Author Topic: Can't beat an Index  (Read 41019 times)

NICE!

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Re: Can't beat an Index
« Reply #50 on: April 19, 2015, 04:08:33 AM »
This is rosy retrospection bias at its finest. You're completely ignoring other titans that have come and gone, companies that went from burning-hot growth to slow-moving blue-chip status, and the fact that you could be buying at exactly the wrong (or right) time.

You're also assuming that your knowledge is already priced into things. For example, you mention Star Wars. People have known for awhile that Disney bought the IPs and is producing movies. Do you think that the market hasn't priced in this information?

There are several people here who are not indexers. The best people in this camp are extremely well-read and deliberate investors that would find your approach seriously lacking. Please, pick up some books for your own sake. You don't even have to read exclusively from the indexing cannon - read Lynch's Beating the Street, anything by Buffet, Stocks for the Long Run, and A Random Walk Down Wall Street. Check out Swedroe, check out Browne. Hit a wide range of thinking.

I would advise against boasting about your expertise if you haven't even read the works of some of the best thinkers out there.

Ricky

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Re: Can't beat an Index
« Reply #51 on: April 19, 2015, 06:34:43 AM »
For the record, no one can predict the future of index funds either. If one's rationale for not investing in Apple is solely based on the fact that it has already seen 25,000% growth, then logically one should not use history as an indicator for future success across any securities. The only thing that makes the index marginally safer is the high amount of exposure and diversification one usually gets, of course.

Using past performance as an indicator to buy a specific company, is idiotic, and isn't even in the same league as using past performance as an indicator to buy the entire market.  And not because of risk either.  When someone buys the whole market, they are doing so with the expectation that the entire world economy as a whole will continue to grow, because of things like population and productivity (technology makes us more productive) increases.  This is the equivalent of looking in a petri dish and watching bacteria grow.  We can measure the growth rate, and be reasonably sure it will continue to grow at around the same pace.



I'm sorry, but you're so set on not buying an individual stock that you're missing the point. Analysis is analysis. Risk is risk. Using a historical analysis on an individual company is the same as doing it on the market as a whole. The only difference is risk. Whether it isn't in "the same league" or is idiotic is totally irrelevant to my point (again, confusing analysis with risk). No where did I say that you should buy individual stocks over the market as a whole. I'm simply advocating that research and business sense should be required before I let you buy any type of security.

Also, most of the external factors you listed would play into a decision of buying an individual stock: world economy, technology, legalities, etc...It's just on a smaller scale.

Quote from: Dodge
Which one of these statements are you willing to bet your life savings on?

Neither, because they're horrible analogies.

Quote from: Dodge
I was hoping someone would mention that individual stock picking can be fun. 

I believe you misconstrued my words. I said investing can be fun. Investing in general can mean tons of things. Just because my vocabulary isn't limited to "index" and "funds" doesn't mean I am daydreaming about individual stocks all day.

Quote from: Dodge
Once I show an individual stock picker that they are almost statistically guaranteed to lose money vs the index over the long term

Please show these stats to Buffett.

Also please do more research on "statistics" in general before you continue to hold statistics as the be all, end all, mighty power of prediction. There are many scientists who would tell you statistics are a pointless field.

Am I saying anyone here can beat Buffett, or match him? Not at all, but some of us like to dream and do our research, hence the fun.

And by the way, none of what I'm saying is directly related to OP. I frankly couldn't even read his first post so I have no comment on whether he is doing the right thing for him.
« Last Edit: April 19, 2015, 06:53:13 AM by Ricky »

mrpercentage

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Re: Can't beat an Index
« Reply #52 on: April 19, 2015, 08:41:08 AM »
I would advise against boasting about your expertise if you haven't even read the works of some of the best thinkers out there.
Fair enough.. Im no expert. I will read more as time allows. I just might be a lucky bastard, but I am in fact beating the shit out of the market right now. For how long? Who knows... I often like to share good fortune but perhaps it not in my power to. I just might be lucky. I hope its not luck

Dodge

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Re: Can't beat an Index
« Reply #53 on: April 19, 2015, 09:08:06 AM »
For the record, no one can predict the future of index funds either. If one's rationale for not investing in Apple is solely based on the fact that it has already seen 25,000% growth, then logically one should not use history as an indicator for future success across any securities. The only thing that makes the index marginally safer is the high amount of exposure and diversification one usually gets, of course.

Using past performance as an indicator to buy a specific company, is idiotic, and isn't even in the same league as using past performance as an indicator to buy the entire market.  And not because of risk either.  When someone buys the whole market, they are doing so with the expectation that the entire world economy as a whole will continue to grow, because of things like population and productivity (technology makes us more productive) increases.  This is the equivalent of looking in a petri dish and watching bacteria grow.  We can measure the growth rate, and be reasonably sure it will continue to grow at around the same pace.



I'm sorry, but you're so set on not buying an individual stock that you're missing the point. Analysis is analysis. Risk is risk. Using a historical analysis on an individual company is the same as doing it on the market as a whole. The only difference is risk. Whether it isn't in "the same league" or is idiotic is totally irrelevant to my point (again, confusing analysis with risk). No where did I say that you should buy individual stocks over the market as a whole. I'm simply advocating that research and business sense should be required before I let you buy any type of security.

Also, most of the external factors you listed would play into a decision of buying an individual stock: world economy, technology, legalities, etc...It's just on a smaller scale.

Quote from: Dodge
Which one of these statements are you willing to bet your life savings on?

Neither, because they're horrible analogies.

Quote from: Dodge
I was hoping someone would mention that individual stock picking can be fun. 

I believe you misconstrued my words. I said investing can be fun. Investing in general can mean tons of things. Just because my vocabulary isn't limited to "index" and "funds" doesn't mean I am daydreaming about individual stocks all day.

Quote from: Dodge
Once I show an individual stock picker that they are almost statistically guaranteed to lose money vs the index over the long term

Please show these stats to Buffett.

Also please do more research on "statistics" in general before you continue to hold statistics as the be all, end all, mighty power of prediction. There are many scientists who would tell you statistics are a pointless field.

Am I saying anyone here can beat Buffett, or match him? Not at all, but some of us like to dream and do our research, hence the fun.

And by the way, none of what I'm saying is directly related to OP. I frankly couldn't even read his first post so I have no comment on whether he is doing the right thing for him.

I love it when people use Buffet as evidence that "I too can beat the market!", when apparently it's so rare to beat the market over the long term, that when someone does it everyone knows their name!  If people want to throw money away at their fun dream of being the next Buffet, good luck!  But for the sake of the newbies in the forum (and there are a lot of them), I will continue to remind everyone how bad of an idea this is...especially in the context of early retirement.


lemanfan

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Re: Can't beat an Index
« Reply #54 on: April 19, 2015, 09:45:02 AM »

The best part?  I'm friends with someone who sold at today's equivalent of $28, "It will never go higher than this.  I promise you!"  He got in at something like $5, so he was quite happy with himself.  Well had he kept the stock until now, he would've grown his money an additional 5x from when he sold at $28.  You can't predict the future mrpercentage...even when you're right. 

Don't forget the 7-1 stock split they did a while back.  The current stock price is $875 in pre-split stocks, i.e. if he'd kept the stock it would have been more than 30x the money from selling at $28.

It's very very easy to sell too early when you make a big gain quickly.  I sold a local bank stockh way to early in the same way after the financial crisis... hindsight is 20/20.  :)

NICE!

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Re: Can't beat an Index
« Reply #55 on: April 19, 2015, 10:54:33 AM »
Fair enough.. Im no expert. I will read more as time allows. I just might be a lucky bastard, but I am in fact beating the shit out of the market right now. For how long? Who knows... I often like to share good fortune but perhaps it not in my power to. I just might be lucky. I hope its not luck

It is almost certainly luck and the fact that you don't realize it really makes me fear for your investing future. Are you male? I am too, and the literature says that we are the worst at this - we attribute to skill what is almost assuredly luck and then we forget the times we fail. This is really dangerous in investing.

Again, not everyone kneels at the altar of indexing. I'll readily admit that I do. However, both I and many of those in this forum who aren't index investors go at this with clear eyes and education. Read the books and do the research. Until then, active investment is definitely foolhardy - you're just rolling the dice. Even after you've read the cannon and the books I'd say it isn't the best route, but I respect that some people will come to a different conclusion.

