The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: KBecks2 on July 06, 2015, 11:30:39 AM
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Just calculated the majority of our portfolio's returns year to date (a 401k is not included). We are up 8.96% for the year. S&P 500 is up 0.36%.
I am happy with these returns. And when there's some quiet time I will review the portfolio and consider how things are going, and what could be even better. It's so much fun.
Not everyone here supports it but I am enjoying active investing very much.
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What are you/have you been invested in? How do you decide when to buy/sell, and what to buy?
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I'd also be curious what this portfolio looks like. It's generally regarded as a red flag when your returns are that far out of step with the market. I.e. it's a sign of not enough diversification, or too much risk.
Which is not to say that this is true in your case. If there's an identifiable reason for it (i.e. one of your stocks discovered a new drug and went through the roof, but it's still part of a well-diversified portfolio), then good for you. If it were me, I'd take a hard look at my holdings and make sure I haven't set myself up for disaster.
It would no fun if those numbers are reversed next year.
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Hi Forumm,
I have been invested in individual stocks, mostly recommended by a service I subscribe to. I have also been using a few options strategies, and I hold some cash.
I'm still learning and have a few key people who I take advice and stock suggestions from. I've been experimenting… My goal is to get down to a selection of maybe 12 - 15 stocks, plus a few options. My best performing stocks this year include Ambarella, Skyworks Solutions, Papa John's and Starbucks.
I've been shifting to seek greater growth, and the person I listen to most about growth stocks has a free board at the fool, called Saul's Investing Discussions. It's very interesting and he's developed a strategy that really works for him! (Saul is up 31.3% this year, to-date. Here is a post where he reviews his positions: http://boards.fool.com/monthly-summary-of-my-positions-end-of-june-31808076.aspx) It's a very interesting community of very smart people over there.
I am not super aggressive, I have a few slower moving stocks in my port and that is OK with me. :)
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I'm at about 1% returns for the year. Too much investment outside the United States. The rest of the world doesn't have a clue what they are doing.
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7.5% YTD I'm in Canada so our dollar tanking and the fact that most of my investments are not Canadian gave me a nice boost.
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7.5% YTD I'm in Canada so our dollar tanking and the fact that most of my investments are not Canadian gave me a nice boost.
What does your portfolio look like? We're still trying to build, figure ours out
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If you actually look at SPY which includes the dividends re-invested it is ~1.3% (as of about an hour ago).
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What does your portfolio look like? We're still trying to build, figure ours out
I'd start with one of the Canadian Couch Potato portfolios and as you learn more you can tweak your plan as you see fit.
http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-Vanguard.pdf
http://www.canadianportfoliomanagerblog.com/model-etf-portfolios/
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What does your portfolio look like? We're still trying to build, figure ours out
I'd start with one of the Canadian Couch Potato portfolios and as you learn more you can tweak your plan as you see fit.
http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-Vanguard.pdf
http://www.canadianportfoliomanagerblog.com/model-etf-portfolios/
Already dialed in to the CCP Vanguard model. Just wondering what other Canucks are doing :)
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I use the exact same model as CCP with 60% invested in VXC, 30% in VCN and 10% VAB...basically the Agressive Asset Allocation.
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Including distributions, around +2.5%. Took a major beating in June. The latest round of Greek drama sure is adding to volatility.
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I have no idea. Doesn't really seem to matter.
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^ :-) I also have no idea right at this moment without looking.
My strategy is based upon periodic review of assets following rules determined in advance and doesn't allow hair-trigger decisions. Since I'm accumulating, not withdrawing, a big market dip is fine and dandy and just means my next rounds of buys will be cheaper.
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Don't check often, but I would guesstimate around even to 1% ytd.
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It's generally regarded as a red flag when your returns are that far out of step with the market. I.e. it's a sign of not enough diversification, or too much risk.
This is an insane attitude.
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4.2%
I took a recent hit in some positions that that I am holding. Thanks Greece. I wish I went with what I knew and was 100% Disney but the rest of my portfolio rebounds well. Not selling a thing and currently building cash.
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Hi Forumm,
I have been invested in individual stocks, mostly recommended by a service I subscribe to. I have also been using a few options strategies, and I hold some cash.
I'm still learning and have a few key people who I take advice and stock suggestions from. I've been experimenting… My goal is to get down to a selection of maybe 12 - 15 stocks, plus a few options. My best performing stocks this year include Ambarella, Skyworks Solutions, Papa John's and Starbucks.
I've been shifting to seek greater growth, and the person I listen to most about growth stocks has a free board at the fool, called Saul's Investing Discussions. It's very interesting and he's developed a strategy that really works for him! (Saul is up 31.3% this year, to-date. Here is a post where he reviews his positions: http://boards.fool.com/monthly-summary-of-my-positions-end-of-june-31808076.aspx) It's a very interesting community of very smart people over there.
I am not super aggressive, I have a few slower moving stocks in my port and that is OK with me. :)
What are your returns if the money you've spent on these services you've subscribed to is accounted for, as if it were an expense ratio?
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Hi Forumm,
I have been invested in individual stocks, mostly recommended by a service I subscribe to. I have also been using a few options strategies, and I hold some cash.
I'm still learning and have a few key people who I take advice and stock suggestions from. I've been experimenting… My goal is to get down to a selection of maybe 12 - 15 stocks, plus a few options. My best performing stocks this year include Ambarella, Skyworks Solutions, Papa John's and Starbucks.
I've been shifting to seek greater growth, and the person I listen to most about growth stocks has a free board at the fool, called Saul's Investing Discussions. It's very interesting and he's developed a strategy that really works for him! (Saul is up 31.3% this year, to-date. Here is a post where he reviews his positions: http://boards.fool.com/monthly-summary-of-my-positions-end-of-june-31808076.aspx) It's a very interesting community of very smart people over there.
I am not super aggressive, I have a few slower moving stocks in my port and that is OK with me. :)
-36% YTD
I'm also following someone from that site, and I got into stock options after reading a previous post of yours about generating income...
I know all about indexing, but you made it sound so easy! It seems people don't typically make threads comparing their returns with the market when they're down.
/s
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Was that /s for sarcasm? I can't quite tell.
It's so important to be wary and careful with investing. Tell us more about what happened. Which services are you using? Oh wait, you were BSing! How rude.
This is a true concern for investing, it's very easy to lose money. It's very easy to follow someone's advice (and I am not giving advice, I have just been talking about what I've been doing, and not telling other people what to do!!). It is very important to understand risk and to have a basic financial plan in place (emergency fund, etc.)
Anybody who invests in individual stocks or options needs to do their homework, it's work! This is exactly why I pay for advice / coaching, because I want guidance from people with greater success and experience. Even then, they don't all work out and YOU have to be able to take responsibility for every trade you make, whatever the results.
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What are your returns if the money you've spent on these services you've subscribed to is accounted for, as if it were an expense ratio?
Hi Innerscorecard, my portfolio is fairly large, the advice fees are under 0.5% of assets. My Vanguard trading fees in 2014 added up, buts still were small as a %, probably 0.05%. I am trying to mess with my portfolio less! However, the last two years have been a time of learning and experimentation, and I have been learning through trying things out, especially options trades. What I am finding for me, is that option trading is putzy and I'm going to try to be selective about how much of that I do. Being hands-on is a learning experience. It's not all wins, it's a mix of wins and mistakes.
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Was that /s for sarcasm? I can't quite tell.
It's so important to be wary and careful with investing. Tell us more about what happened. Which services are you using? Oh wait, you were BSing! How rude.
This is a true concern for investing, it's very easy to lose money. It's very easy to follow someone's advice (and I am not giving advice, I have just been talking about what I've been doing, and not telling other people what to do!!). It is very important to understand risk and to have a basic financial plan in place (emergency fund, etc.)
Anybody who invests in individual stocks or options needs to do their homework, it's work! This is exactly why I pay for advice / coaching, because I want guidance from people with greater success and experience. Even then, they don't all work out and YOU have to be able to take responsibility for every trade you make, whatever the results.
This is very much a newbie forum, it's important to keep things in perspective. If you were -36% for the year, or even -8%, would you still have made this thread?
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I'm going to go ahead and say that since there aren't dozens of these threads popping up, we have ourselves a lucky dart-throwing monkey. Great job.
I have zero idea what my returns are this year, nor do I care. Unless the whole world permanently crashes and burns, I'm fine. So instead of reading godawful stock newsletters I'm reading books with my kids or riding my bike.
Eudaemonic returns this year are going great, but I have a hard time putting a number on them.
-W
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I'm going to go ahead and say that since there aren't dozens of these threads popping up, we have ourselves a lucky dart-throwing monkey. Great job.
I have zero idea what my returns are this year, nor do I care. Unless the whole world permanently crashes and burns, I'm fine. So instead of reading godawful stock newsletters I'm reading books with my kids or riding my bike.
Eudaemonic returns this year are going great, but I have a hard time putting a number on them.
-W
I wanted to make a snarky remark about Eudaemonic returns being measurable, but have decided to just thank you for teaching me a new word (which I had to look up). Great word! My returns have been very good this year, as well! I'd look at how my market numbers are doing, but then I might be tempted to do something, which would probably be foolish!
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You know, I debate whether to post anything here in the investor area because most people here do not care to do individual investing. No, I would not share if I was doing poorly, as that gives nothing if value. I shared a resource where many people are studying the market and they are doing exceptionally well. Maybe some folks will benefit. There's no reason to mock my method. The real estate investors don't get harassed and their work is difficult to master also. But the returns are worth the effort and some people enjoy and profit from it.
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No, I would not share if I was doing poorly, as that gives nothing if value.
Sure it would. It just wouldn't make your approach look good.
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No, I would not share if I was doing poorly, as that gives nothing if value.
Bwahaha!
You are a poster boy for statistical ignorance. That is an amazing statement.
Monkey #18 is beating you handily, btw. I'm setting him up to publish a newsletter next month.
-W
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No, I would not share if I was doing poorly, as that gives nothing if value.
Sure it would. It just wouldn't make your approach look good.
Let's deal with reality. My approach is working well. Someone is trying to lie to make what I am doing look bad in a strange attempt to illustrate risk and that is wrong.
Let's deal with the realities and not the what ifs.
I think I'm done here, the investor alley is the worst section of this forum.
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No, I would not share if I was doing poorly, as that gives nothing if value.
Bwahaha!
You are a poster boy for statistical ignorance. That is an amazing statement.
Monkey #18 is beating you handily, btw. I'm setting him up to publish a newsletter next month.
-W
I'm not a boy, I'm a woman and you are missing the point: individual stock investing can be a very successful method, for people who want to do the analysis and can take risk and responsibility.
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the investor alley is the worst section of this forum.
Agreed. Far too many people who are bad at math, some of whom are trying to give advice to people who don't recognize bad math when they see it.
Good luck to everyone with your chosen investment strategies, whatever they may be. I hope you all get fabulously rich.
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No, I would not share if I was doing poorly, as that gives nothing if value.
Sure it would. It just wouldn't make your approach look good.
Let's deal with reality. My approach is working well. Someone is trying to lie to make what I am doing look bad in a strange attempt to illustrate risk and that is wrong.
Let's deal with the realities and not the what ifs.
I think I'm done here, the investor alley is the worst section of this forum.
I asked an honest question at the beginning of the thread. So far you have only posted your claimed returns and a link to some other guy's advice that seemed to me to be too difficult to discern what you were actually doing, and 4 cherry-picked stocks that had performed the best out of your whole group. But that doesn't provide insight into your methods.
If you'd like to share what exactly you've been invested in, when you bought, for how much, including your duds (if any), the rationale behind why you thought they were good buys, etc, I personally would be very interested in that. And how you decide when to sell, etc. You don't have to share what you're going to buy in advance. Just afterwards. But until someone shows exactly what they've been buying, it's not at all helpful to people to decide whether active investment is a good approach for them. Seeing one person say they did well just looks random.
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I'll just leave this here:
http://www.johndcook.com/blog/2008/01/21/selection-bias-and-bombers/
-W
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I asked an honest question at the beginning of the thread. So far you have only posted your claimed returns and a link to some other guy's advice that seemed to me to be too difficult to discern what you were actually doing, and 4 cherry-picked stocks that had performed the best out of your whole group. But that doesn't provide insight into your methods.
