatever go for it. I'm personally not interested. It just sounds like work to me.

This is where I tend to disagree, because index investors (which I'm a part of, in a way) tend to take for granted a few things that are not.

1. You must handle historical data with care. Index funds are a very recent beast when you consider an investor's very long term. When I read, here or there, that "a dollar invested in US stocks 150 years ago would be worth xx million dollars nowadays", I think people forget an important point : people did *not* index in these days. There was no mutual fund, and buying individual securities to build your own index was not only very expensive (no low cost broker on these days) and quite hard, for the very reason nobody knew what an index could be. And we don't know yet (because index funds are such a new thing) how their very existence influences the market or not.

Another thing regarding index funds' youth : they have never failed, yet. But, at some point in their history, they certainly will. There will be some fraud. Or some unjustified panic. Here in Europe, most index funds aren't invested only in the stocks in the index they are replicating. They handle complicated derivatives that allow them to be less expensive ; some more serious houses (I guess even Vanguard does it) do lend shares for short sellers, here again to reduce costs. I a bad bear market, this can go wrong. And even if you index fund does not fail, even if he was very cautious, panicking investors might try to sell massively their shares. On these hard days, the value of your shares can go far away from the underlying index, or can become very illiquid (which can be a problem if you need the money at that moment).

One third thing : indexes by themselves. They are a strange beast. We think they are something very neutral, but they are not. Do you know how the S&P500 is built, for instance ? How the proportion of every stock it consists in are determined ? Have a look at it. You'll be surprised.

As for the proof that index investing always beats other strategies, at least for a small investor, this is far from being actually proven. Read Mebane Faber's techniques. He clearly showed that, no matter your underlying asset allocation, selling you indexes when their price is under their 200 days mobile average, and buying when they are above it, leads both to better CAGR and smaller volatility. O'Shaughnessy showed that simple, automated investing in securities chosen according to some value metrics (say, lowest P/E ratio) consistently beats indexes, too. Ben Graham proved adapting your stock/bond allocation according to P/E ratio relative to bond yield is better, too. I have also read that buying mega caps (say, the 30 biggest blue chips), equal weighting them and keeping them forever leads to better risk adjusted returns. All very boring, easy, automated investment strategies, if you ask me.

So where is that undeniable proof that indexing is the best lazy option ?

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #61 on: October 25, 2015, 06:05:10 AM »
Read Mebane Faber's techniques. He clearly showed that, no matter your underlying asset allocation, selling you indexes when their price is under their 200 days mobile average, and buying when they are above it, leads both to better CAGR and smaller volatility. O'Shaughnessy showed that simple, automated investing in securities chosen according to some value metrics (say, lowest P/E ratio) consistently beats indexes, too. Ben Graham proved adapting your stock/bond allocation according to P/E ratio relative to bond yield is better, too. I have also read that buying mega caps (say, the 30 biggest blue chips), equal weighting them and keeping them forever leads to better risk adjusted returns. All very boring, easy, automated investment strategies, if you ask me.

The thing with these techniques which I think could work is that they take time and I doubt take into account a couple of things:-

1. Buying and selling costs.
2. Tax. Typically in the form of capital gains tax.
3. The difficulty with the past completely replicating the future. Just because these techniques worked in the past it doesn't mean they will work in the future. The simpler your approach in my opinion the more likely it is to work in the future.
4. Your psychological outlook. Can you buy and sell at the right time. Faber's techniques probably apply more here.
5. Diversification. This is more against O'Shaughnessy and Graham.

I still feel that these techniques though would work and are valid options. They are also somewhat boring and the returns if better than a simple say 60/40 stock bond allocation probably won't be significantly better. You could also use a permanent portfolio asset allocation or whatever you think works for you. This is what makes boring investing interesting. You don't have to spend a lot of time on it though. You just need to figure out enough to work out what you feel comfortable with.

So where is that undeniable proof that indexing is the best lazy option ?

Who says it needs to be the best ? It just needs to do well enough and all you need to do is choose an asset allocation that suits your temperament.

I also feel all of the available options are very different to risky unproven investment options which some people believe will beat the market easily. Where is the undeniable proof ? I suppose that is up to you to determine if the data on stocks/bonds and commodities including the benefits of diversification within asset classes and across asset classes with the advantages of low fees are enough to tilt you towards index investing. If it isn't that is your personal call. To me its a done deal already. The fancy investment options aren't proven over time. I'm not risking my money in those options because I'm confident on average I will beat these techniques and I don't need them. I'm happy with living frugally until the day I die. I'll probably die rich and leave plenty of money to my children. That is fine by me.

« Last Edit: October 25, 2015, 06:07:58 AM by steveo »

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #62 on: October 25, 2015, 07:05:38 AM »
Who says it needs to be the best ? It just needs to do well enough and all you need to do is choose an asset allocation that suits your temperament.

Ah....I see we're hedging now. ;-)

This quote is from my original response in this thread:

Some people take the time and put forth the effort to have a broader array of investment options that have better risk-adjusted yields than index investing.  I'm sure there will be a whole army of posts after this claiming that these activities are always coupled with higher risk by people that have never spent the time trying to invest in other manners.  There will then be a bunch of back and forth where neither side of the argument gives and inch and nothing will have come of the discussion.  Suffice it to say that I agree with the OP and many people wish to put forth the extra effort to design a better lifestyle long-term for their family.  That does not make this decision "sub-optimal;" it makes it different.

If you have evidence that non-indexing options necessarily carry heightened risks you should present it instead of simply declaring it to be true.  All evidence points to this NOT being the case though.  You want to know why some of the best and most sophisticated investors invest in private offerings, syndicates, their small businesses, or other types of constructs?  It is because they're professional investors and they can spot better risk-adjusted returns in these opportunities OR they have a certain set of skills or opportunities that allow them to earn more on their money in this manner. 