Indexer

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Re: Can't beat an Index
« Reply #56 on: April 19, 2015, 12:19:19 PM »
I would advise against boasting about your expertise if you haven't even read the works of some of the best thinkers out there.
Fair enough.. Im no expert. I will read more as time allows. I just might be a lucky bastard, but I am in fact beating the shit out of the market right now. For how long? Who knows... I often like to share good fortune but perhaps it not in my power to. I just might be lucky. I hope its not luck
[/URL]

Can you explain your investing strategy to the rest of us?   If you don't really have a concrete 'strategy' then it is luck.  And luck isn't something you should rely on going forward.  Luck just means the statistical odds played out in your favor.  Someone wins the lottery... that doesn't mean you should assume it will be you.

I'll share first.  My strategy(which I've posted on this forum before so it can be checked.):  90% of my portfolio is total market index funds matching my overall asset allocation goal.  Right now my asset allocation is still 100% stocks so I use the Vanguard Total Stock index and the Vanguard Total International stock index in a 65/35 split.  The reason I use 65/35 split is because that is where the ratio of domestic VS international stocks achieves the greatest dip in overall risk thanks to the assets not being perfectly correlated.  If you plot this portfolio on the efficient frontier you will find it sits right on the efficient frontier(the perfect balance of risk VS returns).  Having 90% of my portfolio in total market index funds guarantees at worst I will get roughly 90% of the market return after the nearly nonexistent fees. 

The other 10% of my portfolio can be shifted based on my interpretations of how the market is currently priced and how that will likely affect future returns.  I look at the price discrepancies between market sub-asset classes to find areas of the market that are priced high or low compared to other parts of the market.  If I find large pricing discrepancies then I look deeper into the data to try and find a logical reason 'why' there should be a large valuation premium or discount between the asset classes.  Normally there is a valid economic reason for the difference so I do nothing.  Sometimes I find discrepancies that don't have an economic explanation and the most likely reason for the valuation discrepancy is that investor fear or greed is pushing one sub-asset class higher or lower than the other.  The extra 10% goes into the lower valued asset with the expectation that over time the discrepancy will shrink back to its historical norm and I will either see growth in the lower valued group of assets or I will avoid losses in the higher valued group of assets.  If the entire market looks too highly valued(again using many different measurements) the 10% will go into either bonds, high yield savings, or peer to peer lending. 

I also have a rule I can't make a shift more than once a year.  This forces me to really be sure before I pull the trigger.  Even when I do invest in these assets I'm still using index funds.  ;)  Since implementing this strategy I've outperformed the markets by a small margin, but I primarily do it because I like doing it as a hobby.  The reason I stick to only messing with 10% of the portfolio is that keeps it interesting, but at the same time a bad decision isn't going to cause major financial damage.  In late 2013/early 2014 there was a pretty big discrepancy in the valuations of domestic small caps VS domestic large caps using several different valuation metrics(P/E, CAPE, P/B, etc.).  The only explanation appeared to be investors had been very bullish on small-caps so I shifted more into large caps by putting 10% of my portfolio in the Vanguard 500 index.  That discrepancy corrected for the most part in late 2014, and in 2014 the 500 index grew 13.64% compared with 7.56% for the extended market(small/mid caps).  Since then the extra 10% has been in international stocks which look priced very well compared to domestic stocks.  I believe this is because of overall fear about the international markets.  While there are some concerns(Greece) they represent a tiny fraction of the overall markets but a huge portion of media coverage.  ;)

If you don't have a strategy... make one... or you are probably better off sticking with a target date fund.

mrpercentage

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Re: Can't beat an Index
« Reply #57 on: April 19, 2015, 07:30:41 PM »
I would advise against boasting about your expertise if you haven't even read the works of some of the best thinkers out there.
Fair enough.. Im no expert. I will read more as time allows. I just might be a lucky bastard, but I am in fact beating the shit out of the market right now. For how long? Who knows... I often like to share good fortune but perhaps it not in my power to. I just might be lucky. I hope its not luck
[/URL]

Can you explain your investing strategy to the rest of us?   If you don't really have a concrete 'strategy' then it is luck.  And luck isn't something you should rely on going forward.  Luck just means the statistical odds played out in your favor.  Someone wins the lottery... that doesn't mean you should assume it will be you.

If you don't have a strategy... make one... or you are probably better off sticking with a target date fund.

Okay, first the bulk of my investments are mutual funds or index. I find index very alluring. I just happen to have a NAV benefit in one of the best mutual fund companies out there and I think I would have to be a fool not to use that NAV.

I like AMECX (currently, subject to change). It is a dividend income fund and when the market dips it dips less and it pays me 4.5% in dividends every year.

I also use Betterment for my safety net.. currently 100% stocks until April 28 or 29.. I will do a seasonal readjustment with them. TLT got a slight rise while stocks just took a hit.. the transfer is starting if this trend continues I will adjust sooner.

Now on stocks. It is a little hard to explain because I am using art not science. I am fishing or painting a stock picture not building a money making robot.

1. I keep my mind open and stay in financial news. This allows me to recognize opportunity
2. I stay with quality. Best of breed, or a CEO that I believe in.
3. When an opportunity presents itself-- I do the homework. I see what analysts think. How many analysts.. insider trading. positive outlook. a spin off. a new product or strategy.
4. I ask if I would buy their stuff myself.. If not-- no real large claim will go in it period. Maybe a small speculation play but that is it.
5. I have to be willing to sit in large plays for at least a year. In my 23% Disney case about five maybe more. If I just 100% followed what Im certain of I would be 100% Disney and that would be 100% foolish.

So you see there is a bit of room for intuition (the 90% of our brain), but rules to restrain impulsiveness.

I also do small speculations with Robinhood. I prefer using money like a single stock or $10 for the dollar stocks because doing paper simulations have no skin in the game and its different when you can actually lose something.

If you have hundreds of thousand you might not want to do this. In that case I just might be 95% index or mutual funds and  5% Disney. I know Im aggressive, but I don't think Im reckless. But one thing is sure, regardless of the amount, right now I would have Disney for a Looooong play.


theoverlook

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Re: Can't beat an Index
« Reply #58 on: April 20, 2015, 08:38:02 AM »


"people will think Apple invested it!"

I was right




Yeah, but look at that Samsung thing!  It looks fucking terrible.  It looks like something a middle schooler bashed together out of left over parts in a red bull fueled weekend.  It looks like crap, and though I never used that specific device, I can almost guarantee that using it was an exercise in frustration.  In contrast the iPod STILL looks modern, and having used one for years - and STILL using a 2nd gen black and white iPod HD in my garage for tunes - I can vouch that in effect, Apple did invent the MP3 player because until then every other device was clunky, awful, and had some horrible kludgy way to put music on it.  They effectively had no competition when they came to market.

People like to point out that Apple doesn't invent anything.  Well, that's basically true of 100% of all technology companies.  Even the Archos and the Samsung shitshows were knock offs of other existing products.  The deal is, that when Apple "rips off" something, they do it well, even better than any of the devices they're "copying."

I had a tablet computer in 1993.  It was execrable.  It was one of the worst computing experiences I've ever had.  But when Apple launched the iPad, people were holding up all these prior tablets as some sort of proof that Apple doesn't do anything.  But the iPad was amazing, it looked like, felt like, and worked like the future.

What's the point of my rant?  Ugh, no point, just Monday morning procrastinating.

GuitarStv

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Re: Can't beat an Index
« Reply #59 on: April 20, 2015, 11:11:16 AM »
Myself, I'd would never invest in a company that I was also a fanboi of.  Seems like a recipe for disaster.

Scandium

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Re: Can't beat an Index
« Reply #60 on: April 20, 2015, 11:24:33 AM »

.. and had some horrible kludgy way to put music on it. 

You mean like ITUNES?!
oh gawd, worst software ever! What is it up to now? A 500 MB download? So glad I'm done with my ipod

frugalnacho

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Re: Can't beat an Index
« Reply #61 on: April 20, 2015, 11:38:52 AM »

.. and had some horrible kludgy way to put music on it. 

You mean like ITUNES?!
oh gawd, worst software ever! What is it up to now? A 500 MB download? So glad I'm done with my ipod

This.  I also dislike that I was limited to a single device that had to sync up with itunes.  I like using multiple computers.  Why is apple so dead set against me manually adding/deleting and managing my own music files?

theoverlook

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Re: Can't beat an Index
« Reply #62 on: April 20, 2015, 11:39:58 AM »

.. and had some horrible kludgy way to put music on it. 