If you'd like to share what exactly you've been invested in, when you bought, for how much, including your duds (if any), the rationale behind why you thought they were good buys, etc, I personally would be very interested in that. And how you decide when to sell, etc. You don't have to share what you're going to buy in advance. Just afterwards. But until someone shows exactly what they've been buying, it's not at all helpful to people to decide whether active investment is a good approach for them. Seeing one person say they did well just looks random.
OK, it's challenging to explain exactly what I'm doing because I consider myself a beginner and still learning, and because I mostly follow a service where they lay out a methodology and advice. (Since the advice is paid for I don't think it's fair to share their entire strategy and picks.) I posted the link to Saul's area because he is an individual investor who has developed a lot of clarity in what he does and why -- I'm not that organized. But, I will try to put something together to share. It's a learning experience. I am NOT saying anyone should do what I do, not at all! I don't want people to follow what I do, everyone needs to learn and make their own choices and set their own goals.
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Guys you've had your say and we get it - anything besides sensible indexing is foolish, etc.
KBecks2 - congratulations on finding something that works for you. I'm mainly an indexer but I have a portion of my portfolio dedicated to single stocks. You're right about it being hard work. I'm finding out recently that growing up in a family where my father was constantly evaluating deals that would pass though his office has been very useful in helping me identify good businesses. Still need a lot of theory though.
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Congratulations on your success! I hope it continues!
An important factor to consider is your downside risk. Downside volatility is a negative force to be reckoned with since it does such a great job of wiping out even log strings of outperformance. Investing is a slow business and is all about staying in the game, not sprinting to the finish...
from an article I wrote about the benefits of a cowardly approach...
Imagine 2 investors starting out their portfolios.
The first investor is brilliant. He is a quick thinking Ivy League educated Quant with a lot of useful contacts. He is so clever that he is able to take more risk and beat the market by 50% each and every year. The only downside to his brilliance, is that during bear markets his increased exposure to risk means two times deeper losses than the market. We will call this investing genius “Rabbit.”
The second investor is not so exceptional. In fact he is average in every way. He did two years at the local community college and finished up his degree commuting to Big State U. He was the first in his family to go to college so he doesn’t have many contacts in the know. He takes exactly as much risk as the market and matches the market in returns each and every year. ( Truth be told he simply buys a low-cost S&P 500 index fund, and spends the rest of his time writing screenplays.) So when the market goes up, so does his portfolio, and when the market goes down, his portfolio moves in lockstep. We will call this average investor, “Turtle.”
Both investors start with $10,000, and they are blessed to begin their investing careers with 9 straight years of a raging bull market. Each year the market gains a cool 10% in total returns.
So at the end of nine years, Turtle is thrilled that his 10% compounding growth has yielded him a total of $23,579.48. Not bad. Not bad at all.
But Rabbit is even more thrilled. His nine years of 15% compounding growth have grown his original $10,000 to $35,178.76!
Unfortunately on the 10th year, there is a minor financial crisis and the market loses 25% of its total value.
So after turtle has taken his 25% haircut he is left with $17,684.61. Which makes him feel fairly disheartened.
But not nearly as disheartened as rabbit whose 50% haircut has left him with $17,589.38.
So after nine years of significant over performance, (and only one year of significant underperformance) Rabbit is left with less money than Turtle.
This is a nonlinear and non-intuitive result. It seems analogous to the Giants beating the Dodgers nine games out of 10 by one run, then losing the 10th game by two runs, and finding out that they (The Giants) have lost the series.
But I think this surprising result describes well the unbalanced risk/reward relationship central to investing money. Simply put, we should spend most of our energy avoiding big losses, rather than chasing big gains. There’s more bang for our buck with such a strategy.
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Guys you've had your say and we get it - anything besides sensible indexing is foolish, etc.
I don't read everyone of these threads, but of the ones I have read person X starts a thread saying holy crap my investment strategy is so awesome compared to X - which is usually an index!!!
Then folks ask them questions about what strategy.
Person X says various vague things that can't be pinned down or evaluated in any useful way.
Folks point out that either they have no strategy and are just a lucky monkey or that they have not explained what their strategy is.
Person X obfuscates a bunch. Sometimes in very entertaining ways.
None of these threads that I have read ever results in person X providing a rationale repeatable investment strategy which is why the peanut gallery is so ready to throw out the random monkey analogy and the survivor bias problem.
I think that's the main issue with these threads. Not the fact that somebody wants to talk about investing in individual stocks.
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Agreed. Actually I had something about not posting returns in my post but couldn't get it to not sound condescending so I just deleted it.
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Already dialed in to the CCP Vanguard model. Just wondering what other Canucks are doing :)
Many moons ago, my RRSP looked something like this:
40% XBB - Canadian Bond Index
20% XIC - Capped Canadian Equity Index
20% XSP - S&P 500 US Equity Index CAD Hedged
20% XIN - EAFE International Index CAD Hedged
That was back before Vanguard had funds in Canada, also we had to walk uphill both ways with an onion tied to our belts.
I could never decide if the extra cost associated with currency hedging was worth it.
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I don't read everyone of these threads, but of the ones I have read person X starts a thread saying holy crap my investment strategy is so awesome compared to X - which is usually an index!!!
Then folks ask them questions about what strategy.
Person X says various vague things that can't be pinned down or evaluated in any useful way.
Folks point out that either they have no strategy and are just a lucky monkey or that they have not explained what their strategy is.
Person X obfuscates a bunch. Sometimes in very entertaining ways.
None of these threads that I have read ever results in person X providing a rationale repeatable investment strategy which is why the peanut gallery is so ready to throw out the random monkey analogy and the survivor bias problem.
I think that's the main issue with these threads. Not the fact that somebody wants to talk about investing in individual stocks.
This is the strategy of the guy who KBecks follows:
I look for companies that are growing fast, have recurring income, insider ownership, some kind of moat, a reasonable PE, etc, and hope to find most of these qualities in stocks I’m investing in. I don’t try to learn all the financials. While I look for companies that are growing fast, I hope for ones that are not yet discovered and bid up in price. I try to avoid “story” stocks that are always going to make money next year or in two years or in five years. Absence or near absence of debt is important, except in companies where debt is part of their business model, where it’s sort of excusable (like companies that do a lot of acquisitions). For much more about this see the section on Evaluating a Company.
When you are first starting out you don’t mind concentrating your investments in half a dozen winners. However, when you are retired, and you are investing for a livelihood, and you don’t have any other income to replace potential losses, it’s safer not to let any position get too big. You should never let a position grow bigger than about 15%, and even that is usually way too much.
I start with medium or average size positions and let them grow. Sometimes, I start with a small position and add to it while it’s growing. I never start with an oversized position. I usually don’t buy a company all at once or sell all at once, but taper in and taper out, unless I have a good reason to get out in a hurry.
You can’t really keep track of more than 20 to 28 or so stocks, and that’s an absolute outer limit. I prefer a smaller number of stocks, as they are easier to keep track of. You need to read all the quarterly reports, and the transcripts of all the quarterly conference calls, which gives you a busy earning season. They often say a lot more on the conference calls than in the earnings press release. Reading the transcripts works much better than listening to recordings as it takes a quarter of the time, and you can skip the forward-looking statements messages, etc. Look at investor presentations too. And get a news-feed from your broker on each of your stocks.
You can beat any mutual fund over the long run. You can’t tell much from a mutual fund’s results because you are always buying last year’s results. For example, if it’s a oil company fund, and last year oil stocks were in, it will show great results, but this year it could do terribly. Also, you are always buying the results they had when the fund was much smaller and nimbler than it is now (because those good results they had when they were tiny made people pour money in).
Just an excerpt from http://boards.fool.com/our-new-improved-knowledgebase-ed-2-july-2015-31812960.aspx
It looks fine to me - he takes a lot of risk in that you can't ever be sure other investor sentiment will be the same as your own, but he looks for companies that are small but growing and makes large concentrated bets on them (he's been compounding at 32% before the crash for 20 years but apparently lost 62% in 2008, finally back up to pre 2008 levels in 2014 I believe). The rest of his post reveals that he does have a lot of accounting knowledge too. His method is not repeatable/actionable by most people though (due to lack of interest mostly, learning accounting and evaluating companies is hard work), since you can't only look at numbers when investing (evaluating recurring income or "moat"), which is why most people index.
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I think I'm done here, the investor alley is the worst section of this forum.
I actually sort of like "Investor Alley". Especially the questions/statements by forummm. I always listen when the peanut talks!
(It's the "Shame and Comedy" area which pisses me off because some humourless sourpuss always comes into a thread and either plays Devil's advocate to an extreme or shames the original poster who shared something which was genuinely odd or funny.)
Is there any chance that new investors rub up against the salty, old sea dogs who have seen it all before and know that what goes up in active investing (almost invariably) comes down? In a 5-year bull run it's easy to be happy. The dogs will say, "Of course it has, everything did." Which is true.
Questions like "What did you buy?," "What're your trading costs?," "How much do you pay for the advice/coaching you receive?," are all going to come out. ...As well as the psychology part (which I enjoy.) (e.g., "Would you have shared if it was down?") Like, you say you are up 8.96% for the year, but that doesn't mean the portfolio isn't down -3.8% over the past five once all the other costs figure into the investment.
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Is there any chance that new investors rub up against the salty, old sea dogs who have seen it all before and know that what goes up in active investing (almost invariably) comes down? In a 5-year bull run it's easy to be happy. The dogs will say, "Of course it has, everything did." Which is true.
People just have short memories. Everyone in China probably felt like a genius about a month ago. Everyone here feels like a genius no matter *what* they bought (other than bonds, maybe) over the last 5-10 years. Even the unlucky monkeys make money in that kind of market.
People also get really excited about their initial returns (if any). In 30 years, though, it won't matter if you made 8% in 2015 or not. It will matter if you stuck with some decent AA and didn't panic sell or waste all your money on trading fees and overhead. And of course it will matter if you wasted your life reading financials of random companies or went surfing instead. So the very idea of bragging about 6 months of returns strikes some of us as humorous.
-W
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In 30 years, though, it won't matter if you made 8% in 2015 or not. It will matter if you stuck with some decent AA and didn't panic sell or waste all your money on trading fees and overhead. And of course it will matter if you wasted your life reading financials of random companies or went surfing instead. So the very idea of bragging about 6 months of returns strikes some of us as humorous.
-W
Very well said, Walt! This deserved to be framed and pinned beside everyone's computer monitors!
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Tacking back to the OP's original question, my entire investment portfolio is up 2.60% (1/1/2015-6/30/2015), with the breakdown of 2.64% in retirement accounts, and 2.30% in 529s. I am happy with this as I appear to be neatly tracking my "ideal" portfolio of VTSAX (56%), VTIAX (24%) and VBTLX (20%), which Morningstar shows total returns of 2.32% as of 6/30/2015. I'm a little ahead, but I also do a more rough end-of-the-month return calculation that biases a little towards an apparently higher return because my deposits tend to be frontloaded in the first half of the month. I am coming up on the one year anniversary of leaving our financial advisor, and while their decisions still influence my portfolio to some extent (I kept all of the DGEIX with positive capital gains, and I also kept the small/mid tilt they suggested in my 401k), I'm happy to be getting the total market return.
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Including distributions, around +2.5%. Took a major beating in June. The latest round of Greek drama sure is adding to volatility.
+1
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In my RRSP, my YTD is 7.64%, and my 3 month return is 0.13% :/ this is according to the personal rate of return page on my RRSP account anyways. Big deposit (bonus last month) hasn't seen much return yet, oh well.
TFSA is -1.4%. but its only 2 months old so doesn't bother me much.
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Also couldn't be bothered to check. I can tell you how much I'm expecting in dividends this year though.
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6%. All gained in January, when the Canadian dollar dropped! Flat to declining since then.
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What are you/have you been invested in? How do you decide when to buy/sell, and what to buy?
kbecks, thanks for starting this thread If you keep a hairy eyeball on your investments it would be great if you continue to share in this thread.
forummm's question is important. I've asked it in a different forum thread before, but I screwed up. Where I screwed up was raising that question in the "Should I pay down my mortgage?" thread. I thought the discussion of investments was legal game in any forum topic, turns out I was wrong about that.