I will readily concede that passive index investing consumes less in the way of effort and is "not a job."  In fact, I have a significant portion of my assets tied up in dimensional funds using Fama/French three factor passive investing options.  There simply are better investing opportunities in non-indexing though.  If there weren't better opportunities then the price of equity would be too high for the underlying companies that produce your returns to make any money.  This seems pretty straightforward to me. 

Some people want to invest the effort to invest actively and there is nothing wrong with it.  It isn't always riskier and it isn't suboptimal no matter how much you want it to be.  The studies behind your belief patterns CONFINE THEMSELVES TO PUBLICLY TRADED SECURITIES and do not extend to other types of investing. 

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: "Investing should be boring"
« Reply #63 on: October 25, 2015, 08:56:26 AM »
It looks like we kinda agree overall. If you want to be passive, there are lots of reasonable alternatives, buy&hold stock index investing being one of them. If you want to spend time working on it, there are more rewarding opportunities.

As for me, I'm a 100% passive investor, with only a bunch of it in buy&hold stock indexing. And I'm pretty happy with that.

undercover

  • Pencil Stache
  • ****
  • Posts: 927
Re: "Investing should be boring"
« Reply #64 on: October 25, 2015, 09:03:24 AM »
Quote from: mr_orange
That is an argument that people use to justify their current closely-held beliefs and many times is a justification for avoiding exerting any effort to learn new skills that would get them to their goals quicker than those espoused by John Bogle.

This thought pattern is in alignment with those though who choose to rent their whole life and don’t even consider buying since they chalk buying up to being a hassle with a lot of headache and complain that they have no maintenance skills. In effect, they are outsourcing their housing and paying a premium when buying could be cheaper if they'd only do a little bit of work (of course, not always, but usually). I mean, there’s nothing wrong with renting, just like there’s nothing wrong with indexing, but there are better returns/options out there. If nothing else, they should be considered.

Quote from: brandino29
If this were the case, there would not be an Investor Alley category, it would just say "Index investing, the end."

In reality, 99% of the topics here are about indexing and people completely oblivious to any there type of investing. The real estate forum is probably 10% landlords and 90% “first time house-buyer” or other generic housing advice.

Quote from: mr_orange
The studies behind your belief patterns CONFINE THEMSELVES TO PUBLICLY TRADED SECURITIES and do not extend to other types of investing.

Yes, people seem to misconstrue the advice given towards sticking with indexes only (confined to the stock market), and not take into account the individual willing to work for higher returns and consider other investments. I don't disagree that for the individual that wants the most passive investment possible that indexes are the way to go. No one should be picking stocks without doing a considerable amount of research, which isn't passive.

Pete didn't make his comfortable, cushy fortune by solely investing in stocks. He actively did carpentry on the side, invested in real estate (though probably didn't do that good from the numbers I've seen) and started a blog. I'm sure this is among other things. So that's at least three small businesses he started, all investments, some more passive than others, in addition to working for someone else. And he certainly doesn't rely on income from his stocks to support that $25k/yr spending. And even if he did, he's well past the 4% SWR that most here hinge on.
« Last Edit: October 25, 2015, 09:32:27 AM by undercover »

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #65 on: October 25, 2015, 01:24:21 PM »
It looks like we kinda agree overall. If you want to be passive, there are lots of reasonable alternatives, buy&hold stock index investing being one of them. If you want to spend time working on it, there are more rewarding opportunities.

I'm not sold on this at all. I think on average the standard buy and hold approach will work a lot better. Its robust. The hail mary pass will work sometimes but its not robust or consistent.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #66 on: October 25, 2015, 01:43:49 PM »
Pete didn't make his comfortable, cushy fortune by solely investing in stocks. He actively did carpentry on the side, invested in real estate (though probably didn't do that good from the numbers I've seen) and started a blog. I'm sure this is among other things. So that's at least three small businesses he started, all investments, some more passive than others, in addition to working for someone else. And he certainly doesn't rely on income from his stocks to support that $25k/yr spending. And even if he did, he's well past the 4% SWR that most here hinge on.

This is where I think that your ideas of the hail mary pass can be seen in a more realistic light. How many MMM blogs are there out there ? Starting small businesses has a low success rate or involves a lot of work (franchises etc) with additional risk. Investing as per the multiple "boring" ways will consistently be successful.

If you are talking if the 4% WR is really a SWR or not I think that is a different discussion. I think the verdict is completely out on the proposition that investing should be boring if you want to  retire as quickly as possible with the best risk/reward profile.


mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #67 on: October 25, 2015, 01:49:11 PM »
Starting a small business does not have to be a "hail mary pass" and that is not the only other way to invest money.  This is a nice straw man argument that adds little to the back and forth over the last several thread entries. 

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #68 on: October 25, 2015, 02:02:59 PM »
All evidence points to this NOT being the case though.  You want to know why some of the best and most sophisticated investors invest in private offerings, syndicates, their small businesses, or other types of constructs?  It is because they're professional investors and they can spot better risk-adjusted returns in these opportunities OR they have a certain set of skills or opportunities that allow them to earn more on their money in this manner.

Starting a small business does not have to be a "hail mary pass" and that is not the only other way to invest money.  This is a nice straw man argument that adds little to the back and forth over the last several thread entries.

I'm starting to think that you are just making this up.

My parents have a tonne of money (my dad was a specialist doctor) - they do not do anything that you are stating here. My FIL was the manager of a private hedge fund for a billionaire and Treasurer of a big bank in 2 different countries - he has a lot of money. None of that rings true at all.