You mean like ITUNES?!
oh gawd, worst software ever! What is it up to now? A 500 MB download? So glad I'm done with my ipod

Touché.

dsmexpat

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Re: Can't beat an Index
« Reply #63 on: April 20, 2015, 11:47:13 AM »
I grew up using computers, I've used them all my life and I cannot, despite hours of trying, make itunes work the way I'd like it to. Contrast that with the bad old days where mp3 players simply were a folder on my computer that you could open and drag and drop/copy and paste your albums into and I wonder why anyone puts up with itunes. It's designed to force you to use Apple to get your media by locking the devices into their portal. I'm sure it's intuitive to people who grew up only using iphones etc but it just doesn't work for me and I'm pretty tech savvy. Just let me drag and drop, I'll manage my files my way thank you.

beltim

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Re: Can't beat an Index
« Reply #64 on: April 20, 2015, 01:48:34 PM »
This.  I also dislike that I was limited to a single device that had to sync up with itunes.  I like using multiple computers.  Why is apple so dead set against me manually adding/deleting and managing my own music files?

Huh?  Since when have you not been able to do this?  I've had iTunes since about version 1 (I'm pretty sure I had SoundJam, the software iTunes was based on, before that) and I've never not been able to manually add, delete, and manage music files, on several computers, iPods, and iPhones.

Am I misunderstanding you?

frugalnacho

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Re: Can't beat an Index
« Reply #65 on: April 20, 2015, 02:12:09 PM »
This.  I also dislike that I was limited to a single device that had to sync up with itunes.  I like using multiple computers.  Why is apple so dead set against me manually adding/deleting and managing my own music files?

Huh?  Since when have you not been able to do this?  I've had iTunes since about version 1 (I'm pretty sure I had SoundJam, the software iTunes was based on, before that) and I've never not been able to manually add, delete, and manage music files, on several computers, iPods, and iPhones.

Am I misunderstanding you?

I was never able to.  When plugged in the ipod would automatically sync with the itunes account.  If I was at a friends house and wanted to put some music I couldn't just plug it into his computer and load the files.  I had to get the files and put them on my own computer, then hook up my ipod to my own computer so that it could sync with itunes.  IIRC there was no using the ipod as an external storage either, the only way to interface was via klunky itunes.  The whole process was overly restrictive and left a bad taste in my mouth.  I haven't owned an apple product in years (ok I still have an ipod, but I don't think it's been updated since 2012).

beltim

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Re: Can't beat an Index
« Reply #66 on: April 20, 2015, 02:40:20 PM »
This.  I also dislike that I was limited to a single device that had to sync up with itunes.  I like using multiple computers.  Why is apple so dead set against me manually adding/deleting and managing my own music files?

Huh?  Since when have you not been able to do this?  I've had iTunes since about version 1 (I'm pretty sure I had SoundJam, the software iTunes was based on, before that) and I've never not been able to manually add, delete, and manage music files, on several computers, iPods, and iPhones.

Am I misunderstanding you?

I was never able to.  When plugged in the ipod would automatically sync with the itunes account.  If I was at a friends house and wanted to put some music I couldn't just plug it into his computer and load the files.  I had to get the files and put them on my own computer, then hook up my ipod to my own computer so that it could sync with itunes.  IIRC there was no using the ipod as an external storage either, the only way to interface was via klunky itunes.  The whole process was overly restrictive and left a bad taste in my mouth.  I haven't owned an apple product in years (ok I still have an ipod, but I don't think it's been updated since 2012).

Weird.  Maybe it's different for Windows?  In addition to manually managing files, I've absolutely used an iPod as a nice portable hard drive. 

cjottawa

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Re: Can't beat an Index
« Reply #67 on: April 20, 2015, 02:56:13 PM »
From the site of William Bernstein, author of "Four Pillars of Investing" and "The Investor's Manifesto."

http://www.efficientfrontier.com/ef/900/15st.htm

Quote
...a grossly disproportionate fraction of the total return came from a very few "superstocks" like Dell Computer, which increased in value over 550 times. If you didn’t have one of the half-dozen or so of these in your portfolio, then you badly lagged the market. (The odds of owing one of the 10 superstocks are approximately one in six.) Of course, by owning only 15 stocks you also increase your chances of becoming fabulously rich. But unfortunately, in investing, it is all too often true that the same things that maximize your chances of getting rich also maximize your chances of getting poor.

If the O’Neal data are generalizable to stocks, and I believe that they are, then even 100 stocks are not nearly enough to eliminate this very important source of financial risk.

So, yes, Virginia, you can eliminate nonsytematic portfolio risk, as defined by Modern Portfolio Theory, with a relatively few stocks. It’s just that nonsystematic risk is only a small part of the puzzle. Fifteen stocks is not enough. Thirty is not enough. Even 200 is not enough. The only way to truly minimize the risks of stock ownership is by owning the whole market.

Indexer

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Re: Can't beat an Index
« Reply #68 on: April 20, 2015, 06:44:32 PM »
I would advise against boasting about your expertise if you haven't even read the works of some of the best thinkers out there.
Fair enough.. Im no expert. I will read more as time allows. I just might be a lucky bastard, but I am in fact beating the shit out of the market right now. For how long? Who knows... I often like to share good fortune but perhaps it not in my power to. I just might be lucky. I hope its not luck
[/URL]

Can you explain your investing strategy to the rest of us?   If you don't really have a concrete 'strategy' then it is luck.  And luck isn't something you should rely on going forward.  Luck just means the statistical odds played out in your favor.  Someone wins the lottery... that doesn't mean you should assume it will be you.

If you don't have a strategy... make one... or you are probably better off sticking with a target date fund.

Okay, first the bulk of my investments are mutual funds or index. I find index very alluring. I just happen to have a NAV benefit in one of the best mutual fund companies out there and I think I would have to be a fool not to use that NAV.

I like AMECX (currently, subject to change). It is a dividend income fund and when the market dips it dips less and it pays me 4.5% in dividends every year.

I also use Betterment for my safety net.. currently 100% stocks until April 28 or 29.. I will do a seasonal readjustment with them. TLT got a slight rise while stocks just took a hit.. the transfer is starting if this trend continues I will adjust sooner.

Now on stocks. It is a little hard to explain because I am using art not science. I am fishing or painting a stock picture not building a money making robot.

1. I keep my mind open and stay in financial news. This allows me to recognize opportunity
2. I stay with quality. Best of breed, or a CEO that I believe in.
3. When an opportunity presents itself-- I do the homework. I see what analysts think. How many analysts.. insider trading. positive outlook. a spin off. a new product or strategy.
4. I ask if I would buy their stuff myself.. If not-- no real large claim will go in it period. Maybe a small speculation play but that is it.
5. I have to be willing to sit in large plays for at least a year. In my 23% Disney case about five maybe more. If I just 100% followed what Im certain of I would be 100% Disney and that would be 100% foolish.

So you see there is a bit of room for intuition (the 90% of our brain), but rules to restrain impulsiveness.

I also do small speculations with Robinhood. I prefer using money like a single stock or $10 for the dollar stocks because doing paper simulations have no skin in the game and its different when you can actually lose something.

If you have hundreds of thousand you might not want to do this. In that case I just might be 95% index or mutual funds and  5% Disney. I know Im aggressive, but I don't think Im reckless. But one thing is sure, regardless of the amount, right now I would have Disney for a Looooong play.

Thank you.  :D   This sounds so much better than the Apple has 25,000% gains post that starts this topic.  I think a lot of us felt you were being reckless and that is why you might have felt some hostility in the replies.  While I don't agree with your investing strategy I don't feel it is reckless anymore. 

VanTran

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Re: Can't beat an Index
« Reply #69 on: April 20, 2015, 07:21:58 PM »
I love it when people use Buffet as evidence that "I too can beat the market!", when apparently it's so rare to beat the market over the long term, that when someone does it everyone knows their name!  If people want to throw money away at their fun dream of being the next Buffet, good luck!  But for the sake of the newbies in the forum (and there are a lot of them), I will continue to remind everyone how bad of an idea this is...especially in the context of early retirement.

I can name a bunch of people who beat the market with a value investing philosophy. It's not rocket science. You can also copy good investors via 13-F filings. Mohnish Pabrai makes a living by literally copying other people's ideas, and happens to be destroying the market over a long period. Since you seem to love evidence from academic studies, here's evidence of alpha that well-researched stock-picking can generate: http://www.retailinvestor.org/pdf/HedgeFund.pdf

theoverlook

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Re: Can't beat an Index
« Reply #70 on: April 21, 2015, 08:32:52 AM »
This.  I also dislike that I was limited to a single device that had to sync up with itunes.  I like using multiple computers.  Why is apple so dead set against me manually adding/deleting and managing my own music files?