My posting of the question in the wrong thread helped me grok some of the etiquette of the forums. I learned that the question of "paying mortgage vs investing" gets asked about every 5 minutes by n00bs who really don't bother to read the forums the way I did (lurking for about 6-8 months and reading every night till 2am) and who can't be troubled by the details. Those types deserve to get kicked in the balls like America's Funniest Home Videos.
Likewise, there are many postings about investment returns that are equally short on due diligence. Hence, The Proletariat is demanding a heapin' helpin' of due diligence.
So, don't be upset or down on Investor Alley or this thread. It looks like a facepunch/balls kick but it's just the usual demand the OP needs to be prepared for. Otherwise, I would say you've ignited a much-needed conversation.
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OP - didn't you post something similar back in March or April touting your 5+ % returns? And weren't you kind of embarrassed by forum members for gloating so openly then?
My returns are pretty craptacular this year, but whatever. I think my 401k was coming in close to 8% this week, but meh, it's a lot of company stock.
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mefla, what did you decide re: the mortgage? We are paying our mortgage down and I go back and forth between throwing extra cash at pay down or investments. In the end, we'll do a little bit of both things. If we get a good dip soon, this month's check will go to the brokerage instead of the mortgage.
My active stocks are --
Apple, Amtrust Financial, Walt Disney, Starbucks, Skyworks, Facebook, American Tower, Wells Fargo, Bank of the Internet, Skechers, Ambarella, Gilead, Papa John's, Snap On, Seaspan, Medtronic, Visa, Paraxel and Nokia.
I'd like to narrow it down and focus it a bit more so I can be very attentive to each company. I listen to a few sources, Motley Fool Pro, Saul @ the free boards at Motley Fool and Jim Cramer's podcast. My annual fees for advice are just under $1,000 and my port is big enough it can gain or lose more than $1k in nearly any day of trading, so the fees are not killing me and I enjoy being part of the investing community, and especially getting some hand holding when I'm nervous or have questions. Many of the stocks I own are covered by analysts from the service so I have help in selecting and monitoring the companies and that gives me great peace of mind.
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I did share in March and I'm planning to review my port quarterly. I don't think I was embarrassed for sharing the information. I do remember that people took some swipes at this "you're just a lucky monkey" kind of talk. The real estate investors are usually happy with their successful work and I'm happy with mine too. It's a great hobby to work at becoming a better investor.
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I like Disney and Visa a lot (buying a ton of Disney - Visa a little too pricey for my tastes). Both have a lot of headway to grow, especially internationally. Apple I don't have an opinion because I'm not sure one way or the other if they will continue to sell phones at the rate that they are. Facebook is extremely overvalued and you'd need everything to go right with that company to not take a capital loss. I think it's an example of investing based on optimism and hope. Wells is capped out and won't return more than 8-10% in the future, but I think they are very safe despite being in financial services. I am not too familiar with the economics of the others
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mefla, what did you decide re: the mortgage? We are paying our mortgage down and I go back and forth between throwing extra cash at pay down or investments. In the end, we'll do a little bit of both things. If we get a good dip soon, this month's check will go to the brokerage instead of the mortgage.
My active stocks are --
Apple, Amtrust Financial, Walt Disney, Starbucks, Skyworks, Facebook, American Tower, Wells Fargo, Bank of the Internet, Skechers, Ambarella, Gilead, Papa John's, Snap On, Seaspan, Medtronic, Visa, Paraxel and Nokia.
I'd like to narrow it down and focus it a bit more so I can be very attentive to each company. I listen to a few sources, Motley Fool Pro, Saul @ the free boards at Motley Fool and Jim Cramer's podcast. My annual fees for advice are just under $1,000 and my port is big enough it can gain or lose more than $1k in nearly any day of trading, so the fees are not killing me and I enjoy being part of the investing community, and especially getting some hand holding when I'm nervous or have questions. Many of the stocks I own are covered by analysts from the service so I have help in selecting and monitoring the companies and that gives me great peace of mind.
I have my own particular investing style, and will certainly not throw stones at your decision to pick individulal stocks.
The only point I would make is that the fact that you portfolio goes up and down >1000$ in a day is completely irrelevant to the $1000 you pay per year for advice. To be intellectually honest just include that 1000 in your trading expenses to determine your own ER for your approach. Regardless of your approach expenses are return killers for everyone.
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Second Miles sentiments. Think of it this way. Your stock picks needs to generate enough return to offset that $1000 that index investors wouldnt pay.
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Including distributions, around +2.5%. Took a major beating in June. The latest round of Greek drama sure is adding to volatility.
+1 mostly invested in VTSAX
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Second Miles sentiments. Think of it this way. Your stock picks needs to generate enough return to offset that $1000 that index investors wouldnt pay.
My port is over $300k so the expense is .3%. It's very little. It is not a return killer.
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Second Miles sentiments. Think of it this way. Your stock picks needs to generate enough return to offset that $1000 that index investors wouldnt pay.
My port is over $300k so the expense is .3%. It's very little. It is not a return killer.
Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost
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Also, if you are actively buying and selling in a taxable account you need to figure in the drag of capital gains taxes. It can be a huge return killer over time. It's one reason Warren Buffett almost never sells anything.
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Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.
That's a terrible analysis, multiplying $1000 by 50 years is $50k, you can argue they will raise the subscription fees, but KBecks can just unsubscribe, and she would still be holding all of her stocks without any expenses (she has a 300k portfolio, her trading costs should be close to zero or she should be negotiating a better deal with her broker), I hardly think you will be paying 5 million over 50 years, or an average of $100k per year
I agree with your point on capital gain tax
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Oh, crap - you are doing this with only a $300k portfolio?!?
Even if I thought I could beat the market, no way would I bother with that small of an amount. I can just do regular work and make a way better return on my time/effort.
-W
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It is a question of exponents. Go sit down and run your 6% vs 5.65% for $300k over 50 years and see what you get - it's going to result in portfolio ending values of ~$5.5 million vs ~$4.7 million. So $800,000 lost to fees, not $50k.
-W
That's a terrible analysis, multiplying $1000 by 50 years is $50k, you can argue they will raise the subscription fees, but KBecks can just unsubscribe, and she would still be holding all of her stocks without any expenses (she has a 300k portfolio, her trading costs should be close to zero or she should be negotiating a better deal with her broker), I hardly think you will be paying 5 million over 50 years, or an average of $100k per year
I agree with your point on capital gain tax
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My active stocks are --
Apple, Amtrust Financial, Walt Disney, Starbucks, Skyworks, Facebook, American Tower, Wells Fargo, Bank of the Internet, Skechers, Ambarella, Gilead, Papa John's, Snap On, Seaspan, Medtronic, Visa, Paraxel and Nokia.
Some good choices there that i also have in my portfolio or have had in the recent past. AAPL, SWKS, SBUX and V have been in my portfolio as core holdings for years and were among the main stuff I bought coming out of the recession when the market was recovering...all have done great and are at least double-ups, 3 of them are multi-baggers. Was really close to pulling the trigger on DIS a while back and my order just didn't hit, wish it had. GILD I rode for a couple years and finally ended up closing it out during the run up earlier this year...I didn't have any clarity on how the sovaldi/harvoni competitor pricing war would end up shaking out so i took my gains.
Dont know much about some of those on the list but will do some research in my free time for things to pick up while the market takes it's greece and china peasant pounding.
The only one on that list that i have looked at and decided not to buy in the past was FB. I was intrigued enough to consider it but i just couldn't pay that steep a valuation. Alot of things have to go right for it to grow into that, and i've never been a fan of buying something hoping for a few years of perfect growth without hiccups for the value to make sense, or alternately trusting there will be someone stupider than me to pay an even larger premuim and bail me out (though who knows the 'stupider person' theory works out well for all those AMZN investors haha). I'm not saying it wont, I have no idea...just that i personally decided the juice wasn't worth the squeeze. I would be lying if i said i didn't wish i had bought it when it plummeted to the 20's after it's IPO though.
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It is a question of exponents. Go sit down and run your 6% vs 5.65% for $300k over 50 years and see what you get - it's going to result in portfolio ending values of ~$5.5 million vs ~$4.7 million. So $800,000 lost to fees, not $50k.
-W
It's not .3% of her portfolio every year, it's .3% TODAY. Next year it's a smaller percentage. The next year even smaller.
The formula is (Prior period)*(1.06)-1000
Taking that to 50 years, with no 1000 per year fee, it's $5.21m, with the fee, it's $4.94m. For total cost of $272k
A fund with 5 bps expense (5.95% return) would result in a lower portfolio of $4.8m
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It is a question of exponents. Go sit down and run your 6% vs 5.65% for $300k over 50 years and see what you get - it's going to result in portfolio ending values of ~$5.5 million vs ~$4.7 million. So $800,000 lost to fees, not $50k.
-W
[/quote]
I agree that you have to account for the compounding effect, but it is not as simple as subtracting an expense ratio of 0.35% per year. After all as the portfolio grows, the cost of advice diminishes as a percentage of total assets.
And don't forget the costs of trading. Even using a fee free brokerage like robinhood you must account for the friction of bid ask spreads, in addition to the capital gains cost...
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2% return YTD yesterday, .9% today. Hmmmm....
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Oh, gotcha. I thought we were talking a percentage ER.
Miles, good point on the trading and cap gains costs. I wasn't trying to account for any of that but I'm sure when you add it all up it ends up being a pretty huge amount of drag. Not to mention all the extra work at tax time.
I wonder how much, as a sort of round number, you'd need to beat the market by to make up for active trading costs. I guess it's probably so different in every case (ie day trader vs. buy/hold for longer periods, income low enough to be exempt from cap gains vs not, etc) that it's not possible to come up with a generic number that means much, though.
-W
It is a question of exponents. Go sit down and run your 6% vs 5.65% for $300k over 50 years and see what you get - it's going to result in portfolio ending values of ~$5.5 million vs ~$4.7 million. So $800,000 lost to fees, not $50k.
-W
It's not .3% of her portfolio every year, it's .3% TODAY. Next year it's a smaller percentage. The next year even smaller.
The formula is (Prior period)*(1.06)-1000
Taking that to 50 years, with no 1000 per year fee, it's $5.21m, with the fee, it's $4.94m. For total cost of $272k
A fund with 5 bps expense (5.95% return) would result in a lower portfolio of $4.8m
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Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.
That's a terrible analysis, multiplying $1000 by 50 years is $50k, you can argue they will raise the subscription fees, but KBecks can just unsubscribe, and she would still be holding all of her stocks without any expenses (she has a 300k portfolio, her trading costs should be close to zero or she should be negotiating a better deal with her broker), I hardly think you will be paying 5 million over 50 years, or an average of $100k per year
I agree with your point on capital gain tax
I thought the disclaimer (which you quoted) in the very next sentence that this analysis is looking at a different situation would be enough to clarify that it wasn't the same thing OP was doing. I just wanted to point out that small numbers matter over a long time. Who knows what OP will be doing later. Right now that's what it's costing this year. Maybe OP buys a managed fund with that ER because it's "so small".
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Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.
But… I'm making more than a fixed 6% return. The upside covers the expense. All I have to do is beat the market by more than 0.33% and I'm ahead. My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period. That is the goal of the service I work with. I'm currently more aggressive than that service is.
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Oh, crap - you are doing this with only a $300k portfolio?!?
Even if I thought I could beat the market, no way would I bother with that small of an amount. I can just do regular work and make a way better return on my time/effort.
-W
I don't know where to begin with this! I hope you like your job!
And, small amounts turn into larger amounts….
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Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.
But… I'm making more than a fixed 6% return. The upside covers the expense. All I have to do is beat the market by more than 0.33% and I'm ahead. My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period. That is the goal of the service I work with. I'm currently more aggressive than that service is.
More aggressive equals more risk. More risk = more downside. More downside = higher percentage cost of your expense ratio following large drawdowns. More importantly it means a higher risk of blowing up and falling out of the compounding game altogether.