I'll use my FIL as the best example of this mystical investor that can see special opportunities and earn more money. Look at his employment history - very very few people are that successful within their careers and that was within finance. He loves to work. He is always looking for different opportunities.  These opportunities are consistently not successful and the one opportunity that has been successful for him is a pain in the backside. He continues to work hard in a tough environment where the risk is huge. His business has given him at its best a $500k income. He has had people rip him off and jokes about his jacket being worth $150k. His employees bought him a nice jacket but ripped him off that amount of money.  The business is always close to being shut down due to government regulations.

His wealth is predominantly stored in real estate. His wealth there would be worth say $20 million easy. His wealth in his business would be worth nothing in comparison. The effort and risk though would be the complete opposite - so much into his business and other opportunities & next to no effort in real estate. He doesn't invest in that business for money. He does it to keep himself busy.

If there is some mystical investment opportunity show it to me. I bet it doesn't exist. There are no free lunches in the investment world.
« Last Edit: October 25, 2015, 02:05:12 PM by steveo »

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: "Investing should be boring"
« Reply #69 on: October 25, 2015, 02:43:59 PM »
I'm not sold on this at all. I think on average the standard buy and hold approach will work a lot better. Its robust. The hail mary pass will work sometimes but its not robust or consistent.
Uh, ok, but then, why do people start businesses at all (rather than being wage workers and investing a part of their salary) ? Lack of information ?
 
Just an example : during the last gold bubble (the one which ended, or slowed down, 2 years ago), I won a lot of money not only by speculating on the price of gold (like any passive investor would have done using GLD) but also by knowing a lot about this field. Physical gold was (it is less true nowadays, damn you internet) a very inefficient market. People don't know the price of their coins (here in France, people don't buy Krugerrand or other 1 oz coins, but have old 20 francs gold coins they inherited from grandma), sometimes don't even know it consists in gold, or have very little knowledge about numismatics (they know their coin consists in gold but don't know this particular year is worth a little more). One could make a lot of money by finding people selling those coins and buying them at a discount. When you buy a coin at 80% of its gold content price, you beat passive gold ETF indexers by a wide margin, by definition.

That was true with the stock market decades ago (that is somewhat still true with nanocaps), that is true with real estate on some places... Pay 80c to buy a penny and you have a strong margin of safety. Every time you identify a non-efficient market, know how it works and take time to work on it, you have opportunities to clearly beat the market.

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #70 on: October 25, 2015, 02:53:09 PM »
Yes....and real estate is an option for investing non-passively as is factoring, financing receivables, hard money lending, investing in viaticals, and literally hundreds or thousands of other non-hail-mary businesses.  You can certainly take on huge amounts of risk in small business, but you can also find many safer types of projects where risk can be minimized and can ultimately be lower than what the general market has if you specialize and know what you're doing.  I don't know the first thing about investing in a factoring business, but I do know people that specialize in this and have made millions of dollars for years doing so.  I don't know the first thing about financing payday loans, but I know people that do.  There are a few businesses I know very well and I am choosy about where I put my money in these types of ventures. 

I really don't care how much your family is worth or what anecdotal evidence you have that indexing is only good risk-adjusted way to make money.  I live and associate with many people that live opposite experiences daily. 

Your free lunch statement is also a nice little straw man that gets pulled out during these discussions.  Nobody has ever claimed there is a free lunch.  You have to work for it.  How much you have to work depends on your experience and the type of project/business you select. 

I will put this out there again since it was ignored.  Why would the businesses finance their operations with the underlying funds from your indexing if they couldn't deliver better returns doing what they're doing?  Riddle me that one Batman. 

protostache

  • Pencil Stache
  • ****
  • Posts: 896
Re: "Investing should be boring"
« Reply #71 on: October 25, 2015, 03:50:59 PM »
Another thing regarding index funds' youth : they have never failed, yet. But, at some point in their history, they certainly will. There will be some fraud. Or some unjustified panic. Here in Europe, most index funds aren't invested only in the stocks in the index they are replicating. They handle complicated derivatives that allow them to be less expensive ; some more serious houses (I guess even Vanguard does it) do lend shares for short sellers, here again to reduce costs. I a bad bear market, this can go wrong. And even if you index fund does not fail, even if he was very cautious, panicking investors might try to sell massively their shares. On these hard days, the value of your shares can go far away from the underlying index, or can become very illiquid (which can be a problem if you need the money at that moment).

Joshua Kennon wrote a very salient comment on this (I'll try to dig up a link). His point was that many index funds, Vanguard especially, are massively loaded with unrecognized capital gains. On a normal day to day basis they can fund redemptions with incoming cash flow, but if there was ever a run on the fund they would be forced to sell and recognize part of these gains and passing them on to shareholders. For tax-advantaged accounts this is not an issue, but if you hold index funds in taxable accounts you have to be aware that at some point, you may be forced to pay part of someone else's tax bill because Vanguard forced capital gains on you.

Edit: Link to Joshua's comment. That whole article and the comments are very interesting.
« Last Edit: October 25, 2015, 03:58:15 PM by protostache »

money_bunny

  • Stubble
  • **
  • Posts: 114
Re: "Investing should be boring"
« Reply #72 on: October 25, 2015, 03:51:07 PM »
A lot of rich people are plain stupid, and they get fancy private equity investments and spend a lot of money for sub-optimal returns for enormous risk.

I actually see quite the opposite daily. 

Data to back this up? My Stats textbook lists this as the "Man who" argument.

https://en.wikipedia.org/wiki/Straw_man

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #73 on: October 25, 2015, 04:20:41 PM »
Data to back this up? My Stats textbook lists this as the "Man who" argument.

https://en.wikipedia.org/wiki/Straw_man

I have no data to back it up.  I have experience in the real world with these types of investments and know investors that have made great returns running their own small businesses for years.  I also know of others that have helped them finance their businesses or individual projects within their businesses passively that have made great returns for years.