Huh?  Since when have you not been able to do this?  I've had iTunes since about version 1 (I'm pretty sure I had SoundJam, the software iTunes was based on, before that) and I've never not been able to manually add, delete, and manage music files, on several computers, iPods, and iPhones.

Am I misunderstanding you?

I was never able to.  When plugged in the ipod would automatically sync with the itunes account.  If I was at a friends house and wanted to put some music I couldn't just plug it into his computer and load the files.  I had to get the files and put them on my own computer, then hook up my ipod to my own computer so that it could sync with itunes.  IIRC there was no using the ipod as an external storage either, the only way to interface was via klunky itunes.  The whole process was overly restrictive and left a bad taste in my mouth.  I haven't owned an apple product in years (ok I still have an ipod, but I don't think it's been updated since 2012).

Weird.  Maybe it's different for Windows?  In addition to manually managing files, I've absolutely used an iPod as a nice portable hard drive.

We're quite off topic, obviously, but I've also been able to manually manage music files on the iPod just fine, it's in an option menu in iTunes.  I've also been able to use the iPod as removable storage just fine, ever since the 1st gen I had.  When it's hooked up you just browse to it like any other drive.  You can't put music on it that way, as a rights protection thing.

You can authorize your iPod on more than one computer.  You're only allowed 5 computers, I think.  Then you have to de-authorize a computer to add any more, and that will delete any DRM files on the iPod.

I do hate iTunes but find it's more usable for people that are NOT computer geeks.

Dodge

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Re: Can't beat an Index
« Reply #71 on: April 21, 2015, 09:40:53 AM »
I love it when people use Buffet as evidence that "I too can beat the market!", when apparently it's so rare to beat the market over the long term, that when someone does it everyone knows their name!  If people want to throw money away at their fun dream of being the next Buffet, good luck!  But for the sake of the newbies in the forum (and there are a lot of them), I will continue to remind everyone how bad of an idea this is...especially in the context of early retirement.

I can name a bunch of people who beat the market with a value investing philosophy. It's not rocket science. You can also copy good investors via 13-F filings. Mohnish Pabrai makes a living by literally copying other people's ideas, and happens to be destroying the market over a long period. Since you seem to love evidence from academic studies, here's evidence of alpha that well-researched stock-picking can generate: http://www.retailinvestor.org/pdf/HedgeFund.pdf

Survivorship Bias - the single greatest fallacy in investing

Good luck!

VanTran

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Re: Can't beat an Index
« Reply #72 on: April 21, 2015, 11:34:26 AM »
Haha, you didn't read solid evidence that contradicts your perception! I thought so.

I love it when people use Buffet as evidence that "I too can beat the market!", when apparently it's so rare to beat the market over the long term, that when someone does it everyone knows their name!  If people want to throw money away at their fun dream of being the next Buffet, good luck!  But for the sake of the newbies in the forum (and there are a lot of them), I will continue to remind everyone how bad of an idea this is...especially in the context of early retirement.

I can name a bunch of people who beat the market with a value investing philosophy. It's not rocket science. You can also copy good investors via 13-F filings. Mohnish Pabrai makes a living by literally copying other people's ideas, and happens to be destroying the market over a long period. Since you seem to love evidence from academic studies, here's evidence of alpha that well-researched stock-picking can generate: http://www.retailinvestor.org/pdf/HedgeFund.pdf

Survivorship Bias - the single greatest fallacy in investing

Good luck!

Chuck

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Re: Can't beat an Index
« Reply #73 on: April 21, 2015, 11:59:49 AM »


No timing needed?  Tell that to the person who bought in AAPL 1980 and underperformed the market for 26 years.

Brah. Check your own graph.

Someone who bought AAPL in 1980 is currently outperforming the market by nearly AN ORDER OF MAGNATUDE. See how the indicators on the Y Axis get closer together towards the top? That's because AAPL's outperformance of the market is too large to show to scale. It won't fit on your screen. I don't feel you've supported your argument.

The fact is that there are companies that outperform the market over the long term. IBM is one. Coca-Cola is one. Altria Group is one. Johnson and Johnson is one.

It looks increasingly likely that Apple will be one as well. It sure as hell is over the past 35 years.

Index funds are by far the safer bet. You are guaranteed not to pick a loser. But don't pretend that picking winners is impossible.
« Last Edit: April 21, 2015, 12:08:18 PM by Chuck »

frugalnacho

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Re: Can't beat an Index
« Reply #74 on: April 21, 2015, 12:24:51 PM »


No timing needed?  Tell that to the person who bought in AAPL 1980 and underperformed the market for 26 years.

Brah. Check your own graph.

Someone who bought AAPL in 1980 is currently outperforming the market by nearly AN ORDER OF MAGNATUDE. See how the indicators on the Y Axis get closer together towards the top? That's because AAPL's outperformance of the market is too large to show to scale. It won't fit on your screen. I don't feel you've supported your argument.

The fact is that there are companies that outperform the market over the long term. IBM is one. Coca-Cola is one. Altria Group is one. Johnson and Johnson is one.

It looks increasingly likely that Apple will be one as well. It sure as hell is over the past 35 years.

Index funds are by far the safer bet. You are guaranteed not to pick a loser. But don't pretend that picking winners is impossible.

I checked his graph and it looks like apple did in fact underperform the market from 1980 until 2006 - 26 years, just as he claimed.  It's only since 2006 that the stock has had explosive growth and beat the market.  I think dodge's point is that in 2015 it's easy to look at apple and say you should have invested in it before the explosive growth, but who knew that back in 1980, or even 2006? You could have just as easily invested in Turd Inc. in 1980 and had your entire portfolio disappear along with the company.

Someone will be on an internet forum in 20 years making similar claims: "It's so easy, all you had to do was invest in Widgets Inc. in 2015 and you'd be a gajillionaire today!"

So what is the next apple that is going to make us all filthy rich?


CCCA

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Re: Can't beat an Index
« Reply #75 on: April 21, 2015, 12:50:10 PM »
Samsung is to Apple as Apple was to BlackBerry.


I would have to say that while it may have looked to some that this may be the case, at this point in time, your statement is demonstrably false.


Dodge

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Re: Can't beat an Index
« Reply #76 on: April 21, 2015, 01:34:17 PM »
Samsung is to Apple as Apple was to BlackBerry.


I would have to say that while it may have looked to some that this may be the case, at this point in time, your statement is demonstrably false.

His entire premise is that Samsung is behind Apple, just like Apple was behind Blackberry.  This is accurate.

Dodge

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Re: Can't beat an Index
« Reply #77 on: April 21, 2015, 01:43:36 PM »
Haha, you didn't read solid evidence that contradicts your perception! I thought so.

I love it when people use Buffet as evidence that "I too can beat the market!", when apparently it's so rare to beat the market over the long term, that when someone does it everyone knows their name!  If people want to throw money away at their fun dream of being the next Buffet, good luck!  But for the sake of the newbies in the forum (and there are a lot of them), I will continue to remind everyone how bad of an idea this is...especially in the context of early retirement.

I can name a bunch of people who beat the market with a value investing philosophy. It's not rocket science. You can also copy good investors via 13-F filings. Mohnish Pabrai makes a living by literally copying other people's ideas, and happens to be destroying the market over a long period. Since you seem to love evidence from academic studies, here's evidence of alpha that well-researched stock-picking can generate: http://www.retailinvestor.org/pdf/HedgeFund.pdf

Survivorship Bias - the single greatest fallacy in investing

Good luck!

I read it.  It's the same crap commonly touted by people who seem to acknowledge that only 1 in a million (whatever the % is) of people beat the market over the long term, yet simultaneously claim "it's not rocket science".  The Survivorship Bias link is the best response to such crap, and I'm hoping it saves a few investing newbies from following your path :)

But seriously, good luck!

(You'll need it)

skyrefuge

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Re: Can't beat an Index
« Reply #78 on: April 21, 2015, 03:10:51 PM »
I read it.

Really? Because I read it, and it's not the same crap I've seen anywhere before, and I'm not sure how "survivorship bias" has anything to do with it.

I was actually very excited to read it, because it finally investigates the last refuge of the investing scoundrel. In the olden days, everyone just assumed that skilled investors could easily beat the market. Then data reveals that mutual funds can't do it, so the investing scoundrel retreats to "ohhh, yeah, they can't do it because they get too big and too public, but privately people can still do it. You're looking at the wrong data". Then the data reveals that hedge funds can't do it, so the investing scoundrel retreats to "ohhh, yeah, they can't do it with all their fat bonuses and trading costs, but individual buy-and-hold investors can still do it. You're looking at the wrong data. (and no one better come up with a way to analyze a group of individual buy-and-hold investors, because I have nowhere left to retreat to!)"

