Author Topic: Understanding markets better but sticking with buy and hold index funds.  (Read 3087 times)

James

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I don't know how many here know about "The Big Picture", but it's a great site by a guy named Ritholtz who has some great info and links. I don't put too much weight in any one opinion, I would never trust everything he or anyone else posts completely, but I like his site for compiling interesting things, and he has good insight.

Anyway, I stopped by there today and read this post: http://www.ritholtz.com/blog/2015/03/nasdaq-5000-crash-bubble-fair-value/

After I read it, I was thinking through some of the information and whether it matched with what else I thought about current markets. And I realized 5 years ago I wouldn't have even understood half the article, much less have read it while balancing what he was saying with what others have written on the topic along with my own thoughts.

Funny thing is, 5 years ago I was picking managed funds yearly trying to find the perfect fund that will generate great wealth, rather than allocating to index funds like I do now. Just seems like a weird divergence, that I have more understanding and knowledge than ever, but I am not trying to use it to pick winners anymore. Sometimes I wonder why I keep learning more and more, since I don't plan on picking segments or stocks etc. But I do find it valuable to understand and keep learning about markets and investing, it does help me understand the risks and realize the complexities and history of the market, which is helpful when watching corrections and all the variability that takes place.

So just seeing if others have come to that point as well, understanding more than ever about the market while having a more simple buy and hold investing model than in the past.

James

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Great post just now, love the graph! :D


http://www.ritholtz.com/blog/2015/03/screw-it-im-all-in/

skyrefuge

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Just seems like a weird divergence, that I have more understanding and knowledge than ever, but I am not trying to use it to pick winners anymore.

I think it's a bit like Tic-Tac-Toe. As a young kid, is fun to play with other young kids and try to beat them. But as you play more, gain more experience, and gain a deeper understanding of the logic of the game, you actually end up playing less, rather than more. That's because you realize that unless one of the players is drunk, it's always just going to end in a draw, and there are better ways to spend your time than that. The analogy then breaks down a bit, because you don't continue reading blogs about Tic-Tac-Toe in your adulthood. But markets and economics are a bit more complex, ever-changing, and less-defined than Tic-Tac-Toe, so I think it totally makes sense to continue to follow along, to see if any new theories or strategies have been developed that refute your "this is a waste of time" hypothesis, or, to continue to collect data that bolsters that hypothesis.

I find it telling that I've read a lot of active investors who, after years or even decades, made the determination that they lacked the ability to outsmart the market, and switched to passive investing (jlcollinsnh is one such example). I can't recall any stories of people going in the other direction, a long-time passive investor who says "dammit, I finally realized these index funds are making my life worse, I'm going to start picking stocks/funds and trading!" Obviously I haven't done a scientific survey on the matter, and certainly we see tons of generally-passive investors whose hypotheses have not yet been sufficiently bolstered by time and experience and thus continue to propose market-timing tactics.

But my general feeling is that tides of time, knowledge, and wisdom tend to float boats from the active-investing ocean to the passive-investing shore, rather than sweeping them out into the open sea.

CheapskateWife

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Thank you for sharing!  I'm always happy to find new ideas out there, and especially enjoy his disclaimer:

"Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous."

Dr. A

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So just seeing if others have come to that point as well, understanding more than ever about the market while having a more simple buy and hold investing model than in the past.

This is absolutely me. I think it's partly that I always want to be sure I'm not missing something, that there's an off change that there really are changes (even minor ones) that I can make to my personal strategy. But mostly, I think "the market" is such a complex and interesting thing that studying it is fun on an intellectual level.

Doubleh

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Absolutely agree. I've spent days if not weeks of my career break reading books like a random walk down wall Street, reviewing asset allocations and consolidating our investment accounts so they are less spread out and invested in cheap trackers as far as I can manage. Along the way I've ditched excessive exposures to individual stocks even though they've performed well, and got my wife out of managed funds charging 2% annually.

However when I go back to the banking industry if I told people I'd spent weeks and ended up in cheap trackers they'd just laugh at me. If I told them that id spent the same time perfecting strategies for day trading Brazilian penny stocks and lost every cent then that they would respect!

Funny old world isn't it!

Ynari

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I think it's a bit like Tic-Tac-Toe. As a young kid, is fun to play with other young kids and try to beat them. But as you play more, gain more experience, and gain a deeper understanding of the logic of the game, you actually end up playing less, rather than more. That's because you realize that unless one of the players is drunk, it's always just going to end in a draw, and there are better ways to spend your time than that. The analogy then breaks down a bit, because you don't continue reading blogs about Tic-Tac-Toe in your adulthood. But markets and economics are a bit more complex, ever-changing, and less-defined than Tic-Tac-Toe, so I think it totally makes sense to continue to follow along, to see if any new theories or strategies have been developed that refute your "this is a waste of time" hypothesis, or, to continue to collect data that bolsters that hypothesis.

I like your Tic-Tac-Toe analogy, it made me smile. Especially because I have friends who own books like this and have thought about the theory behind the game.

I think it's actually pretty apropos, too, in that you can only really win against someone who is not playing strategically, i.e. usually against someone inexperienced or who is acting irrationally. But being inexperienced with stocks has a lot more at stake than just bragging rights against an older sibling or friend.

hodedofome

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Having a plan and sticking to it is the #1 way to be successful in investing. Reading the WSJ or watching CNBC should be considered entertainment for most people.