I could, of course, use the same argument and ask you or anyone else to find any data that supports the fact that select, non-publicly-traded investments made by professional investors under-perform index funds.  I could also (as I have done twice now....or a third time in this post) pose the question about why the businesses would finance their operations with equities that your indexing finances if they can't generate returns in excess of what they're paying you for said financing.  The fact that they are willing to finance their business with your money in this fashion is pretty damning evidence that you have the capacity to do better than indexes if you're willing to participate actively. 
« Last Edit: October 25, 2015, 04:24:50 PM by mr_orange »

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #74 on: October 25, 2015, 06:48:23 PM »
Uh, ok, but then, why do people start businesses at all (rather than being wage workers and investing a part of their salary) ? Lack of information ?

Lots of reasons. Its not always lack of information. It can be because people like to make money that way. Its a great way to work for yourself and then build up your finances. I see this though as very different to investing.
 
Every time you identify a non-efficient market, know how it works and take time to work on it, you have opportunities to clearly beat the market.

I don't buy this line. I trade myself and my FIL was very successful at it. I've seen my FIL down close to $2 million on his own account. The private hedge fund he managed went bust. I wouldn't risk my retirement funds along these lines.

Yes you can beat the market. The question is can you do this consistently. The data suggests that very few people have ever done this.
« Last Edit: October 25, 2015, 07:09:53 PM by steveo »

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #75 on: October 25, 2015, 06:52:14 PM »
I live and associate with many people that live opposite experiences daily. 

I don't.

I will put this out there again since it was ignored.  Why would the businesses finance their operations with the underlying funds from your indexing if they couldn't deliver better returns doing what they're doing?  Riddle me that one Batman.

I don't get this comment at all. I don't think it really makes any sense. Businesses aren't financing their operations via the funds from my indexing. I'll try to explain how stocks (in this instance) work. Company A issues shares to finance their operations. This doesn't happen that often. Those shares are then bought and sold on the stock market. The businesses typically are not financing their operations via my indexing.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #76 on: October 25, 2015, 07:07:55 PM »
I could, of course, use the same argument and ask you or anyone else to find any data that supports the fact that select, non-publicly-traded investments made by professional investors under-perform index funds.

You don't have the data. I have anecdotal evidence regarding the wealthy and the investment decisions they make. I get to see wealthy people making investment decisions. There isn't this special area where the rich make money. If anything I believe the rich get hammered more than the poor. If you read some of William Bernstein's books he actually refers to this phenomena.

I could also (as I have done twice now....or a third time in this post) pose the question about why the businesses would finance their operations with equities that your indexing finances if they can't generate returns in excess of what they're paying you for said financing.

I explained this to you and I think it shows how much information you lack on this topic. Maybe a better way to phrase your question is why don't businesses sell out and then invest their capital in other businesses. This actually happens sometimes however its not that simple a question as lots of businesses exist to make money within their field of expertise and therein lies the key point. Businesses typically have a competitive advantage in their field. You get to invest in them and get a share of the profits via indexing. In stating all of that small business is a great way to make money but most small businesses fail.

Just to add some real data to the picture:- http://usgovinfo.about.com/od/smallbusiness/a/whybusfail.htm

  The fact that they are willing to finance their business with your money in this fashion is pretty damning evidence that you have the capacity to do better than indexes if you're willing to participate actively.

No. Just no.

I get the impression that you are all over the shop. There isn't this fantastic area where the rich do really well. It doesn't exist. It sounds like a fairy tale because it is. Can you do well in small business - yes you can. You can do great. Most small businesses though fail and they require a lot of work. I won't speak for everyone else but I am not interested in that approach. I would rather save and invest my money so that the work required on my part is as minimal as possible.

The alternative is to save money in boring fashions which I personally don't find boring. Maybe a better way to phrase the boring comment is that you can save money into low personal time intensive investments that perform as per the risk profile that you choose to accept.

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 2080
  • Age: 53
  • Location: Ann Arbor, Michigan
Re: "Investing should be boring"
« Reply #77 on: October 25, 2015, 07:33:27 PM »
I will agree there are some investors who seem to beat the market indices, such as Yale university's David Swensen.
http://news.yale.edu/2015/09/24/investment-return-115-brings-yale-endowment-value-256-billion

But these are rare exceptions, and it's very hard as a small investor to identify these opportunities.

JoeP

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: "Investing should be boring"
« Reply #78 on: October 25, 2015, 07:40:46 PM »
I could, of course, use the same argument and ask you or anyone else to find any data that supports the fact that select, non-publicly-traded investments made by professional investors under-perform index funds.  I could also (as I have done twice now....or a third time in this post) pose the question about why the businesses would finance their operations with equities that your indexing finances if they can't generate returns in excess of what they're paying you for said financing.  The fact that they are willing to finance their business with your money in this fashion is pretty damning evidence that you have the capacity to do better than indexes if you're willing to participate actively.

Perhaps we have a hard time accepting your investment advice because of reading articles like this: http://www.forbes.com/sites/rickferri/2012/03/12/why-smart-people-fail-to-beat-the-market/

I think some of us prefer the slow but steady option versus the potential to crash and burn since we are trying to minimize risk.  And the up front capital needed to get into privately managed funds that outperform the market is beyond the reach of the audience that frequents a site dedicated to frugality.

I truly wish you luck and hope you wind up swimming in an Olympic sized pool of money. 

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #79 on: October 25, 2015, 08:10:23 PM »
I don't get this comment at all. I don't think it really makes any sense. Businesses aren't financing their operations via the funds from my indexing. I'll try to explain how stocks (in this instance) work. Company A issues shares to finance their operations. This doesn't happen that often. Those shares are then bought and sold on the stock market. The businesses typically are not financing their operations via my indexing.