You may beat the market, you may not. The smart money is that you will not since 80% of active investers don't.
But your expenses, they are locked in no matter what.
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Let me rephrase:
Say I make about $100 an hour at my normal job. I'd assume anyone sophisticated and wealthy/educated enough to be actively trading can find a job that pays around that much.
Let's say managing/researching/trading/doing taxes on my $300k in assets takes me only 5 hours a week. I think that's probably too low if you want to be beating the market (setting aside the question of whether that's even possible through anything but luck), but we're being conservative here. Call it 250 hours a year.
Assume no fees of any kind on the trading, just to make it easy.
That means the time/effort invested is worth something like $25k. So my returns on the $300k portfolio need to be on the order of 8-9% better to make it worthwhile. Even at $50/hour you need to be consistently beating the market by 4-5%. Not making $50 an hour? WTF are you doing trying to trade stocks and beat people much smarter than you who dedicate their lives to it?
As the portfolio size grows, or your pay level drops, obviously the ratio can work out more in your favor. But if I had only $300k in investments, I would certainly not be actively managing them rather than just taking on more normal work. Not every job is scalable, of course, but it's still worth looking at your time/effort in investing as work, because that is what it is.
-W
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I work part time doing a job I love with low pay. I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio. My life is great!
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I'm not sure, it's down since we started our TIRAs though (makes it easy to check: less than $5500 each? down. more than? up!)
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I work part time doing a job I love with low pay. I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio. My life is great!
How long have you been following this advice?
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Meh, lost cause. It'll probably end it tears in a few years but we'll never hear about it. C'est la internet.
It is a great testament to how the professional money-managing industry stays in business, though.
-W
I work part time doing a job I love with low pay. I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio. My life is great!
How long have you been following this advice?
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Meh, lost cause. It'll probably end it tears in a few years but we'll never hear about it. C'est la internet.
It is a great testament to how the professional money-managing industry stays in business, though.
-W
You're too rude to deal with. C'est la internet.
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How long have you been following this advice?
Two years, I know it's short. I have been investing since 1999 and have experienced the pain of the dot com crash, and I have used index funds for years -- I have no problems with index funds, I like them. I just want to take time to learn more about individual stock investing. Hopefully it helps keep my brain active in retirement. :) I hang with a great group of people in the investor community that I belong to and it's a lot of fun.
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I'm not trying to upset you, but beginners read these threads, and I want to make it very clear to them that what you are doing is a very bad idea. There is no personal animus, in fact I hope you do great. I just don't want new folks to read this thread and go run off to start day trading.
-W
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KBecks - Sounds like you've got it worked out (and I mean that honestly, not sarcastically). Work/life balance, doing what you want etc. Congratulations.
Waltworks - KBecks has a journal with portfolio updates. Let's check it again when the market is next tanking.
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Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.
But… I'm making more than a fixed 6% return. The upside covers the expense. All I have to do is beat the market by more than 0.33% and I'm ahead. My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period. That is the goal of the service I work with. I'm currently more aggressive than that service is.
You've been doing this for 2 years. And the market has boomed during those 2 years. Everyone has been making lots of money--without paying $1000 for advice.
You and your advisory service can set whatever goal you like. It's just a goal. No one can guarantee you'll make it. I have a goal to be a trillionaire. Hasn't worked out for me though so far.
And that goal isn't really that ambitious. The S&P500 has provided 7%+inflation compounded returns over the last 65 years.
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About 7%, Canadian, Couch Potato type portfolio.
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Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.
But… I'm making more than a fixed 6% return. The upside covers the expense. All I have to do is beat the market by more than 0.33% and I'm ahead. My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period. That is the goal of the service I work with. I'm currently more aggressive than that service is.
You've been doing this for 2 years. And the market has boomed during those 2 years. Everyone has been making lots of money--without paying $1000 for advice.
You and your advisory service can set whatever goal you like. It's just a goal. No one can guarantee you'll make it. I have a goal to be a trillionaire. Hasn't worked out for me though so far.
And that goal isn't really that ambitious. The S&P500 has provided 7%+inflation compounded returns over the last 65 years.
You're trying to face punch me but I didn't come in here asking if what I'm doing is ok. It's my money and I'm happy. I'm sharing quarterly results, that's all. No big deal.
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I work part time doing a job I love with low pay. I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio. My life is great!
Jim Cramer, a stock picking expert? :-D
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I don't know about paying for service. Im too cheap. Jim Cramer and Seeking Alpha free version for me. I pretty much make my own picks though.
These are my total holdings and total returns YTD, take from it what you may. They change daily with all the crap going on. Some of the losers were pretty good winners a month ago.
Apple -6.8%
Boeing +0.29%
Disney +16.98%
Escalade Sports +14.28%
Ford -8.26%
JP Morgan +1.66%
Navios Marine -8%
Platform Specialty -9.15%
Im heaviest in Disney and not selling anything
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I work part time doing a job I love with low pay. I pay a cheap flat fee to people who are experts to put in the heavy lifting, research and analysis for my portfolio. My life is great!
Jim Cramer, a stock picking expert? :-D
The paid service I use is Motley Fool Pro, which has a conservative style. I listen to Cramer's free podcast almost every day.
Businesses are fascinating and it's very interesting to learn about what companies are doing.
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I don't know about paying for service. Im too cheap. Jim Cramer and Seeking Alpha free version for me. I pretty much make my own picks though.
These are my total holdings and total returns YTD, take from it what you may. They change daily with all the crap going on. Some of the losers were pretty good winners a month ago.
Apple -6.8%
Boeing +0.29%
Disney +16.98%
Escalade Sports +14.28%
Ford -8.26%
JP Morgan +1.66%
Navios Marine -8%
Platform Specialty -9.15%
Im heaviest in Disney and not selling anything
Did you buy the stocks this year? My records (which may not be perfect either) show...
AAPL up 9.82% YTD
DIS up 21.8% YTD
That's from taking the price on December 31 (or Jan 1) and comparing to todays prices. Those are not *my* returns though, as my buy prices and times are from earlier dates. My rough returns on AAPL are 68% and DIS 44%.
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Assuming an initial $300k investment, a fixed 0.33% ER, and a fixed 6% return, that ER totals $5.35 million in fees over 50 years. I understand that you are currently using a fixed fee instead of a fixed ER. But small amounts of expenses matter.
But… I'm making more than a fixed 6% return. The upside covers the expense. All I have to do is beat the market by more than 0.33% and I'm ahead. My *minimum* goal is to average inflation + 7% over every rolling 3-5 year period. That is the goal of the service I work with. I'm currently more aggressive than that service is.
You've been doing this for 2 years. And the market has boomed during those 2 years. Everyone has been making lots of money--without paying $1000 for advice.
You and your advisory service can set whatever goal you like. It's just a goal. No one can guarantee you'll make it. I have a goal to be a trillionaire. Hasn't worked out for me though so far.
And that goal isn't really that ambitious. The S&P500 has provided 7%+inflation compounded returns over the last 65 years.
You're trying to face punch me but I didn't come in here asking if what I'm doing is ok. It's my money and I'm happy. I'm sharing quarterly results, that's all. No big deal.
No facepunching happening. Just words of caution intended to help you think about what you're doing in another way. It's very easy to want to believe that an "expert" can give you special advice that will help you get rich--that's a very appealing scenario. It can be easy to convince yourself that it's true, especially with some good marketing and self-promotion from the person who's convincing you to give them a lot of money for their advice.
It's almost a certainty that this person's advice will result in down years for you. Just like any other stock investing. Even Buffett loses money sometimes. Studies show that paying fees for active investing generally results in worse overall performance than if you just did low-fee indexing. This is just some guy on the Internet that I've never heard of. He could be the next Buffett. But that's very unlikely.
It's your money. Do what you want to. Just be aware of the risks you are taking. Only trying to help you be aware.
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Let me rephrase:
Say I make about $100 an hour at my normal job. I'd assume anyone sophisticated and wealthy/educated enough to be actively trading can find a job that pays around that much.
Let's say managing/researching/trading/doing taxes on my $300k in assets takes me only 5 hours a week. I think that's probably too low if you want to be beating the market (setting aside the question of whether that's even possible through anything but luck), but we're being conservative here. Call it 250 hours a year.
Assume no fees of any kind on the trading, just to make it easy.
That means the time/effort invested is worth something like $25k. So my returns on the $300k portfolio need to be on the order of 8-9% better to make it worthwhile. Even at $50/hour you need to be consistently beating the market by 4-5%. Not making $50 an hour? WTF are you doing trying to trade stocks and beat people much smarter than you who dedicate their lives to it?
As the portfolio size grows, or your pay level drops, obviously the ratio can work out more in your favor. But if I had only $300k in investments, I would certainly not be actively managing them rather than just taking on more normal work. Not every job is scalable, of course, but it's still worth looking at your time/effort in investing as work, because that is what it is.
-W
1 - Seriously...$100 an hour wages just fall out of the sky for anybody who is educated and knows about investments? I live in a mid level COLA town and personally know very few people who make over 200k a year (not household, just individuals) no matter their level of 'sophistication' or education. Less than 2% of the people in my town likely make that much money from a 'job', i.e. not from owning a business or such, and most of them are probably specialized professionals that needed specific education to get said job.
2 - The problem with this kind of assumption is that it assumes that you CAN just work more hours for more pay whenever you want...and the problem with assuming this at your $100 rate is that there are even fewer jobs where you get paid that much and are not salaried. I make a little over half that and am on salary, working more just means i work more and maybe my bonus will be better, not that i keep racking up $60 an hour for however long i see fit into perpetuity. Maybe if you're a doctor/high end shift work something or other/laywer, or you work on commissions, you work on 'hours' that you can collect at that high a rate. Most managers and other professionals that make 6 figures are going to be salaried.
3 - If i wanted to work more hours for actual hourly pay i would have to get some other job than my main one, and obviously one that doesn't happen during 'conventional' hours since i am AT my main job. haven't heard of a ton of those where you make $100 (or even $50) an hour or else more people would probably be doing them. The best i think you can reasonably hope for might be 15-20.
So that said yes i would rather spend a few hours a week researching investments (something I enjoy) sipping a cocktail and lounging in my easy chair rather than some shitty job at 20 an hour on my nights or weekends. I agree this doesn't 'guarantee' any kind of outsized returns but its worked out well enough for me....I have about 2/3 of my portfolio in funds and have individual stocks with the rest, and I generally hold positions for long stretches of time so it's really not that much work once you get it set up...you read a few hours of news a week about the companies you own, read the quarterlys when they come out, update a spreadsheet once in a while.
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Let us know how it's going in 5 or 10 or 20 years, then. Everyone on the planet thinks they're a genius right now, that's how bull markets work.
I will stand by my statement that if you can't pull $100/hour in a regular job you probably shouldn't be trying to beat the pros (ok, actually even if you can you shouldn't be) - because if you want to beat the market, you are quite literally competing with people who are smarter, more educated, and WAY more devoted to this (not to mention almost unlimited information resources and sometimes insider knowledge) than some random person who sips cocktails and reads the motley fool in his/her spare time after work.
Do you think that amateurs with limited practice time and resources can compete with the best professionals in the world in any other fields? If so, which ones? I'd love to hear about it. You'd be laughed out of the room if you claimed you could beat pro athletes, trial lawyers, or chess players practicing for a few hours a week in your spare time - what makes stock picking different?
Remember, too - among the investing public, the DEAD PEOPLE do the best:
http://theconservativeincomeinvestor.com/2015/05/26/fidelitys-best-investors-are-dead/
-W
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Do you think that amateurs with limited practice time and resources can compete with the best professionals in the world in any other fields? If so, which ones? I'd love to hear about it. You'd be laughed out of the room if you claimed you could beat pro athletes, trial lawyers, or chess players practicing for a few hours a week in your spare time - what makes stock picking different?
I have a theory on that one.
I think that what makes stock picking different from other fields is that people who sell advice to stock pickers have a financial interest in keeping the illusion alive. Their entire business model is based on selling this lie. No one profits from telling you that you could win the Superbowl.