So hey, this was actually a pretty reasonable data-set to use to analyze that last refuge, in which many of the individual stock-picking investors at this forum are holed up. And damn, the paper revealed some pretty impressive results. Following the picks made by the people at this Value Investor Club didn't just result in like a 0.9% outperformance or underperformance that we're used to seeing in studies like this.  They found numbers like a 10%/year outperformance. So even if there is some "survivorship bias" or other flaw to the study that cuts the actual outperformance in half, it still seems like a number that's unlikely to completely disappear.

The authors definitely seem biased (they work for an investment-management company), and there were some minor errors that left me a little uncomfortable (randomly switching voice from "we" to "I" within the paper; derisively pointing out an investor who suggested an investment in Lehman Bros after they'd filed for bankruptcy, even though, in fact Lehman had not yet filed by the time of his suggestion; and no curiosity about the fact that the outperformance seemed to slow/stop in the 3rd year after the idea was presented, and 3 years was as long as they looked). But there's nothing that seems like a giant error to me.

Though another minor thing that bothered me was that, in 2008, they were publishing 3-year performance of data from 2008. Huh? So I checked the link to the SSRN database included in the intro to the PDF to see if they just had the dates wrong in this draft or something.

Hmm, except the paper is no longer hosted at SSRN. I did a search for the primary author, and came up this, Do Fund Managers Identify and Share Profitable Ideas?, a paper by the same authors and a similar title, published a year later (and last revised 3 years after that, in 2012).

Curious.

It uses the same data source (valueinvestorclub.com "ideas"), but uses a different analysis method. This time, the result is FAR different, and much more in that "0.9%" sort of range: "We find evidence of stock-picking skill among VIC members....However, the abnormal returns are restricted to small securities. For example, the average one-year value-weight calendar-time portfolio alpha estimate is 0.73% for buy recommendations....in the smallest quintile of firms."

So we went from pretty strong evidence of individual skill to, at best, the creation of yet another, tinier refuge to which the scoundrel can still retreat.

Given that they make no reference to their original paper in this new one, that leaves me with even less faith in their credibility, so I'm not terribly motivated to understand what was wrong with their initial methodology and why they switched to a new one. But given their admitted bias, I'm quite confident that this methodogy that produced less-impressive results is the more "correct" of the two.

JoJoK, as the proponent of these researchers, perhaps you'd like to explain?

Dodge

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Re: Can't beat an Index
« Reply #79 on: April 21, 2015, 03:34:48 PM »
I read it.

Really? Because I read it, and it's not the same crap I've seen anywhere before, and I'm not sure how "survivorship bias" has anything to do with it.

I was actually very excited to read it, because it finally investigates the last refuge of the investing scoundrel. In the olden days, everyone just assumed that skilled investors could easily beat the market. Then data reveals that mutual funds can't do it, so the investing scoundrel retreats to "ohhh, yeah, they can't do it because they get too big and too public, but privately people can still do it. You're looking at the wrong data". Then the data reveals that hedge funds can't do it, so the investing scoundrel retreats to "ohhh, yeah, they can't do it with all their fat bonuses and trading costs, but individual buy-and-hold investors can still do it. You're looking at the wrong data. (and no one better come up with a way to analyze a group of individual buy-and-hold investors, because I have nowhere left to retreat to!)"

So hey, this was actually a pretty reasonable data-set to use to analyze that last refuge, in which many of the individual stock-picking investors at this forum are holed up. And damn, the paper revealed some pretty impressive results. Following the picks made by the people at this Value Investor Club didn't just result in like a 0.9% outperformance or underperformance that we're used to seeing in studies like this.  They found numbers like a 10%/year outperformance. So even if there is some "survivorship bias" or other flaw to the study that cuts the actual outperformance in half, it still seems like a number that's unlikely to completely disappear.

The authors definitely seem biased (they work for an investment-management company), and there were some minor errors that left me a little uncomfortable (randomly switching voice from "we" to "I" within the paper; derisively pointing out an investor who suggested an investment in Lehman Bros after they'd filed for bankruptcy, even though, in fact Lehman had not yet filed by the time of his suggestion; and no curiosity about the fact that the outperformance seemed to slow/stop in the 3rd year after the idea was presented, and 3 years was as long as they looked). But there's nothing that seems like a giant error to me.

Though another minor thing that bothered me was that, in 2008, they were publishing 3-year performance of data from 2008. Huh? So I checked the link to the SSRN database included in the intro to the PDF to see if they just had the dates wrong in this draft or something.

Hmm, except the paper is no longer hosted at SSRN. I did a search for the primary author, and came up this, Do Fund Managers Identify and Share Profitable Ideas?, a paper by the same authors and a similar title, published a year later (and last revised 3 years after that, in 2012).

Curious.

It uses the same data source (valueinvestorclub.com "ideas"), but uses a different analysis method. This time, the result is FAR different, and much more in that "0.9%" sort of range: "We find evidence of stock-picking skill among VIC members....However, the abnormal returns are restricted to small securities. For example, the average one-year value-weight calendar-time portfolio alpha estimate is 0.73% for buy recommendations....in the smallest quintile of firms."

So we went from pretty strong evidence of individual skill to, at best, the creation of yet another, tinier refuge to which the scoundrel can still retreat.

Given that they make no reference to their original paper in this new one, that leaves me with even less faith in their credibility, so I'm not terribly motivated to understand what was wrong with their initial methodology and why they switched to a new one. But given their admitted bias, I'm quite confident that this methodogy that produced less-impressive results is the more "correct" of the two.

JoJoK, as the proponent of these researchers, perhaps you'd like to explain?

As usual, excellent analysis skyrefuge!

It screams Survivorship Bias to me, because it discounts all the people who followed similar strategies, and failed.  The paper examines the return of the Value Investor Club, a private club of investors who all invest similarly (based on "fundamentals" or value).  Even worse, their definition of "long-term" leaves much to be desired:

------------------------------------------
In this section we examine the performance of the recommendations made by VIC members. VIC recommendations typically state that their ideas should be considered “long- term” investments and not short term trades. To capture this notion of long-term performance, we perform detailed return calculations on horizons of one-, two-, and three-years.
------------------------------------------

Pointing to a small group of people, who all invest based on value, who beat the market over a 3 year period, when value in general also out performed the market, screams Survivorship Bias.  It also screams Crap.

Looking forward to JoJoK's explanation.

mrpercentage

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Re: Can't beat an Index
« Reply #80 on: April 21, 2015, 08:56:16 PM »
Samsung is to Apple as Apple was to BlackBerry.


I would have to say that while it may have looked to some that this may be the case, at this point in time, your statement is demonstrably false.

His entire premise is that Samsung is behind Apple, just like Apple was behind Blackberry.  This is accurate.

Samsung does a lot of things. My computer screen is Samsung, my TV's, and even my refrigerator. I think it may swing the other way soon. While I don't think Apple will bother with a fridge they will make some TV's at some point. Samsung is a great company but it is very diversified and has stiff competition. Meanwhile Apple has streamlined its lineup making sure only quality is offered (Think In & Out Burger) only a few good things on the menu right.

my monitor

my fridge

my TV

VanTran

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Re: Can't beat an Index
« Reply #81 on: April 21, 2015, 08:56:55 PM »
How can you claim "survivorship bias!" when the study adequately controls for it? There's nothing different from what PE firms and value investors are doing, so where is your evidence that analysis is pointless in the public market? Either you can look at stocks as a piece of a business (which they are), or just a piece of paper. If a stock is a piece of a business, why spray-and-pray when you have the opportunity to invest in good businesses for a bargain price? Correct me if I'm wrong, but you seem to view stocks as pieces of paper. In that case, the stock market is just one big Ponzi scheme, so what's the point in even investing in an index? and what would be the difference in flipping Beanie Babies and stocks? In my view, value investing is just like arbitrage. You don't need to be Renaissance Technologies or insider info to find them.

So hey, this was actually a pretty reasonable data-set to use to analyze that last refuge, in which many of the individual stock-picking investors at this forum are holed up. And damn, the paper revealed some pretty impressive results. Following the picks made by the people at this Value Investor Club didn't just result in like a 0.9% outperformance or underperformance that we're used to seeing in studies like this.  They found numbers like a 10%/year outperformance. So even if there is some "survivorship bias" or other flaw to the study that cuts the actual outperformance in half, it still seems like a number that's unlikely to completely disappear.