You don't get it because it is YOU that is misinformed.  Yes, I know all about IPOs and how shares are underwritten.  I, in fact, underwrite private deals all the time and sell equity securities to crowdfunding investors on our platform.  So your condescending comments reflect a lot more on you than they do on me.  The value of the securities sold in the secondary market DOES matter because it impacts the cost of financing for businesses in the event they need to finance something in the future.  The secondary market also drives how the shares are initially underwritten as well.  Thanks for the lecture on how the stock market works though man.  I'll let my securities attorney partner know tomorrow. 

I'm too lazy to add quotes to the other items you posted on, but citing the failure rate of ALL small businesses is very misleading.  Many businesses are started by people who have zero idea what they're doing.  If you are a good investor it is very easy to spot these operations and they would not even enter your consideration for investment. 

You can believe that accredited investors investing in private offerings or small business owners running shops where they specialize in certain types of investing is a fairy tale all you want to.  That doesn't make it so.  Again, I deal with these people daily and run networking meetings locally where specialists present on their area of expertise.  I cited several types of businesses above that are counterexamples to your assertion that these are fairy tales.  Instead of focusing on this you cited small business statistics that include all manner of potential investments that professional investors wouldn't touch with a ten foot pole.  Why not, instead, focus on the businesses presented?  I am guessing it is because you have zero idea what many of them are and could add no value to the conversation.  It's quite a bit easier to make useless anecdotal comments about what your father-in-law does for a living and how wealthy your family is.  Who cares?

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: "Investing should be boring"
« Reply #80 on: October 26, 2015, 04:06:10 AM »
Every time you identify a non-efficient market, know how it works and take time to work on it, you have opportunities to clearly beat the market.

I don't buy this line. I trade myself and my FIL was very successful at it. I've seen my FIL down close to $2 million on his own account. The private hedge fund he managed went bust. I wouldn't risk my retirement funds along these lines.

Yes you can beat the market. The question is can you do this consistently. The data suggests that very few people have ever done this.
Trading is a different beast because you're betting against others. But by being a retailer rather than a trader or investor, you consistently beat the market. When you buy something below its market price (or sell it above), by definition you always do better than an investor buying on the market, whether the underlying asset goes up or down in value. You can lose money, of course, if you bought at the start of a bear market; but even then, you lose less than the ETF buyer.

The no-free-lunch explanation is that 1- it takes much more time than buying an ETF, 2- you don't always find a lot of opportunities.

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #81 on: October 26, 2015, 05:18:27 AM »
But by being a retailer rather than a trader or investor, you consistently beat the market.

Some of the comments on this thread amaze me. You do realize that consistently beating the market is basically impossible ?

steveo

  • Handlebar Stache
  • *****
  • Posts: 1944
Re: "Investing should be boring"
« Reply #82 on: October 26, 2015, 05:25:25 AM »
So your condescending comments reflect a lot more on you than they do on me.

I'm sorry I am condescending towards you. I wish it was different. Still your comments do not ring true.

Thanks for the lecture on how the stock market works though man.  I'll let my securities attorney partner know tomorrow. 

I really suggest that you do.

You can believe that accredited investors investing in private offerings or small business owners running shops where they specialize in certain types of investing is a fairy tale all you want to.  That doesn't make it so.  Again, I deal with these people daily and run networking meetings locally where specialists present on their area of expertise.  I cited several types of businesses above that are counterexamples to your assertion that these are fairy tales.

I'm sorry but I am pretty confident you admitted that you didn't have any data to back your opinions up.

Instead of focusing on this you cited small business statistics that include all manner of potential investments that professional investors wouldn't touch with a ten foot pole.  Why not, instead, focus on the businesses presented?  I am guessing it is because you have zero idea what many of them are and could add no value to the conversation.  It's quite a bit easier to make useless anecdotal comments about what your father-in-law does for a living and how wealthy your family is.  Who cares?

Its very hard to rationally discuss this topic with you. You seem to twist and turn all over the place. Show us the data that backs up your opinion that there are so many better options out there. If not lets just leave it at that.

My assumption is that people like my FIL are impressive to you. He is a classic example of the type of people that you appear to put on a pedestal. I use him as an example of why your comments don't ring true.

Look - I wish you the best. I think the odds of you being successful are really low and I'm personally not interested in your approach. If it works for you though go for it.

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #83 on: October 26, 2015, 05:59:53 AM »
Ha....I don't really need to consult with my securities attorney.  Anyone that understands how the equities market really works knows that the market sets the price of securities.  More money from indexing will have more dollars chasing the same securities and thus will establish a different price for them.  The pricing in the secondary market will also drive the company's ability to finance debt and thus their overall cost of capital.  Perhaps you should do some research on this topic before you lecture people on message boards. 

I don't have any data and neither do you.  Doing a study with millions of private placements would be horrendously complicated and I would be surprised if one existed.  The lack of a study does not refute the fact that I see this daily.  I see private funds and investors investing in all of the products mentioned above.   We also run a business that has consistently delivered in excess of 50% cash on cash returns for over 5 years now.  This opportunity is drying up, but there are plenty of other ones like it if you're willing to invest the effort to find them. 

If this approach is not for you that is fine.  I have stated several times in this thread that there is nothing wrong with indexing.  In fact, a large part of my portfolio is invested in this manner.  The problem is that posters like you do a disservice to those that don't know any better.  You lead people to believe that beating the yields on the blended equities index market is somehow impossible or that it requires additional risk to do so.  There are certainly different risks (lack of diversity, liquidity, etc.), but that doesn't make them greater and they're certainly less susceptible to other risks.  The fact that millions of rational self-maximizing investors with professional educations take these risks daily also refutes the idea that indexing is the only way to make money. 