But it's not a hard lie to disprove. Every study ever done reports that stock pickers lose out to indexers. And if data doesn't convince you, consider the logic of it. If the motley fool could really outperform the market by so much, for so long, why wouldn't they be doing that and enjoying their status as richest people on earth? What possible motivation could they have for selling financial advice instead of acting on financial advice?
Think it through, people. They're charging you a fee so they're clearly not altruists. If they want to make money, and they really believed in their own advice, they'd be trading it instead of selling it.
Of course, one other alternative explanation is that they're pump and dumping, just like generations of stock advisors before them.
Either way, it's a fascinating industry. Like Hollywood, they're selling an illusion as entertainment. Unlike Hollywood, they don't admit it.
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Say I make about $100 an hour at my normal job. I'd assume anyone sophisticated and wealthy/educated enough to be actively trading can find a job that pays around that much.
And if data doesn't convince you, consider the logic of it. If the motley fool could really outperform the market by so much, for so long, why wouldn't they be doing that and enjoying their status as richest people on earth? What possible motivation could they have for selling financial advice instead of acting on financial advice?
Think it through, people. They're charging you a fee so they're clearly not altruists. If they want to make money, and they really believed in their own advice, they'd be trading it instead of selling it.
I think people should consider these two thoughts in concert.
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I think Terrestrial is arguing against the logic that you can't beat the index period, while Walt and Sol are saying - it's stupid to spend money for stock picking advice. I agree with both points of view. Consider that stock pickers don't all use the same strategy. Even on this board, there's talk of momentum investing, or trend following. Different bits of information also means different things to different investors. For example, some investors will outright reject any and all stocks in certain industries, or with a price/earning ratio of more than XXX, while others buy on story and management expectations, etc. Indexing just means you're taking the average opinion of all stock pickers, it's certainly less work, but if you have enough accounting and business evaluation knowledge, and you enjoy the act of learning about businesses, why would you index?
The link on dead investors doing best only shows that lack of activity is good. For any index strategies, your advantages are 1) low trading costs 2) diversification and 3) lack of turnover/taxes. This can be replicated using stock picking too. If your stock picking strategy involves only purchases, and not selling, it's the same thing. The only difference between stock picking and indexing is the amount of diversification. Indexing is agnostic as to price paid and which company to buy, but suppose I don't want to hold stocks that are trading at 100+ PE, or companies in the airline, steel, and ship building industries. Yes, I will lose out on years like 2014 when airline stock increased dramatically, but I will also avoid all of the other years when airlines continuously go bankrupt. Indexing means you're still buying those companies, but beacuse you're diversified well enough, the bankruptcies don't have as much of an effect.
My theory on why this board is so against the idea of stock picking is that people see the evidence on the entire population of indexers vs stock pickers, and automatically go to the first order conclusion that indexing is the only way and stock picking is a dumb idea and anyone who tries to do it is illogical. They don't think to the second order questions of WHY indexing works, and what indexing is, and how prices are set for the indexes, and what all of that wrapped up means for you if you decide to pick which companies to invest in rather than buying the entire market. It's a lazy way to think, and insulting to boot when you insinuate that there are better things to do than sit around and learn about companies when that's what some investors enjoy. Granted, I share your opinion on paying for stock advice and then blindly following, but that doesn't seem to be what Terrestrial is doing here, so why equate what he's doing with what KBecks is doing?
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The link on dead investors doing best only shows that lack of activity is good. For any index strategies, your advantages are 1) low trading costs 2) diversification and 3) lack of turnover/taxes. This can be replicated using stock picking too. If your stock picking strategy involves only purchases, and not selling, it's the same thing. The only difference between stock picking and indexing is the amount of diversification. Indexing is agnostic as to price paid and which company to buy, but suppose I don't want to hold stocks that are trading at 100+ PE, or companies in the airline, steel, and ship building industries. Yes, I will lose out on years like 2014 when airline stock increased dramatically, but I will also avoid all of the other years when airlines continuously go bankrupt. Indexing means you're still buying those companies, but beacuse you're diversified well enough, the bankruptcies don't have as much of an effect.
If you believe in the EMH, then inserting your judgment about which stocks to pick is saying you know better than the market, and know better to such an extent that you can spend extra money and time and still come out ahead of the market after taking into account those extra expenses. That's an audacious claim. And one that studies show is not likely to be correct.
And you're not just less diversified. You're also more likely to miss out on that one stock that no one expected to blow up, but it jumps 1000%.
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Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well). They pay considerable trading/tax costs for this dubious opportunity. Over long periods of time, almost nobody beats the market. Full stop.
You can make the argument that you're a special snowflake like Buffet or Soros or whoever the cool stock picker of the week is, and I'm not going to argue that it's *impossible* to kick ass and take names against the whole world of other investors - but that's like walking to the rec center in downtown Chicago where 6'8" AAU kids are throwing down dunks and deciding you should play them for money. You *might* be crazy good, and they might underestimate you, and you could get lucky for a possession or two - but realistically, you're going to lose unless you have that same level of inborn talent, practice time, and drive. The hubris required to believe you will beat professionals at stock picking is amazing to me.
-W
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If you believe in the EMH, then inserting your judgment about which stocks to pick is saying you know better than the market, and know better to such an extent that you can spend extra money and time and still come out ahead of the market after taking into account those extra expenses. That's an audacious claim. And one that studies show is not likely to be correct.
And you're not just less diversified. You're also more likely to miss out on that one stock that no one expected to blow up, but it jumps 1000%.
I think EMH is a load of crap. The use of beta as a measure of risk is my biggest pet peeve. It's fine to want the stock market to fit into a neat little equation, but that's not how reality works
Any studies about indexing vs stock picking is comparing entire populations. There's no comprehensive research comparing indexing vs Graham investing, or momentum investing, etc. That data has day traders and investors driven by fear mixed in with all of the stock pickers, it's dishonest to use that to proxy the performance of any and all investor that doesn't index
Your last sentence is confusing to me. In a total market index, besides holding the little gems that could jump 1000%, you are also holding 1000 other "could be" gems that either go flat, go up 200%, go bankrupt, or any other result inbetween. You're not getting 1000% return, you're getting 1% because you're holding so little of it in the index.
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Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well). They pay considerable trading/tax costs for this dubious opportunity. Over long periods of time, almost nobody beats the market. Full stop.
You can make the argument that you're a special snowflake like Buffet or Soros or whoever the cool stock picker of the week is, and I'm not going to argue that it's *impossible* to kick ass and take names against the whole world of other investors - but that's like walking to the rec center in downtown Chicago where 6'8" AAU kids are throwing down dunks and deciding you should play them for money. You *might* be crazy good, and they might underestimate you, and you could get lucky for a possession or two - but realistically, you're going to lose unless you have that same level of inborn talent, practice time, and drive. The hubris required to believe you will beat professionals at stock picking is amazing to me.
-W
This is the argument that's brought up everytime we have a discussion on this board: indexers somehow automatically leap to the conclusion that non-indexing investors believe they're special snowflakes. The reason why I don't want to index is because of the rules of indexing. It's price and business agnostic, which means, in my opinion, that I'm overpaying for a lot of the companies currently on the market, and that I'm buying businesses that I want no part of. I don't care if netflix continues to climb 10% a day, I want no part of it. I also don't care if carnival cruise lines starts performing like crazy, they have to sink all of their free cash flow back into their ships and I will get no part of that cash. If I miss out on market returns in a year because airlines and start up technology firms are going crazy, GOOD. I want no part of the madness driving the NASDAQ exchange of 2000-2001 and China markets in the recent months.
You point about trading/tax costs I have already addressed, but I will repeat here: There's nothing about individual stock picking that says you have to rack up considerable trading and tax costs. In fact, if you subscribe to the buy and hold strategy, you have even LESS expenses than indexing!!! Five basis points on $1,000,000 portfolio is still $500 saved. To just disregard a strategy from the beginning WITHOUT READING WHAT THE AUTHOR IS SAYING (as you have done with Terrestrial) is just as arrogant as the general stock picker thinking he's a special snowflake, as you pointed out
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Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well).
This just isn't true. There are plenty of studies that show a small percentage of individual investors beat the market, and that outperformance in one period is predictive of outperformance in the next period. This percentage is small (10-20%), which is why the average person should be in index funds, but just because most people can't do it isn't a reason to lie and say that no one can beat the market.
Some examples:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364000
a review of many studies: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/behavior%20of%20individual%20investors.pdf
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Let us know how it's going in 5 or 10 or 20 years, then. Everyone on the planet thinks they're a genius right now, that's how bull markets work.
I will stand by my statement that if you can't pull $100/hour in a regular job you probably shouldn't be trying to beat the pros (ok, actually even if you can you shouldn't be) - because if you want to beat the market, you are quite literally competing with people who are smarter, more educated, and WAY more devoted to this (not to mention almost unlimited information resources and sometimes insider knowledge) than some random person who sips cocktails and reads the motley fool in his/her spare time after work.
Do you think that amateurs with limited practice time and resources can compete with the best professionals in the world in any other fields? If so, which ones? I'd love to hear about it. You'd be laughed out of the room if you claimed you could beat pro athletes, trial lawyers, or chess players practicing for a few hours a week in your spare time - what makes stock picking different?
Remember, too - among the investing public, the DEAD PEOPLE do the best:
http://theconservativeincomeinvestor.com/2015/05/26/fidelitys-best-investors-are-dead/
-W
The ability to make $100 an hour has nothing to do with being a good investor....it doesn't even guarantee that someone is an 'intelligent' person. Pro athletes probably make $10,000 'an hour' and plenty of them are likely absolutely terrible investors. One of my friends from college is a complete airhead but is stunningly beautiful with a great personality and makes well into the six figures a year range shilling pharmaceuticals to old doctors...she has more money tied up in purses and shoes than retirement accounts. Point being, wages are a rather hollow way to measure how good somebody would be at something or how smart they are, especially since many (most?) people likely take jobs that are less than 'maximum possible earning potential' to gain fulfillment/enjoyment out of their life by doing something they want to do. Do smarter people 'generally' make more money than dumb people on average, absolutely...do all intelligent people have the ability or desire to easily make 100 an hour, no.
As far as beating 'pros'...who are you talking about by 'pros'. Mutual funds? They have hundreds of millions/billions to manage and fairly strict rules within what they can do, how much can be allocated to a position, possible forced liquidations depending on redemptions, and know they have to have a way to explain themselves if things go wrong...it's not like these guys have free reign to cowboy it up however they want and 'market return' is the best they can manage. You have to look at how they are compensated and evaluated too, it's a rather risk adverse environment, being 'average' will get you a pat on the back and a nice fat commision check. Taking risks *might* result in being extrordinary, but *might* also end in you being fired if you underperform. I am not implying I am better at this than many of the people who do it professionally, just that I have different circumstances and constraints to work within as well as different motivations.
In simplest terms a guy who had 90% of his portfolio in an index fund and 10% in AAPL, only the most visible/well known stock on the planet, and done nothing else would have beat the market (including bear market) and that would have required essentially zero time, effort, or creativity (I am an not advocating this strategy, just saying... it's not 'impossible').
Point being, I'm not implying that being a more active investor guarantees you will beat the market, that i personally make wildly better returns than the market, that i beat the market every year, that every stock i buy is phenomenal success, or that you will have a positive return every year, etc etc etc.. But implying that its impossible or even highly unlikely for someone who has been formally educated in valuing companies and securities and diligent about learning more can't supplement base index fund holdings with 5-10 well researched and monitored positions and possibly do a little better seems close minded.
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As I said, I'm not arguing it's impossible. But if you read through those studies, you find that the folks who outperformed are *incredibly* rare. The Taiwan case - for example: in a population of 300,000 investors, only about 500 outperformed consistently over a 5 year period (Barber et al. 2011). When analyzing intelligence, we find that "Smarter investors earn returns net of trading costs that are on par with appropriate benchmark returns; they make good stock picks, but only good enough to cover their trading costs. " ( Korniotis and Kumar, in press). I could go on and on, but that's a laundry list of reasons that you're not going to do well even if you're capable and motivated.
Here's the bottom line from the excellent Barber/Odean meta-analysis you provided the link to: "A careful reading of the research on cross-sectional variation in performance yields three general conclusions. First, there is strong evidence of cross-sectional variation in trading skill. Second, security selection skill among individuals is rare (i.e. confined to a relatively small group of stocks or individuals). Third, even the best stock pickers have trouble covering transaction costs."