The authors definitely seem biased (they work for an investment-management company), and there were some minor errors that left me a little uncomfortable (randomly switching voice from "we" to "I" within the paper; derisively pointing out an investor who suggested an investment in Lehman Bros after they'd filed for bankruptcy, even though, in fact Lehman had not yet filed by the time of his suggestion; and no curiosity about the fact that the outperformance seemed to slow/stop in the 3rd year after the idea was presented, and 3 years was as long as they looked). But there's nothing that seems like a giant error to me.

Though another minor thing that bothered me was that, in 2008, they were publishing 3-year performance of data from 2008. Huh? So I checked the link to the SSRN database included in the intro to the PDF to see if they just had the dates wrong in this draft or something.

Hmm, except the paper is no longer hosted at SSRN. I did a search for the primary author, and came up this, Do Fund Managers Identify and Share Profitable Ideas?, a paper by the same authors and a similar title, published a year later (and last revised 3 years after that, in 2012).

Curious.

It uses the same data source (valueinvestorclub.com "ideas"), but uses a different analysis method. This time, the result is FAR different, and much more in that "0.9%" sort of range: "We find evidence of stock-picking skill among VIC members....However, the abnormal returns are restricted to small securities. For example, the average one-year value-weight calendar-time portfolio alpha estimate is 0.73% for buy recommendations....in the smallest quintile of firms."

So we went from pretty strong evidence of individual skill to, at best, the creation of yet another, tinier refuge to which the scoundrel can still retreat.

Given that they make no reference to their original paper in this new one, that leaves me with even less faith in their credibility, so I'm not terribly motivated to understand what was wrong with their initial methodology and why they switched to a new one. But given their admitted bias, I'm quite confident that this methodogy that produced less-impressive results is the more "correct" of the two.

JoJoK, as the proponent of these researchers, perhaps you'd like to explain?

Hi skyrefuge, great points. I'm not sure if your first paragraph is sarcastic, but I could explain those points further if you'd like. I'm not particularly a fan of quantitative research on stocks because it completely ignores qualitative factors that imo are the biggest contributors to outperformance. But, I only posted this study to show the statistical significance in 'skills pay the bills.'

Regarding inconsistencies, it is annoying in an academic paper. But I know that smart guys like Robert Reich make these mistakes as well, so I can't shit on them for that. Even the best lecturers say "the reason is because" or "he's taller than me."

On timeframe: unfortunately, studies like this are limited because you can't quantitatively model a variety of buying and selling strategies. Turtle Creek says their outperformance has a lot to do with these strategies. They have a study on achieving a 70%+ CAGR on 1 stock for 10 years. Not everyone on VIC posts an exit recommendation, but I'd imagine the holding period for many stocks is less than 3-years. Overtime, the outperformance of individual stocks may thin because of changing business conditions (ex: NIHD was a 10+ bagger when Charlie479 sold, now bankrupt) or the stock went up too fast, and time is compensating for that (ex: KO, if Buffett didn't have such a large stake, he would've sold a long time ago). Also, many times, the value gap closes pretty quickly; Andreas947's picks are good examples of that (many of his picks acquired).

On the conclusion of the revised paper: I absolutely agree and base my investment decisions on the premise that small securities are more likely to generate abnormal returns. I understand if you think the conclusion is some lame excuse, but there is logic to it. I like reading VIC to learn and as a source of ideas, but usually ignore everything that's not a small-cap. Why? Large caps are more likely efficient because of high institutional ownership and interest, large following by retail investors, and lots of analyst coverage that models every little detail. Now on to small-caps and below: more likely to be inefficient because of low to no institutional ownership, no analyst coverage, and a tiny following by retail investors. Institutions are usually not interested because of illiquidity and a position in the stock is not going to move the scales. The alpha comes from discovery: when the stock keeps performing well, it eventually attracts interest from investors with deep pockets, traders, potential acquirers, and eventually institutions when the size and liquidity are acceptable. From a capital flow perspective, the potential pool of capital is huge for good, small stocks. For large stocks, there is a smaller amount of new money %wise, thus less potential for abnormal returns. I'm sure I have more to say on this, but I'm tired from typing this rant.

I have a good, recent example of how inefficient the small cap space is: MSPD. Despite the many interested 3rd parties, aligned management, A-team banker working on strategic alternatives, huge margin of safety from sum-of-parts valuation and low EV/EBIT, and NOLs that an acquirer would love, the stock got no attention from the market. To top it off, in October '13 I noticed unusual options activity for the DEC13 $5.00 calls when the stock was below $3/share. The insider trading couldn't have made it more obvious. In November '13 the company was acquired for $5.05/share.

Dodge

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Re: Can't beat an Index
« Reply #82 on: April 21, 2015, 09:35:03 PM »
How can you claim "survivorship bias!" when the study adequately controls for it?

I gave my reasoning.  Is it your assertion that the study adequately controls for Survivorship Bias, by looking at a single private investing group, which invests in a single type of strategy, over a short time period in which that single strategy type beat the market overall?  If so, you don't understand the definition of Survivorship Bias.

I only posted this study to show the statistical significance in 'skills pay the bills.'

If you believe looking at a single private investing group, can show a statistical significance, I genuinely urge you to read about Survivorship Bias - the single greatest fallacy in investing.

skyrefuge

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Re: Can't beat an Index
« Reply #83 on: April 22, 2015, 11:03:37 AM »
On the conclusion of the revised paper: I absolutely agree and base my investment decisions on the premise that small securities are more likely to generate abnormal returns. I understand if you think the conclusion is some lame excuse, but there is logic to it.

I appreciate the response, and I agree with you that the timeframes analyzed are not unreasonable (though it would have been nice to see at least a discussion on why they used the timeframes they did).

But you didn't quite answer what I was looking for, which is my fault for not being explicit enough.

Since you linked to the original draft (which showed enormous abnormal returns), I took that to mean that you trusted its conclusion. Thus I'm a bit surprised to hear you now aligning yourself only with the revised paper, which shows far lower abnormal returns, and only in a limited area.

I was expecting an explanation for why you found the methodology in the original paper trustworthy, and the revised paper's methodology untrustworthy.

But now I'm guessing you simply weren't aware of the revised paper until now? If so, why do you still hold any faith in the conclusions of researchers who already were apparently abysmally wrong at least once?

And all that is in service of answering the question "why should *I* (or anyone else) hold any faith in even their revised, far-more-limited conclusions?"


skyrefuge

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Re: Can't beat an Index
« Reply #84 on: April 22, 2015, 11:06:56 AM »
I gave my reasoning.  Is it your assertion that the study adequately controls for Survivorship Bias, by looking at a single private investing group, which invests in a single type of strategy, over a short time period in which that single strategy type beat the market overall?  If so, you don't understand the definition of Survivorship Bias.

I still don't get this. Essentially you seem to be saying that you don't trust any research that uses statistical analysis? You require data from every single unit of the entire population in order to not cry "survivorship bias"? "I don't trust that the polio vaccine actually works, since it was only tested on a 'single' group of kids!"

Yes, this research relies on a "single" investing group (and since almost all investing is "private", I don't get why that's an issue either; this group is actually far less "private" than most other sources of individual-stock-picker data, which is why it was used). But while it's a "single" group, it's a collection of hundreds of independent investors, and thousands of their "ideas".

For there to be "survivorship bias" in selecting this group, there would have to be other such groups who were analyzed but not published (due to not delivering the "right" conclusion). Or those other groups would have had to have died out, which seems unlikely, since there really isn't any pressure from performance requirements that would cause poorly-performing groups to be closed more frequently than better-performing ones. Are you aware of any other groups that these researchers should have included?

And for there to be "survivorship bias" in selecting the "ideas" produced by the group, "ideas" that time had proven to be bad would have had to be wiped from the database. I see no reason to believe that happened.

The papers also make it clear that, while buy-and-hold "value" investing is a general theme, there is definitely more than a "single" strategy. Though analysis of that general theme is really what we want anyway, since, at least around here, buy-and-hold "value" investing is really the only strategy in which there remains any reasonable debate. There aren't many proponents of day-trading or technical-analysis left here, so it wouldn't be very interesting to study those strategies.