Keep indexing.  There is nothing wrong with it.  I am glad it is working out for you.  There are other opportunities out there to make more money though whether you believe it or not. 

money_bunny

  • Stubble
  • **
  • Posts: 114
Re: "Investing should be boring"
« Reply #84 on: October 26, 2015, 06:28:55 AM »

You can believe that accredited investors investing in private offerings or small business owners running shops where they specialize in certain types of investing 

Let's change this around "A family member investing in a local business of another family member." Or "A friend investing in the local business of another friend." This has been one of the key funding methods of small business start up.

The problem I could see is the high failure rate of small business, and throwing money at the business might not get if off the ground. Or from what I have seen with several of my friends where they can't get the small company to the point over the hump to the middle sized company. Due to needing payroll, putting people on the books, no longer being able to operate out of their garages and so forth.

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #85 on: October 26, 2015, 07:35:37 AM »
You don't get it because it is YOU that is misinformed.  Yes, I know all about IPOs and how shares are underwritten.  I, in fact, underwrite private deals all the time and sell equity securities to crowdfunding investors on our platform.  So your condescending comments reflect a lot more on you than they do on me.  The value of the securities sold in the secondary market DOES matter because it impacts the cost of financing for businesses in the event they need to finance something in the future.  The secondary market also drives how the shares are initially underwritten as well.  Thanks for the lecture on how the stock market works though man.  I'll let my securities attorney partner know tomorrow. 

I'm too lazy to add quotes to the other items you posted on, but citing the failure rate of ALL small businesses is very misleading.  Many businesses are started by people who have zero idea what they're doing.  If you are a good investor it is very easy to spot these operations and they would not even enter your consideration for investment. 

You can believe that accredited investors investing in private offerings or small business owners running shops where they specialize in certain types of investing is a fairy tale all you want to.  That doesn't make it so.  Again, I deal with these people daily and run networking meetings locally where specialists present on their area of expertise.  I cited several types of businesses above that are counterexamples to your assertion that these are fairy tales.  Instead of focusing on this you cited small business statistics that include all manner of potential investments that professional investors wouldn't touch with a ten foot pole.  Why not, instead, focus on the businesses presented?  I am guessing it is because you have zero idea what many of them are and could add no value to the conversation.  It's quite a bit easier to make useless anecdotal comments about what your father-in-law does for a living and how wealthy your family is.  Who cares?

EVERYONE STOP!  Let's all take a moment to sit in awe as we realize we just found the smartest man on the internet.  Congratulations Mr_Orange! 


Edit:  I should explain why -- he knows all about the stock market in ways that no other person could ever understand, especially misinformed lay folk like ourselves, he knows all about starting successful small businesses and he knows the reason that so many startups fail that nobody else ever seems to recognize in advance, he doesn't need "data" to prove anything that he knows, and even though your anecdotes arguing your positions are meaningless, his anecdotes are full of useful information that undoubtedly apply to every scenario.  Chapeau.  With such genius, talent, and broad network of fabulously wealthy market beaters with whom you interact every single day though, I'm quite surprised you bother arguing with us morons.  Seems like it would be below you.



MOD EDIT: Forum Rule #1.
« Last Edit: October 27, 2015, 11:41:40 AM by arebelspy »

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #86 on: October 26, 2015, 07:47:33 AM »
The problem I could see is the high failure rate of small business, and throwing money at the business might not get if off the ground. Or from what I have seen with several of my friends where they can't get the small company to the point over the hump to the middle sized company. Due to needing payroll, putting people on the books, no longer being able to operate out of their garages and so forth.

Yes...some businesses have high failure rates.  I spoke with some angel investors from CTAN last Friday and they invest in these exact types of small businesses.  They go in eyes wide open and tend to invest across several investments because they know most of them will fail. 

There are several other types of small projects/businesses with far different risk profiles.  These projects are far less risky and have less upside. 

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #87 on: October 26, 2015, 07:51:30 AM »

EVERYONE STOP!  Let's all take a moment to sit in awe as we realize we just found the smartest man on the internet.  Congratulations Mr_Orange! 


Edit:  I should explain why -- he knows all about the stock market in ways that no other person could ever understand, especially misinformed lay folk like ourselves, he knows all about starting successful small businesses and he knows the reason that so many startups fail that nobody else ever seems to recognize in advance, he doesn't need "data" to prove anything that he knows, and even though your anecdotes arguing your positions are meaningless, his anecdotes are full of useful information that undoubtedly apply to every scenario.  Chapeau.  With such genius, talent, and broad network of fabulously wealthy market beaters with whom you interact every single day though, I'm quite surprised you bother arguing with us morons.  Seems like it would be below you.
This is precisely the type of garbage that happens on the internet all the time.  There are people that attack the poster while adding zero value to the conversation.  I'll leave it for others to examine what was presented and draw their conclusions from it. 

I'm never said my anecdotes were any more or less valuable than other poster's anecdotes.  That is a fantasy you made up.  Believe whatever you want to believe. 

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: "Investing should be boring"
« Reply #88 on: October 26, 2015, 08:35:49 AM »
But by being a retailer rather than a trader or investor, you consistently beat the market.

Some of the comments on this thread amaze me. You do realize that consistently beating the market is basically impossible ?
I guess you haven't read what I have written several times and just react to a sentence out of context.

When you buy an asset below its market price (eg you buy a 1 oz gold coin for $900 while gold's price is at $1000), by definition, you beat the market (and as opposed to what happens on trading, no bet is involved, because you beat the market when buying, not when selling). You can still lose money, because the market can go down, but even then you lost less than if you bought it at $1000.

You say that's impossible to consistently beat the market this way. Can you point me to an example when this strategy would fail ?