-W
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As I said, I'm not arguing it's impossible. But if you read through those studies, you find that the folks who outperformed are *incredibly* rare. The Taiwan case - for example: in a population of 300,000 investors, only about 500 outperformed consistently over a 5 year period (Barber et al. 2011).
That study looks at day traders – and many other studies have shown that the less frequently you trade, the higher your returns are. No one here is advocating day trading.
In other studies, the percentage of individual investors who consistently outperform is much higher (for example, 10-20% in the Coval et al study I linked to).
In any case, whatever the number of percentage of individual investors who beat the market, there are a few well-established conclusions:
1) The number of individual investors who outperform the market is relatively small
2) Previously market outperformance is predictive of future market outperformance (among individual investors)
3) Most investors should not pick individual stocks
I don't disagree with most of what you said, but point 2 is really what I wanted to focus on because it directly contradicts your earlier statement:
Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well).
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Interesting studies.
I do want to point out that individual stock investing is not synonymous with 'trading', and don't dispute that transaction costs can have a great effect on returns. But...I hold most of the stuff I buy for longer periods of time and pay ~$5 commissions on blocks of 5-10k of stock at a time. It's also possible these days to pay no commissions at all, though I like my bank and that level of commission does not bother me for the convenience I get. My overall net fees on an averaged yearly basis are not much different than what I pay on the funds portion of my my portfolio for VTSAX or similar (~0.05-0.10%)...sometimes it's less depending on how long the position has been held as there are only entry/exit costs and not the recurring yearly commission there is with a fund. I do not have an 'advice' component to my fees as the OP does.
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That study looks at day traders – and many other studies have shown that the less frequently you trade, the higher your returns are. No one here is advocating day trading.
Sure, but within the universe of day trading - ie, picking stocks, only 1/6 of 1% showed persistent outperformance. All of those day traders would be better off not day trading, probably, but setting that aside, very few of them were actually any good at it. One could extrapolate that not very many people are good at picking stocks to hold for longer terms, either, though that isn't directly addressed.
I'm a bit dubious about some of the conclusions reached in the first paper, partially because it was never published (always a bad sign when you don't pass peer review) and also because they are only finding a 10% correlation between outperformance from year to year. That's more than randomness, but it's not much, either. It doesn't appear they are attempting to make any caveats about trading costs/taxes but that's hard to quantify, probably.
-W
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That study looks at day traders – and many other studies have shown that the less frequently you trade, the higher your returns are. No one here is advocating day trading.
Sure, but within the universe of day trading - ie, picking stocks, only 1/6 of 1% showed persistent outperformance. All of those day traders would be better off not day trading, probably, but setting that aside, very few of them were actually any good at it. One could extrapolate that not very many people are good at picking stocks to hold for longer terms, either, though that isn't directly addressed.
It's silly to extrapolate from a day trading study to look at long-term performance when there are long-term studies available.
I'm a bit dubious about some of the conclusions reached in the first paper, partially because it was never published (always a bad sign when you don't pass peer review) and also because they are only finding a 10% correlation between outperformance from year to year. That's more than randomness, but it's not much, either. It doesn't appear they are attempting to make any caveats about trading costs/taxes but that's hard to quantify, probably.
-W
It's strange to me that people put out papers that aren't published in these fields, but it has been cited over 150 times. Regardless, there are plenty of other papers are find performance persistance among individual investors.
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
It's not what I would call a smart bet.
And paying someone for their advice is a real losing proposition since you add unnecessary expense to your already bad odds.
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It's strange to me that people put out papers that aren't published in these fields, but it has been cited over 150 times. Regardless, there are plenty of other papers are find performance persistance among individual investors.
In some fields, like economics, it can take 2+ years to get a paper published. That's why they have working papers that get cited a lot.
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
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Maybe I'm naive for assuming this, but it sure seems likely that if the majority of people who spend their fulltime jobs trying to beat the market (active fund managers) do not as an aggregate do so in a meaningful and consistent way, then I probably cannot do better than them in my free time.
I have yet to read compelling reasons why so many of those fund managers cannot consistently beat the market but so many individuals seem to be able to do so.
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Maybe I'm naive for assuming this, but it sure seems likely that if the majority of people who spend their fulltime jobs trying to beat the market (active fund managers) do not as an aggregate do so in a meaningful and consistent way, then I probably cannot do better than them in my free time.
I have yet to read compelling reasons why so many of those fund managers cannot consistently beat the market but so many individuals seem to be able to do so.
I could give you a list of reasons why I think this is the case, but I think it's better to look at the data and see that there are, in fact, differences.
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
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Am I the only one who can't read your link? Is it an iPhone thing?
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Am I the only one who can't read your link? Is it an iPhone thing?
It's a direct link to a PDF, but I can open it just fine in two browsers and on my iPhone.
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Maybe I'm naive for assuming this, but it sure seems likely that if the majority of people who spend their fulltime jobs trying to beat the market (active fund managers) do not as an aggregate do so in a meaningful and consistent way, then I probably cannot do better than them in my free time.
I have yet to read compelling reasons why so many of those fund managers cannot consistently beat the market but so many individuals seem to be able to do so.
Mutual fund managers have huge piles of money they have to move, that makes it more difficult. Also, they are under pressure to make each quarter's returns look good for marketing. Individual investors do not have to worry about either thing.
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It's strange to me that people put out papers that aren't published in these fields, but it has been cited over 150 times. Regardless, there are plenty of other papers are find performance persistance among individual investors.
In some fields, like economics, it can take 2+ years to get a paper published. That's why they have working papers that get cited a lot.
And patents can take even longer. It's a little better now that USPTO has expanded.
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
And, looking at Figure 1, the quintile (20%) with the lowest turnover beat VFIAX. So, 20% of individual investors in this study are beating the S&P500. The 2nd quintile with the next lowest turnover basically matches VFIAX. So, 40% of individual investors are matching or beating VFIAX.
This makes great sense - research your stocks well and choose ones that you can hold for a long time to reduce costs. Invest, don't trade! This is why the fictitious? Fidelity study showed that dead investors had the best returns; they were at the far end of the quintile with the lowest turnover (no trades.) :-D
For example, I typically hold stocks at least five years. Let's use these nominal values: $6000 average trade, $9.95 commision (AMTD), and we'll use a return similar to what's in paper, 18% return. So, year end balances are: $6000, $7080, $8354, $9858, $11633, $13,727 (rounded to $1). For simplicity, I just took 0.05% of year end balance for each year - VFIAX has total fee of $25.33 over the 5 years.
With 1 buy, 1 sell of stock we have $19.90 in commissions in five years. This is an upper bound since holding period is usually longer. You can get lower commissions, Schwab is $8.95, Vanguard is $7. Of course, you need to multiply this by how many stocks you own and figure out your own holding period. This is just an example to illustrate that the commissions are not outrageously higher than the ER on a low cost index fund.
Just in case someone thinks this paper is garbage look at the thank you list for reviewers on the bottom of page 1 - it includes Fama and French, among others.
The nice thing about passive investing is if you have low returns one year you can blame the market and not yourself! ;-)
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Able to open the link on my computer finally. And....
You read the study wrong.
Figure one which you refer to shows returns based on quintiles of trading activity. It finds that the more you trade the less your net returns. Not surprising.
Table 4 is more to the point and it finds that the 25th percentile active trader loses to the market by 0.73% monthly (8.76 annually!)
Contrast this to the 75th percentile trader who beats the market by only 0.5 % monthly (6% annual).
The median trader also loses by 1.68 annually and the 99th percentile trader beats the market by 53% annually (impressive!) while the 1 percentile investor loses by a cringeworthy 58%!
And this is only a 5 year period studied. All data suggest that the longer the time period the less likely it is that the active investor beats the market.
All in all your study perfectly proved my original statement.
Thanks!
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I don't know about paying for service. Im too cheap. Jim Cramer and Seeking Alpha free version for me. I pretty much make my own picks though.
These are my total holdings and total returns YTD, take from it what you may. They change daily with all the crap going on. Some of the losers were pretty good winners a month ago.
Apple -6.8%
Boeing +0.29%
Disney +16.98%
Escalade Sports +14.28%
Ford -8.26%
JP Morgan +1.66%
Navios Marine -8%
Platform Specialty -9.15%
Im heaviest in Disney and not selling anything
Did you buy the stocks this year? My records (which may not be perfect either) show...
AAPL up 9.82% YTD
DIS up 21.8% YTD
That's from taking the price on December 31 (or Jan 1) and comparing to todays prices. Those are not *my* returns though, as my buy prices and times are from earlier dates. My rough returns on AAPL are 68% and DIS 44%.
Yes. All with the last 3-5 months. I continually add to these positions lowering the total return rate. This also accounts for fees on scottrade. I use robinhood now but some of these stocks are in scottrade.
If you buy a share of Disney and it goes up 30% then you buy another share your total return is 15%. That's how I judge myself. In total. Past and current together. Back to feb 2nd for individual stocks. I don't count mutual funds. I don't run those but am breaking even with them right now. I was killing them last month.
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Able to open the link on my computer finally. And....
You read the study wrong.
Figure one which you refer to shows returns based on quintiles of trading activity. It finds that the more you trade the less your net returns. Not surprising.
Table 4 is more to the point and it finds that the 25th percentile active trader loses to the market by 0.73% monthly (8.76 annually!)
Contrast this to the 75th percentile trader who beats the market by only 0.5 % monthly (6% annual).
The median trader also loses by 1.68 annually and the 99th percentile trader beats the market by 53% annually (impressive!) while the 1 percentile investor loses by a cringeworthy 58%!
And this is only a 5 year period studied. All data suggest that the longer the time period the less likely it is that the active investor beats the market.
All in all your study perfectly proved my original statement.
Thanks!
I am really getting tired of people on this forum telling me I'm wrong, when they're wrong. You said:
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
when, in fact, the 75th percentile person beat the average by 35%. So no, 80% do not lose to the market (let alone by a lot, which is what you said).
If you're going to be wrong, that's fine, but don't tell me I'm wrong when you are.
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Able to open the link on my computer finally. And....
You read the study wrong.
Figure one which you refer to shows returns based on quintiles of trading activity. It finds that the more you trade the less your net returns. Not surprising.
Table 4 is more to the point and it finds that the 25th percentile active trader loses to the market by 0.73% monthly (8.76 annually!)
Contrast this to the 75th percentile trader who beats the market by only 0.5 % monthly (6% annual).
The median trader also loses by 1.68 annually and the 99th percentile trader beats the market by 53% annually (impressive!) while the 1 percentile investor loses by a cringeworthy 58%!
And this is only a 5 year period studied. All data suggest that the longer the time period the less likely it is that the active investor beats the market.
All in all your study perfectly proved my original statement.
Thanks!
I am really getting tired of people on this forum telling me I'm wrong, when they're wrong. You said:
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
when, in fact, the 75th percentile person beat the average by 35%. So no, 80% do not lose to the market (let alone by a lot, which is what you said).
If you're going to be wrong, that's fine, but don't tell me I'm wrong when you are.
No. You are wrong. Admit it and move on.
You cited a table that was wholly irrelevant to the topic at hand.
The table that was relevant showed that over SHORT time horizons.
1. Most active investors lost significantly to the market.
2. The lucky few who beat the market beat it by a lesser degree than those who lost to the market lost to it by.
That less than 75 % lost to the market is proof of nothing but a short time period in this particular study.
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Able to open the link on my computer finally. And....
You read the study wrong.
Figure one which you refer to shows returns based on quintiles of trading activity. It finds that the more you trade the less your net returns. Not surprising.
Table 4 is more to the point and it finds that the 25th percentile active trader loses to the market by 0.73% monthly (8.76 annually!)
Contrast this to the 75th percentile trader who beats the market by only 0.5 % monthly (6% annual).
The median trader also loses by 1.68 annually and the 99th percentile trader beats the market by 53% annually (impressive!) while the 1 percentile investor loses by a cringeworthy 58%!
And this is only a 5 year period studied. All data suggest that the longer the time period the less likely it is that the active investor beats the market.