Obviously it would be nice to see the research repeated and confirmed with a different population, but just because that hasn't been done, that doesn't mean "survivorship bias! worthless!"

brooklynguy

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Re: Can't beat an Index
« Reply #85 on: April 23, 2015, 07:36:22 AM »
I still don't get this. Essentially you seem to be saying that you don't trust any research that uses statistical analysis? You require data from every single unit of the entire population in order to not cry "survivorship bias"?

Yeah.  The concept of survivorship bias, important as it may be for the prudent investor to be cognizant of, seems to be getting a little overhyped around here.  I think its jump the shark moment was the creation of two duplicate threads dedicated to the topic in the span of two weeks.

First, survivorship bias is only one of the many species of selection bias, so the inordinate focus on it itself represents a bias in the selection of selection biases on which to focus!

Second, as skyrefuge pointed out, survivorship bias is merely a type of sampling error that can occur when doing statistical analysis.  In its absence, it can't be used as a sword against any observational study (or, worse yet, any experiment) that reaches the conclusion that a given cause produced a given result.

Quote
at least around here, buy-and-hold "value" investing is really the only strategy in which there remains any reasonable debate. There aren't many proponents of day-trading or technical-analysis left here, so it wouldn't be very interesting to study those strategies.

Perhaps you haven't noticed the Dual Momentum thread that's been raging on the front page of Investor Alley for the past two weeks?

Dodge

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Re: Can't beat an Index
« Reply #86 on: April 23, 2015, 11:43:54 PM »
I gave my reasoning.  Is it your assertion that the study adequately controls for Survivorship Bias, by looking at a single private investing group, which invests in a single type of strategy, over a short time period in which that single strategy type beat the market overall?  If so, you don't understand the definition of Survivorship Bias.
For there to be "survivorship bias" in selecting this group, there would have to be other such groups who were analyzed but not published (due to not delivering the "right" conclusion). Or those other groups would have had to have died out, which seems unlikely, since there really isn't any pressure from performance requirements that would cause poorly-performing groups to be closed more frequently than better-performing ones.

I see this as further evidence of how elusive Survivorship Bias can be.

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It is easy to fall victim to the Survivorship Bias.  After any process that leaves behind survivors, the non-survivors are often destroyed or muted or removed from your view. If failures becomes invisible, then naturally you will pay more attention to successes. Not only do you fail to recognize that what is missing might have held important information, you fail to recognize that there is missing information at all.

http://youarenotsosmart.com/2013/05/23/survivorship-bias/
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In explaining why they choose this private investing group in particular, they say:

"The site has been heralded in many business publications as a top-quality resource for those who can attain membership (e.g. Financial Times, Barron’s, Business Week, and Forbes)."

I suspect sites who gave poor-performing advice, didn't end up in the Financial Times, Barron's, Business Week, or Forbes.  If so, they fell victim to Survivorship Bias.

brooklynguy

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Re: Can't beat an Index
« Reply #87 on: April 24, 2015, 09:14:41 AM »
I see this as further evidence of how elusive Survivorship Bias can be.

Dodge, you seem to have become so enamored in the idea of the pervasiveness and invisibility of survivorship bias that you are starting to see it where it doesn't exist.

I agree with you that there may have been survivorship bias in the selection of this group (and have less confidence than skyrefuge that there was no survivorship bias in that respect) -- maybe there were other otherwise-equivalent investing clubs which died out because they sucked at stock picking?  Or maybe there was another form of selection bias at work in the selection of this sample-group.

But I agree with skyrefuge in that I see no reason to believe there was survivorship bias in the selection of the ideas produced by this group.

Essentially, the methodology these researchers used was as follows:  they looked at stock-picking ideas produced and self-ranked by a group of investors (which admittedly may not be representative of the investing population as a whole), and examined whether the high-ranked ideas outperformed the low-ranked ideas, and found that they did.  (Thanks to skyrefuge's sleuthing, we now know that there was a subsequent study that gives us reason to suspect that there may have been other flaws in the initial study's methodology, and I look forward to seeing whether JoJoK has any light to shed on that issue.)

To extend skyrefuge's vaccine analogy, this study was analogous to examining a subset of the population, some members of whom were given the vaccine, and some members of whom were not, and finding that a statistically significantly higher percentage of the non-vaccinated members contracted the disease.  Is it your view that "survivorship bias" means we cannot trust those results to show that the vaccine has the effect of reducing a group-member's chances of contracting the disease?  It's true that if there was selection bias in the choosing of the sample group, the results cannot necessarily be extrapolated to the population as a whole (e.g., if everyone in the sample group happened to be a Cherokee Indian, then perhaps the vaccine would not have the same effect on the wider, genetically-distinguishable, population).  But it is reasonable to conclude that within the sample group, the vaccine either caused disease-resistance or was correlated with some other factor that caused disease-resistance.

Do you have any reason to believe there was survivorship bias in the selection of the ideas produced by this group?  It seems to me that the entire universe of stock-picking-ideas produced by the group was examined, and the researchers found that the high-ranked ideas outperformed the low-ranked ideas.  If there were no other flaws in the methodology, it would be reasonable to conclude that the high-ranked stock-picking ideas outperformed the low-ranked stock-picking-ideas because the stock-picking-idea-rankers were actually good at picking stocks in a better than random way.

Dodge

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Re: Can't beat an Index
« Reply #88 on: April 24, 2015, 10:05:14 AM »
I see this as further evidence of how elusive Survivorship Bias can be.

Dodge, you seem to have become so enamored in the idea of the pervasiveness and invisibility of survivorship bias that you are starting to see it where it doesn't exist.

I agree with you that there may have been survivorship bias in the selection of this group (and have less confidence than skyrefuge that there was no survivorship bias in that respect) -- maybe there were other otherwise-equivalent investing clubs which died out because they sucked at stock picking?  Or maybe there was another form of selection bias at work in the selection of this sample-group.

But I agree with skyrefuge in that I see no reason to believe there was survivorship bias in the selection of the ideas produced by this group.

Essentially, the methodology these researchers used was as follows:  they looked at stock-picking ideas produced and self-ranked by a group of investors (which admittedly may not be representative of the investing population as a whole), and examined whether the high-ranked ideas outperformed the low-ranked ideas, and found that they did.  (Thanks to skyrefuge's sleuthing, we now know that there was a subsequent study that gives us reason to suspect that there may have been other flaws in the initial study's methodology, and I look forward to seeing whether JoJoK has any light to shed on that issue.)

To extend skyrefuge's vaccine analogy, this study was analogous to examining a subset of the population, some members of whom were given the vaccine, and some members of whom were not, and finding that a statistically significantly higher percentage of the non-vaccinated members contracted the disease.  Is it your view that "survivorship bias" means we cannot trust those results to show that the vaccine has the effect of reducing a group-member's chances of contracting the disease?  It's true that if there was selection bias in the choosing of the sample group, the results cannot necessarily be extrapolated to the population as a whole (e.g., if everyone in the sample group happened to be a Cherokee Indian, then perhaps the vaccine would not have the same effect on the wider, genetically-distinguishable, population).  But it is reasonable to conclude that within the sample group, the vaccine either caused disease-resistance or was correlated with some other factor that caused disease-resistance.

Do you have any reason to believe there was survivorship bias in the selection of the ideas produced by this group?  It seems to me that the entire universe of stock-picking-ideas produced by the group was examined, and the researchers found that the high-ranked ideas outperformed the low-ranked ideas.  If there were no other flaws in the methodology, it would be reasonable to conclude that the high-ranked stock-picking ideas outperformed the low-ranked stock-picking-ideas because the stock-picking-idea-rankers were actually good at picking stocks in a better than random way.

It looks like we're on the same page brooklynguy.  There were two decisions here.  The decison to choose this particular investing group, then the decision of how to analyze the data.  I only see Survivorship Bias in the former.

CCCA

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Re: Can't beat an Index
« Reply #89 on: April 27, 2015, 05:18:04 PM »


No timing needed?  Tell that to the person who bought in AAPL 1980 and underperformed the market for 26 years.

Brah. Check your own graph.

Someone who bought AAPL in 1980 is currently outperforming the market by nearly AN ORDER OF MAGNATUDE. See how the indicators on the Y Axis get closer together towards the top? That's because AAPL's outperformance of the market is too large to show to scale. It won't fit on your screen. I don't feel you've supported your argument.

The fact is that there are companies that outperform the market over the long term. IBM is one. Coca-Cola is one. Altria Group is one. Johnson and Johnson is one.

It looks increasingly likely that Apple will be one as well. It sure as hell is over the past 35 years.

Index funds are by far the safer bet. You are guaranteed not to pick a loser. But don't pretend that picking winners is impossible.