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #89 on: October 26, 2015, 08:42:33 AM »
This is precisely the type of garbage that happens on the internet all the time.  There are people that attack the poster while adding zero value to the conversation.  I'll leave it for others to examine what was presented and draw their conclusions from it. 

I'm never said my anecdotes were any more or less valuable than other poster's anecdotes.  That is a fantasy you made up.  Believe whatever you want to believe.

Calm down dude, I'm giving you a hard time...well, because you kinda deserve it. 

Keep in mind, you are the one who said these nice things about other people responding to your comments:
"The problem is that posters like you do a disservice to those that don't know any better."
"You don't get it because it is YOU that is misinformed."
"Perhaps you should do some research on this topic before you lecture people on message boards."

Tip #1: It is hard to be persuasive when you are so condescending.

And I didn't make up the fantasy -- here's a brief selection:
"I have no data to back it up.  I have experience in the real world with these types of investments and know investors that have made great returns running their own small businesses for years.  I also know of others that have helped them finance their businesses or individual projects within their businesses passively that have made great returns for years."
"Again, I deal with these people daily and run networking meetings locally where specialists present on their area of expertise."
"I see private funds and investors investing in all of the products mentioned above."
"I spoke with some angel investors from CTAN last Friday and they invest in these exact types of small businesses."

What does each have in common?  Personal anecdotes, all yours, that you used to "back up" your argument. 

"It's quite a bit easier to make useless anecdotal comments about what your father-in-law does for a living and how wealthy your family is.  Who cares?"

Also you.  Also worth noting that Steveo's comments about his father-in-law was not bragging about how wealthy he is but using it as a personal example to contrast your personal examples. 

Tip #2: It is hard to be persuasive when you use personal anecdotes as the basis of your argument, yet criticize everyone else using personal anecdotes. 


Edit: Forgot to include Tip #2
 

 
« Last Edit: October 26, 2015, 08:44:39 AM by brandino29 »

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: "Investing should be boring"
« Reply #90 on: October 26, 2015, 08:46:16 AM »
Regarding small businesses and failure rates : a high failure rate (even 90%) does not mean investing in small businesses is a bad thing. If the very few successful bets you make are overwhelming successes, you can still make a lot of money. If one business out of 10 is worth 10 times its price after five years, no matter what the 9 other did, you didn't lose money. Any money left in any of these 9 other businesses is a gain.

I don't know the actual figures, but failure rate taken alone is irrelevant (unless you want to start a small business for a living). That's precisely the reason why SCV indexes, on the long run, usually beat big caps indexes, btw.

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: "Investing should be boring"
« Reply #91 on: October 26, 2015, 09:24:06 AM »
This is precisely the type of garbage that happens on the internet all the time.  There are people that attack the poster while adding zero value to the conversation.  I'll leave it for others to examine what was presented and draw their conclusions from it. 

I'm never said my anecdotes were any more or less valuable than other poster's anecdotes.  That is a fantasy you made up.  Believe whatever you want to believe.

You say that's impossible to consistently beat the market this way. Can you point me to an example when this strategy would fail ?

Don't bother getting your blood pressures up, remember Dunning-Kruger. The misinformed don't know enough about the world and the second/third/fourth etc. effects of businesses and economics to know when they're spewing garbage. Index investing is actually perfect for a lot of people precisely because of this fact - overwhelmingly its behavior that governs your returns. Indexing breeds good investing behavior, that's it.

I do agree with the other posters that indexing is the pinnacle of passive investing when it comes to how much you actually need to know and learn - browse some articles for a week and you have all the tools you need. I think a natural progression if you are consistently reading and learning beyond that is a move to alternative forms of investing - which can still be boring and low risk, but much higher returning. Mr. orange is benefiting from a knowledge advantage over the average investor, just like a knowledge worker gets paid more per unit of time than a laborer.

EDIT: all of the comments asking for data shows the difference between doers and academics - it's easy to sit there and fan your confirmation bias while business owners are out and about working on their economic engines - someone like mr. orange has no desire or need to look at empirical data because he's too busy thinking about factors that apply only to his projects
« Last Edit: October 26, 2015, 09:26:00 AM by Aphalite »

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #92 on: October 26, 2015, 09:51:44 AM »
Getting back to the original question posed on this thread -- should investing be boring?  I think the consensus is a decisive yes, it should be boring for most people. 

Everyone knows that yes, it is possible to beat the market, whether through stock picking, or successful business startups, or alternative investments.  The reason that everyone knows this is because there are plenty of examples of those who have beat the market.  However, just because one can beat the market does not mean that it is easy to do so, especially consistently, or that everyone can do it.

How can we know that it's not easy?  Because the examples of people who have consistently beat the market are very often famous names -- Warren Buffet or Peter Lynch, in stock picking, Steve Jobs or Mark Zuckerberg in startups, Richard Branson and (arguably) Donald Trump in alternative investing. 

And as they say, if it were easy, then everyone would do it. 

So, again, back to the point of the original question -- yes, investing should be boring for the vast majority of us

The problem with your arguments as I see them, Mr_Orange, is that you seem to be making the case that beating the market is easy.  I think I may have recognized the issue -- as you've so abundantly made clear, you see and work with people who beat the market every day.  If I were surrounded by folks like that every day, my judgment may be clouded as well.  However, I personally have met zero angel investors, I don't know a single person who has made millions of dollars in factoring businesses, and I have never once underwritten a private deal of any sort.  And neither have the vast majority of people on this forum or across the world as a whole. 