All in all your study perfectly proved my original statement.
Thanks!
I am really getting tired of people on this forum telling me I'm wrong, when they're wrong. You said:
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
when, in fact, the 75th percentile person beat the average by 35%. So no, 80% do not lose to the market (let alone by a lot, which is what you said).
If you're going to be wrong, that's fine, but don't tell me I'm wrong when you are.
No. You are wrong. Admit it and move on.
You cited a table that was wholly irrelevant to the topic at hand.
The table that was relevant showed that over SHORT time horizons.
1. Most active investors lost significantly to the market.
2. The lucky few who beat the market beat it by a lesser degree than those who lost to the market lost to it by.
That less than 75 % lost to the market is proof of nothing but a short time period in this particular study.
[/quote
Keep moving those goalposts. You said something verifiably wrong and now you're saying something else. And you did so in such a nice manner!
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Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well).
This just isn't true. There are plenty of studies that show a small percentage of individual investors beat the market, and that outperformance in one period is predictive of outperformance in the next period. This percentage is small (10-20%), which is why the average person should be in index funds, but just because most people can't do it isn't a reason to lie and say that no one can beat the market.
Some examples:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364000
a review of many studies: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/behavior%20of%20individual%20investors.pdf
The longest time-frame in these papers is 7 years. In a forum dedicated to Early Retirement, the investment horizon here is much longer than 7 years. Attempting to beat the market over a 30-60 year timeframe is what we're talking about here.
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Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well).
This just isn't true. There are plenty of studies that show a small percentage of individual investors beat the market, and that outperformance in one period is predictive of outperformance in the next period. This percentage is small (10-20%), which is why the average person should be in index funds, but just because most people can't do it isn't a reason to lie and say that no one can beat the market.
Some examples:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364000
a review of many studies: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/behavior%20of%20individual%20investors.pdf
The longest time-frame in these papers is 7 years. In a forum dedicated to Early Retirement, the investment horizon here is much longer than 7 years. Attempting to beat the market over a 30-60 year timeframe is what we're talking about here.
Several studies have shown that top-performing individual investors in one time period are more likely to outperform in subsequent time periods. Interestingly, this effect doesn't happen for mutual funds.
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Able to open the link on my computer finally. And....
You read the study wrong.
Figure one which you refer to shows returns based on quintiles of trading activity. It finds that the more you trade the less your net returns. Not surprising.
Table 4 is more to the point and it finds that the 25th percentile active trader loses to the market by 0.73% monthly (8.76 annually!)
Contrast this to the 75th percentile trader who beats the market by only 0.5 % monthly (6% annual).
The median trader also loses by 1.68 annually and the 99th percentile trader beats the market by 53% annually (impressive!) while the 1 percentile investor loses by a cringeworthy 58%!
And this is only a 5 year period studied. All data suggest that the longer the time period the less likely it is that the active investor beats the market.
All in all your study perfectly proved my original statement.
Thanks!
Well, now I've had time to finish reading the paper; I went to my son's baseball game. :-) I'll keep this civil! :-D
I don't believe I've read (interpreted) the study wrong. (NB - I referenced Figure 1, not beltim.) Actually, Figure 1 and Table IV are just two very similar ways of looking at the same data. Figure 1 is really just explaining where the difference in performance enumerated in Table IV is coming from - trading costs. Maybe one thing that confused you is that the lower quintiles (less trading) in Figure 1 perform better whereas in Table IV the higher percentiles perform better. So, you could say that the authors reversed the x axis in Figure 1. In my opinion, it would have been better to have higher performance (lower trading) in the higher quintiles rather than lower performance (higher trading.)
One note about trading costs - looking at the mean values in Table 1 you can see that the mean commission was 1.58% for purchases and 1.45% for sales. Using the mean purchase/sale values this works out to an average $376 for a round trip! So, one thing to remember is that trading costs have decreased tremendously since the mid 90's.
And a note about bid/ask spread - looking at Equation (1) on page 780 you can see that the authors are estimating a bid/ask spread% by using CRSP end of day bid/ask prices; they have to do this because they have no record of what the actual bid/ask spread was at the time of the trade. I'm still evaluating this formula and will have to go through Appendix A in more detail to see exactly what they are doing. However, their estimate seems suspect to me right now. Empirically, it is important to remember that the minimum bid/ask increment at the time for almost all stocks was an eighth, so $0.125. Those days are long gone.
So, comparing trading costs and bid/ask spreads between when the study was done and now shows that there is on the order of a 10X decrease in both.
Now, on to Table IV. In section C. Cross-Sectional Variation in Performance starting on page 790 the authors discuss the results in Table IV:
Though 49.3 percent of households outperform a value-weighted market index before transaction costs, only 43.4 percent outperform the index after costs. Nonetheless, many households perform very well: 25 percent of all households beat the market, after accounting for transaction costs, by more than 0.50 percent per month ~more than six percent annually!.
So, from Figure 1, I estimated that 40% either beat or match the index. The more precise answer is that 43.4% of the households outperform the index after costs. A better, but very similar, answer. Also, note that 25% of the households beat the market by at least 6%/year! The Figure 1 data is averaged within quintiles so it is "blurred" somewhat; hence leading to the difference in the estimate. The 43.4% value jives with the data in Table IV; that means the zero crossing is at the 56.6th percentile. Since the 50th percentile is at -0.14% the data seems to be consistent.
I just noticed you made a post while I'm typing this so I'll address one comment you made there:
The lucky few who beat the market beat it by a lesser degree than those who lost to the market lost to it by.
Well, it's not possible to make that statement based off of the data in Table IV. We would need to have the entire plot and then integrate the area under the curve for the lucky 43.4% of the households and then compare it to the (negative) area under (over?) the curve for the unlucky 56.6%. The best investor beat the index by 580.2% annually while the very worst investor underperformed the index by -20.85%/month (not sure how you do that for a whole year!!). So, some very interesting things are going on in the top and bottom 1% of the binomial distribution.
And, to cover both sides of the story, here is what I consider the biggest "hole" in the paper. While the authors try to say that this study is good in up/down markets because 20 of the 72 months were down months the 1991-1996 time period was mostly very positive. Here is S&P500 for 1991-1996 (http://finance.yahoo.com/echarts?s=%5EGSPC+Interactive#{"customRangeStart":662706000,"customRangeEnd":852008400,"range":"custom","allowChartStacking":true}). All six years are positive and 1995-1996 were the first two years of the Internet bubble. So, everyone was a genius!! :-D Maybe they should redo the exact same study for the next six years now that helicopter Ben has landed.
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Every study, ever, as Sol pointed out, says that picking stocks doesn't work. Some people succeed, but at about the rate you'd expect from random chance (and the winners fail to consistently win, as you'd expect from chance, as well).
This just isn't true. There are plenty of studies that show a small percentage of individual investors beat the market, and that outperformance in one period is predictive of outperformance in the next period. This percentage is small (10-20%), which is why the average person should be in index funds, but just because most people can't do it isn't a reason to lie and say that no one can beat the market.
Some examples:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=364000
a review of many studies: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/behavior%20of%20individual%20investors.pdf
The longest time-frame in these papers is 7 years. In a forum dedicated to Early Retirement, the investment horizon here is much longer than 7 years. Attempting to beat the market over a 30-60 year timeframe is what we're talking about here.
Several studies have shown that top-performing individual investors in one time period are more likely to outperform in subsequent time periods. Interestingly, this effect doesn't happen for mutual funds.
The problem is the time periods aren't very long, and it becomes much harder to succeed over longer periods. It's easy to fail when trying to beat the market over the long-term, you can be right a thousand times, but you only have to be wrong once.
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No, when you are right mote than wrong, your wins cushion your losses.
So if you're up 10 percent a year for 5 years and the then down 10 percent, you're ahead. So it's incorrect to say one bad year will ruin your investment.
I agree with what has been said about long holding periods for individual stocks. The goal is not to trade or sell unless the business changes. I am learning to do hedges, options and shorts, all sparingly, to help in rocky waters. Writing options for income can add to returns. This stuff is like a hobby, it is fun. Still, it is not day trading.
Since I am up 8% ytd, I get a slightly higher spot to go from now.
Du you all want a 3rd quarter report?
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The problem is the time periods aren't very long, and it becomes much harder to succeed over longer periods. It's easy to fail when trying to beat the market over the long-term, you can be right a thousand times, but you only have to be wrong once.
That is a very poor understanding of math
If you're +6% for 10 straight years, then -10% for one year because you refused as an investor to get involved with a senseless runup in technology and airline firms, have you done better for yourself than you could have indexing?
I think maybe the misinterpretation here is that the fanatic indexers are thinking about the results of trying to pick MUTUAL FUNDS trying to beat the market. In which case, you also have the expense and turnover hurdle to get over - not so in old fashioned non-index buy and hold.
If your goal is to beat the market return, you don't have to beat the market every year, you just have to beat it over 3-5 year time frames. I'm sure there's lots of investors that did not beat the market in the 1998-2000 NASDAQ runup, but when the dust had settled in 2002, they came out ahead. I would say that a lot of investors who pick individual stocks don't actually care about beating the market, they hold individual stocks because they don't want any part of certain sectors of the market, or specific companies. Indexing is fine when you have no interest in studying businesses, but to say that indexing is the only way and stock picking is idiotic is missing the point.
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That is a very poor understanding of math
If you're +6% for 10 straight years, then -10% for one year because you refused as an investor to get involved with a senseless runup in technology and airline firms, have you done better for yourself than you could have indexing?
I think the point he was making that if you hold indivudal stocks you are less diversified and therefore the downside to a mistake or bad luck can be catastrophic.
The OP linked to Saul's investing plan in her second post. In his top 7 stocks he has ~75% of this portfolio. Over 50% in the top 3.
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If you can't see how being wrong once can doom your portfolio, you shouldn't be actively trading.
If you can't see how increasing the time period from 5-7 years to 30-60 years increases the chances of this happening, you shouldn't be actively trading.
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If you can't see how being wrong once can doom your portfolio, you shouldn't be actively trading.
If you can't see how increasing the time period from 5-7 years to 30-60 years increases the chances of this happening, you shouldn't be actively trading.
This gets to the crux of the misunderstanding and why there's condemnation from indexers when we have this discussion. Not a single person here has advocated for active trading. Buying individual companies and holding is not active trading, you're describing renting companies and hoping for a profit. It's bizarre that everyone on this forum is willing to learn about financial independence, DIY, reducing waste, but yet isn't willing to reevaluate Bogle dogma when presented with the facts. You're arguing against something that none of us are defending. I agree with you, you shouldn't be actively trading, period.
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I think the point he was making that if you hold indivudal stocks you are less diversified and therefore the downside to a mistake or bad luck can be catastrophic.
The OP linked to Saul's investing plan in her second post. In his top 7 stocks he has ~75% of this portfolio. Over 50% in the top 3.
I agree, it can definitely be catastrophic. But diversification isn't a magic bullet, if you bought the NASDAQ index in 2000, you were technically diversified with thousands of stocks, but results in 2002 were catastrophic. Can you say the same thing about someone holding a three stock 100% concentrated portfolio of Johnson&Johnson, Nestle, and Exxon?
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If you can't see how being wrong once can doom your portfolio, you shouldn't be actively trading.
If you can't see how increasing the time period from 5-7 years to 30-60 years increases the chances of this happening, you shouldn't be actively trading.
This gets to the crux of the misunderstanding and why there's condemnation from indexers when we have this discussion. Not a single person here has advocated for active trading. Buying individual companies and holding is not active trading, you're describing renting companies and hoping for a profit. It's bizarre that everyone on this forum is willing to learn about financial independence, DIY, reducing waste, but yet isn't willing to reevaluate Bogle dogma when presented with the facts. You're arguing against something that none of us are defending. I agree with you, you shouldn't be actively trading, period.
There is no misunderstanding here. KBecks2 readily admits it. Look through some of his/her posts, you'll statements like, "My active stocks are".
To make it more clear:
If you can't see how being wrong once can doom your portfolio, you shouldn't deviate from total market indexes.
If you can't see how increasing the time period from 5-7 years to 30-60 years increases the chances of this happening, you shouldn't deviate from total market indexes.