I checked his graph and it looks like apple did in fact underperform the market from 1980 until 2006 - 26 years, just as he claimed.  It's only since 2006 that the stock has had explosive growth and beat the market.  I think dodge's point is that in 2015 it's easy to look at apple and say you should have invested in it before the explosive growth, but who knew that back in 1980, or even 2006? You could have just as easily invested in Turd Inc. in 1980 and had your entire portfolio disappear along with the company.

Someone will be on an internet forum in 20 years making similar claims: "It's so easy, all you had to do was invest in Widgets Inc. in 2015 and you'd be a gajillionaire today!"

So what is the next apple that is going to make us all filthy rich?


Not necessarily filthy rich, but a reasonable person could have concluded that after the introduction of the iPhone in 2007, that maybe Apple would have a big hit on it's hands.  And if someone had invested in AAPL after the Steve Jobs announcement, the stock price has appreciated by >800%, whereas VTI (total stock market) is around 54%.  Even if you waited a couple of years (beginning of 2010) just to see that the iPhones were, in fact, selling, you would have seen a 350% appreciation vs the market (96%).


I'm lucky to have invested in Apple during its earlier and more recent growth.  But I also know that lots of people don't "get" Apple and its stock.  There's always been the narrative that since Samsung/Dell (or whoever) can put the same or even "better" parts in their computer/MP3 player/phone and sell it for cheaper, that Apple is always about to be beaten and fail.  But this narrative, perpetuated by the media and analysts, always struck me, and many others, as being incorrect.  So some of that "luck" has been the result of learning as much as I can about these companies and markets and also faith that over time this narrative will fade.


I will say that it never occurred to me that Apple would one day be the biggest company on the planet.






Captain_Burrito_Pants

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Re: Can't beat an Index
« Reply #90 on: April 27, 2015, 11:54:36 PM »
It's not especially difficult to outperform the stock market for 3 years in a row.

0.5 * 0.5 * 0.5 = 1/8 chance of beating the market over 3 years even if your picks are completely random.  So any study that looks at such a short time period is useless.


Here's for the AAPL fans.

« Last Edit: April 27, 2015, 11:57:31 PM by Captain_Burrito_Pants »

lemanfan

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Re: Can't beat an Index
« Reply #91 on: April 28, 2015, 12:15:24 AM »
I for one am very happy with the returns from my Apple stock so far - but I've started slowly selling and purchasing more long term holdings.

In 50 years, many of todays big industrial and consumer companies will probably be around - but the long term success of companies like Google and Apple are harder to predict.

Druid

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Re: Can't beat an Index
« Reply #92 on: April 28, 2015, 12:20:42 AM »
This.  I also dislike that I was limited to a single device that had to sync up with itunes.  I like using multiple computers.  Why is apple so dead set against me manually adding/deleting and managing my own music files?

Huh?  Since when have you not been able to do this?  I've had iTunes since about version 1 (I'm pretty sure I had SoundJam, the software iTunes was based on, before that) and I've never not been able to manually add, delete, and manage music files, on several computers, iPods, and iPhones.

Am I misunderstanding you?

I was never able to.  When plugged in the ipod would automatically sync with the itunes account.  If I was at a friends house and wanted to put some music I couldn't just plug it into his computer and load the files.  I had to get the files and put them on my own computer, then hook up my ipod to my own computer so that it could sync with itunes.  IIRC there was no using the ipod as an external storage either, the only way to interface was via klunky itunes.  The whole process was overly restrictive and left a bad taste in my mouth.  I haven't owned an apple product in years (ok I still have an ipod, but I don't think it's been updated since 2012).

I have the same experience. My theory is it is an anti piracy thing. They are trying to keep people from using the ipod from being able to download endless songs from various friends computers. There is a work around that is painfully annoying that involves downloading the files from the computer and manually entering them in itunes. I have been to lazy to do it for the second time. It is possible that the technology has changed(my ipod is 5 years old)

Druid

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Re: Can't beat an Index
« Reply #93 on: April 28, 2015, 12:34:31 AM »
I don't intend to pick a side on this whole Survivorship Bias thing, but I will say that most studies are corrupt now days. Studies are more aimed to be a marketing device than a device of knowledge. The financial industry has the money to produce some convincing studies, pay the media financial analysts, and a whole other range of marketing activities. Every industry does it, so I am not hating on the financial industry. I even think it is possible that there are some really useful studies out there, but I am not foolish enough to make life decisions based on one and I try to stay skeptical when I can.

CCCA

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Re: Can't beat an Index
« Reply #94 on: April 28, 2015, 10:32:48 AM »
This.  I also dislike that I was limited to a single device that had to sync up with itunes.  I like using multiple computers.  Why is apple so dead set against me manually adding/deleting and managing my own music files?

Huh?  Since when have you not been able to do this?  I've had iTunes since about version 1 (I'm pretty sure I had SoundJam, the software iTunes was based on, before that) and I've never not been able to manually add, delete, and manage music files, on several computers, iPods, and iPhones.

Am I misunderstanding you?

I was never able to.  When plugged in the ipod would automatically sync with the itunes account.  If I was at a friends house and wanted to put some music I couldn't just plug it into his computer and load the files.  I had to get the files and put them on my own computer, then hook up my ipod to my own computer so that it could sync with itunes.  IIRC there was no using the ipod as an external storage either, the only way to interface was via klunky itunes.  The whole process was overly restrictive and left a bad taste in my mouth.  I haven't owned an apple product in years (ok I still have an ipod, but I don't think it's been updated since 2012).

I have the same experience. My theory is it is an anti piracy thing. They are trying to keep people from using the ipod from being able to download endless songs from various friends computers. There is a work around that is painfully annoying that involves downloading the files from the computer and manually entering them in itunes. I have been to lazy to do it for the second time. It is possible that the technology has changed(my ipod is 5 years old)


I haven't had an ipod in awhile, but on my iPhone you can add songs individually in iTunes without syncing.  I think it's probably the same with ipods as well. 
https://support.apple.com/en-us/HT201593

Chuck

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Re: Can't beat an Index
« Reply #95 on: April 28, 2015, 08:39:47 PM »

What fundamentals did Apple have... EVER... that suggested it would do what it did?
When I purchased the stock they had a P/E of 10. Without factoring in their 80 billion dollar cash hoard. They were posting yoy 20% growth. The stock had just dropped 6% because reasons.

Fundamentals are no guarantee of success, but some bets are a hell of a lot safer than others.

aspiringnomad

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Re: Can't beat an Index
« Reply #96 on: April 28, 2015, 10:09:33 PM »

What fundamentals did Apple have... EVER... that suggested it would do what it did?
When I purchased the stock they had a P/E of 10. Without factoring in their 80 billion dollar cash hoard. They were posting yoy 20% growth. The stock had just dropped 6% because reasons.

Fundamentals are no guarantee of success, but some bets are a hell of a lot safer than others.

Same here. And the fundamentals still look good compared to other tech companies. Not too long ago, AAPL had a lower P/E than MSFT (may still be the case, too lazy to look up).

CCCA

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Re: Can't beat an Index
« Reply #97 on: May 05, 2015, 06:39:07 PM »
Nice article here about what people don't get about Apple.
http://kensegall.com/2015/05/one-day-theyll-understand-apple/

clifp

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Re: Can't beat an Index
« Reply #98 on: May 05, 2015, 07:09:21 PM »
I was hoping someone would mention that individual stock picking can be fun.  Once I show an individual stock picker that they are almost statistically guaranteed to lose money vs the index over the long term...it suddenly becomes less fun for them!

Do you think mrpercentage would still have fun picking individual stocks if he/she consistently earned less money each and every year, over the next 30-50 years, despite all the extra work?

But that isn't what you have shown. The fact that actively managed fund are very unlikely to beat index funds, tells us virtually nothing about the ability of individuals picking individual stocks to outperform index on absolute or risk adjusted basis. Funds aren't people they are made up of a collection of fund manager, analyst etc. who on average stay only a few years.  There have been almost no studies tracking the performance of individuals.

Now obviously on aggregate individual aren't going to beat the market.  But there are individual who are better at selecting stocks than others, Warren Buffett talked them many years ago in his famous speech the Superinvestors of Graham and DoddsVille. http://www.tilsonfunds.com/superinvestors.html
« Last Edit: May 06, 2015, 02:18:28 AM by clifp »

beltim

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Re: Can't beat an Index
« Reply #99 on: May 05, 2015, 07:19:01 PM »
Are you sure you meant to respond to me?