Here's an analogy -- I regularly see patients with diabetes who take insulin.  In fact, so many patients take insulin that if you were to judge by this population, you may think that everyone should be taking it and it would be a mistake not to take insulin. My point?  If it would be impossible to make a value judgment on whether or not a whole bunch of people I don't know should be on insulin if I were basing it on the people I interact with everyday.  Indeed, if I prescribed insulin to everyone, it would do much more harm than good.

So, just like not everyone needs to be on insulin, not everyone should be trying to beat the market. 

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #93 on: October 26, 2015, 10:01:11 AM »
EDIT: all of the comments asking for data shows the difference between doers and academics - it's easy to sit there and fan your confirmation bias while business owners are out and about working on their economic engines - someone like mr. orange has no desire or need to look at empirical data because he's too busy thinking about factors that apply only to his projects

Next time you need to go to the doctor, be sure to thank your lucky stars for all those academics and all that data they have, otherwise you might be getting your blood let for a viral infection, lobotomized for your anxiety, or prescribed arsenic to treat your achy joints. 

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: "Investing should be boring"
« Reply #94 on: October 26, 2015, 10:03:30 AM »
Next time you need to go to the doctor, be sure to thank your lucky stars for all those academics and all that data they have, otherwise you might be getting your blood let for a viral infection, lobotomized for your anxiety, or prescribed arsenic to treat your achy joints.

No, I think I'll thank Louis Pasteur, Alexander Fleming, and the like - people who didn't sit on their hands and insist on the blood letting, lobotomies, and arsenic and insisted there must be a better way

Thanks for your kind suggestions though

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #95 on: October 26, 2015, 10:11:38 AM »
Yep, exactly, those guys who pursued their educations beyond most of their peers of the day and then dutifully recorded all the data of their experiments, published them in academic journals read by their colleagues, and continually pushed the knowledge of their fields forward with hard data, not anecdotes of personal beliefs. 

(Though, to be fair, neither Pasteur nor Fleming had anything to do with moving the field of medicine beyond blood letting, lobotomies, or using arsenic as treatment.)

Aphalite

  • Bristles
  • ***
  • Posts: 425
Re: "Investing should be boring"
« Reply #96 on: October 26, 2015, 10:15:47 AM »
Yep, exactly, those guys who pursued their educations beyond most of their peers of the day and then dutifully recorded all the data of their experiments, published them in academic journals read by their colleagues, and continually pushed the knowledge of their fields forward with hard data, not anecdotes of personal beliefs. 

You want mr. orange to publish publicly his business records so he can help his competitors?

Put another way, these academics you speak of, when they first make a major discovery, and try to tell the blood letting doctors about it, and the blood letting doctors ask them "where's the data", can they claim that what they discovered is NOT personal anecdote?

I'm confused by your logic here

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #97 on: October 26, 2015, 10:20:15 AM »
Don't bother getting your blood pressures up, remember Dunning-Kruger. The misinformed don't know enough about the world and the second/third/fourth etc. effects of businesses and economics to know when they're spewing garbage. Index investing is actually perfect for a lot of people precisely because of this fact - overwhelmingly its behavior that governs your returns. Indexing breeds good investing behavior, that's it.

By the way, you're either misrepresenting or misunderstanding Dunning-Kruger (academics).  The phenomenon is that those who are ignorant of their abilities are more likely to overestimate them while those who are more knowledgeable underestimate their abilities.  Therefore, applied to this thread that means that those who are inclined to believe they can consistently beat the market (i.e. overestimate their abilities) are going to be the individual stock pickers, while those who recognize their lack of ability are those inclined to index. 

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: "Investing should be boring"
« Reply #98 on: October 26, 2015, 10:21:32 AM »
You don't have to be Richard Branson or Warren Buffett to "beat the market" when you're comparing two different markets to one another.  If you confine your discussion to the publicly-traded securities market then things are rather efficient and it is hard to find projects mispriced.  If, however, you broaden the discussion to include ALL types of investments then the likelihood that you can find projects that offer nice upside with risks lower than that of the overall market is a LOT higher. 

I never claimed it was easy.  This, again, is something you made up.  It requires work, but it doesn't require a rocket surgeon to do.  You do need to specialize and I am an advocate of starting with small amounts of money and increasing the amount you invest as you learn more.  There are all sorts of private ways of making money that offer these sorts of opportunities and they don't necessarily have to involve high risk.  Some of them are very risky and some of them are a lot less risky.  Risk exists on a spectrum.

Anyway....I don't think anything new is being discussed here so I am going to bow out since a lot of the recent thread entries are rather ridiculous and add little to the discussion.  Hopefully the thread will open the eyes of a few that read it.  You can't change everyone's mind and it would be naive to think it is worth any more effort trying to do so.  Best of luck to everyone in their investing. 
« Last Edit: October 26, 2015, 10:27:18 AM by mr_orange »

brandino29

  • Bristles
  • ***
  • Posts: 320
Re: "Investing should be boring"
« Reply #99 on: October 26, 2015, 10:27:32 AM »
Yep, exactly, those guys who pursued their educations beyond most of their peers of the day and then dutifully recorded all the data of their experiments, published them in academic journals read by their colleagues, and continually pushed the knowledge of their fields forward with hard data, not anecdotes of personal beliefs. 

You want mr. orange to publish publicly his business records so he can help his competitors?

Put another way, these academics you speak of, when they first make a major discovery, and try to tell the blood letting doctors about it, and the blood letting doctors ask them "where's the data", can they claim that what they discovered is NOT personal anecdote?

I'm confused by your logic here

No worries - I'm not offended.

It's a thing called the scientific method.  You do experiments, you try to prove or disprove a hypothesis, you do it in a way that can be repeated by someone else.  Then someone else, unrelated to you, non-biased, repeats your experiment using the same or similar methods, and then validates your results.  Now actual data exists.  On the other hand, if they are unable to validate your results, then your findings are useless and simply become an anecdote.