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There is no misunderstanding here. KBecks2 readily admits it. Look through some of his/her posts, you'll statements like, "My active stocks are".
I agree with what has been said about long holding periods for individual stocks. The goal is not to trade or sell unless the business changes. I am learning to do hedges, options and shorts, all sparingly, to help in rocky waters. Writing options for income can add to returns. This stuff is like a hobby, it is fun. Still, it is not day trading.
I do want to point out that individual stock investing is not synonymous with 'trading', and don't dispute that transaction costs can have a great effect on returns.
Maybe read all of her words and not just focus in on "active"?
To make it more clear:
If you can't see how being wrong once can doom your portfolio, you shouldn't deviate from total market indexes.
If you can't see how increasing the time period from 5-7 years to 30-60 years increases the chances of this happening, you shouldn't deviate from total market indexes.
I think you meant to say From my knowledge of Bogle quotes and time spent on bogleheads. In all cases, you shouldn't deviate from total market indexes
Bogle never said investing in individual stocks is for fools. He said chasing mutual fund returns is foolish. That is a very wise sentiment. As an individual stock owner, once you get outsized gains, you keep it. When you are buying actively managed mutual funds, past performance (which does not indicate future performance) is something you will never have participated in. That's where the advice of "no one can beat the market consistently every year" becomes useful. You don't HAVE to beat it every year as a stock holder, you just need to beat it some years. Plus, as an individual investor, you don't have the 1-2% hurdle that mutual funds have.
Here's a story you might find interesting about your hero: http://www.wsj.com/articles/SB10001424052702303332904579224351143883302
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It is of course possible to beat the market in a statistically significant manner. It's just incredibly rare.
You would be amazed how many people say it's impossible.
More to the point active stock picking winners beat the broad market by a little bit, but active stock picking losers lose to the market by a lot.
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
I don't think this is generally true. Most studies I've seen show a large majority individual investor performance pretty close to the average: http://faculty.haas.berkeley.edu/odean/papers%20current%20versions/individual_investor_performance_final.pdf
Able to open the link on my computer finally. And....
You read the study wrong.
Figure one which you refer to shows returns based on quintiles of trading activity. It finds that the more you trade the less your net returns. Not surprising.
Table 4 is more to the point and it finds that the 25th percentile active trader loses to the market by 0.73% monthly (8.76 annually!)
Contrast this to the 75th percentile trader who beats the market by only 0.5 % monthly (6% annual).
The median trader also loses by 1.68 annually and the 99th percentile trader beats the market by 53% annually (impressive!) while the 1 percentile investor loses by a cringeworthy 58%!
And this is only a 5 year period studied. All data suggest that the longer the time period the less likely it is that the active investor beats the market.
All in all your study perfectly proved my original statement.
Thanks!
I am really getting tired of people on this forum telling me I'm wrong, when they're wrong. You said:
So if you think you're going to beat the market by stockpicking what you're essentially saying is "I would prefer a 20% chance of beating the market by a little bit in exchange for an 80% chance of losing to it by a lot."
when, in fact, the 75th percentile person beat the average by 35%. So no, 80% do not lose to the market (let alone by a lot, which is what you said).
If you're going to be wrong, that's fine, but don't tell me I'm wrong when you are.
No. You are wrong. Admit it and move on.
You cited a table that was wholly irrelevant to the topic at hand.
The table that was relevant showed that over SHORT time horizons.
1. Most active investors lost significantly to the market.
2. The lucky few who beat the market beat it by a lesser degree than those who lost to the market lost to it by.
That less than 75 % lost to the market is proof of nothing but a short time period in this particular study.
[/quote
Keep moving those goalposts. You said something verifiably wrong and now you're saying something else. And you did so in such a nice manner!
Feel free to bone up on the active vs passive debate.
I've seen dozens of these studies cited and they virtually all the same finding.
1. Over short time horizons, 1-5 years, active strategies lose about 60% of the time.
2. Over long time horizons active loses 80% of the time.
Your cited study fits neatly into these observations.
Feel free to worry about goal posts and personal affronts to your arguments, but those are the lessons that anyone considering an active strategy should consider.
And full disclosure: I employ an active strategy.
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There is no misunderstanding here. KBecks2 readily admits it. Look through some of his/her posts, you'll statements like, "My active stocks are".
I agree with what has been said about long holding periods for individual stocks. The goal is not to trade or sell unless the business changes. I am learning to do hedges, options and shorts, all sparingly, to help in rocky waters. Writing options for income can add to returns. This stuff is like a hobby, it is fun. Still, it is not day trading.
I do want to point out that individual stock investing is not synonymous with 'trading', and don't dispute that transaction costs can have a great effect on returns.
Maybe read all of her words and not just focus in on "active"?
To make it more clear:
If you can't see how being wrong once can doom your portfolio, you shouldn't deviate from total market indexes.
If you can't see how increasing the time period from 5-7 years to 30-60 years increases the chances of this happening, you shouldn't deviate from total market indexes.
I think you meant to say From my knowledge of Bogle quotes and time spent on bogleheads. In all cases, you shouldn't deviate from total market indexes
Bogle never said investing in individual stocks is for fools. He said chasing mutual fund returns is foolish. That is a very wise sentiment. As an individual stock owner, once you get outsized gains, you keep it. When you are buying actively managed mutual funds, past performance (which does not indicate future performance) is something you will never have participated in. That's where the advice of "no one can beat the market consistently every year" becomes useful. You don't HAVE to beat it every year as a stock holder, you just need to beat it some years. Plus, as an individual investor, you don't have the 1-2% hurdle that mutual funds have.
Here's a story you might find interesting about your hero: http://www.wsj.com/articles/SB10001424052702303332904579224351143883302
This is not relevant to my position.
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Feel free to bone up on the active vs passive debate.
I've seen dozens of these studies cited and they virtually all the same finding.
1. Over short time horizons, 1-5 years, active strategies lose about 60% of the time.
2. Over long time horizons active loses 80% of the time.
Your cited study fits neatly into these observations.
Feel free to worry about goal posts and personal affronts to your arguments, but those are the lessons that anyone considering an active strategy should consider.
And full disclosure: I employ an active strategy.
See, there's a big difference between pointing out that there are probably going to be differences between a 5 year period and a longer period and "this study supports my assertion that 80% of individual investors lose to the market by a lot" that pretty quickly turned into "this study, like all the others that I've read, shows that 40% outperform in the short term." Of course, it would be even better to actually cite a study.
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I like how you added "short term" to my statement. Hilarious.
You're getting pretty desperate.
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I like how you added "short term" to my statement. Hilarious.
You're getting pretty desperate.
I've seen dozens of these studies cited and they virtually all the same finding.
1. Over short time horizons, 1-5 years, active strategies lose about 60% of the time.
2. Over long time horizons active loses 80% of the time.
Your cited study fits neatly into these observations.
Feel free to worry about goal posts and personal affronts to your arguments, but those are the lessons that anyone considering an active strategy should consider.
And full disclosure: I employ an active strategy.
Do you even read what you write?
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I like how you added "short term" to my statement. Hilarious.
You're getting pretty desperate.
I've seen dozens of these studies cited and they virtually all the same finding.
1. Over short time horizons, 1-5 years, active strategies lose about 60% of the time.
2. Over long time horizons active loses 80% of the time.
Your cited study fits neatly into these observations.
Feel free to worry about goal posts and personal affronts to your arguments, but those are the lessons that anyone considering an active strategy should consider.
And full disclosure: I employ an active strategy.
Do you even read what you write?
That statement is validated by your cited study. You obviously haven't read the study you cited. (As evidenced by your previous attempted use of figure 1.)
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I like how you added "short term" to my statement. Hilarious.
You're getting pretty desperate.
I've seen dozens of these studies cited and they virtually all the same finding.
1. Over short time horizons, 1-5 years, active strategies lose about 60% of the time.
2. Over long time horizons active loses 80% of the time.
Your cited study fits neatly into these observations.
Feel free to worry about goal posts and personal affronts to your arguments, but those are the lessons that anyone considering an active strategy should consider.
And full disclosure: I employ an active strategy.
Do you even read what you write?
That statement is validated by your cited study. You obviously haven't read the study you cited. (As evidenced by your previous attempted use of figure 1.)
Are you high?
1) I never referenced figure 1.
2) The bolded statement is certainly validated by the study I cited. I'm not arguing that it doesn't.
3) More to the point, it shows that I did not add "short term" to your statement - that was in your comment that I responded to.
It seems like you're arguing with some combination of yourself and a1smith. I posted this study which shows that over a 5 year period:
1) well over 20% beat the market
2) there's a significant fraction of investors who significantly outperform the market
3) of the people who lose to the market, a significant fraction lose by a little instead of a lot
It seems like your only disagreement now (unlike your original "you read it wrong" comment) is that the study only looks at 5-year periods. That's true. Can you provide better studies to show the long term performance?
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Why don't we just call it here? I don't see anything gained by your last dozen back-and-forths. You're going to disagree. Up to you guys.
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You are right, I ascribed the table 1 gaff to you, when in fact it was A1smith. Sorry!
My only point is that the study you cited perfectly agrees with my original contention about the performance of active versus passive traders (over long tome periods). Another reader bollocksed up the interpretation of the study, not you. again, apologies.
Now that we are in agreement that over long time horizons the vast majority of active traders will lose to passive, and that the losers will lose by more than the active traders will win by (despite their poor base rate odds of success) and I have apologized to you for ascribing someone else's sloppy reading of a study to you, perhaps we can move on.
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Here's a story you might find interesting about your hero: http://www.wsj.com/articles/SB10001424052702303332904579224351143883302
I read the article - there must be some interesting discussions at the dinner table! :-)
Hint for people that want to read the article but don't have WSJ subscription: go to the link, you 'll see log in or subscribe to read article. Copy article title into google and search. You'll get link that let's you read article for free. Actually, it's the same weblink but if you go to the WSJ page from Google then you get to see the whole article with no subscription. Works on Barron's too!
I also read another interesting article on Alpholio.com that was mentioned in the comments - Active vs. Passive in the Bogle Family (https://alpholio.com/blog/2013/12/02/active-vs-passive-bogle-family/) They took a second look at BOGLX performance.
However, this statistic is misleading. As of the end of November 2013, the 10-year annualized return of the Bogle Small Cap Growth Fund (BOGLX) was 8.89%. The annualized return of the iShares Russell 2000 ETF (IWM), which follows the fund’s stated benchmark, was 9.01% in the same period. Moreover, the iShares Russell 2000 Growth ETF (IWO), implementing a benchmark more relevant to the fund, returned an annualized 9.19%.
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Here's a story you might find interesting about your hero: http://www.wsj.com/articles/SB10001424052702303332904579224351143883302
I read the article - there must be some interesting discussions at the dinner table! :-)
Hint for people that want to read the article but don't have WSJ subscription: go to the link, you 'll see log in or subscribe to read article. Copy article title into google and search. You'll get link that let's you read article for free. Actually, it's the same weblink but if you go to the WSJ page from Google then you get to see the whole article with no subscription. Works on Barron's too!
I also read another interesting article on Alpholio.com that was mentioned in the comments - Active vs. Passive in the Bogle Family (https://alpholio.com/blog/2013/12/02/active-vs-passive-bogle-family/) They took a second look at BOGLX performance.
However, this statistic is misleading. As of the end of November 2013, the 10-year annualized return of the Bogle Small Cap Growth Fund (BOGLX) was 8.89%. The annualized return of the iShares Russell 2000 ETF (IWM), which follows the fund’s stated benchmark, was 9.01% in the same period. Moreover, the iShares Russell 2000 Growth ETF (IWO), implementing a benchmark more relevant to the fund, returned an annualized 9.19%.
He's doing what we do in America--cashing in on celebrity, regardless of merit.
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I have followed the index investing philosophy and have made 3% return this year on ~$200k. Required only 10 minutes for me to do (opportunity cost ~2 dollars). $600/minute of effort is not a bad return! That is after the 0.05% index fees.
20% VGSAX (Small cap vanguard fund)
69% VTSAX (Total stock market fund)
3% VGSIX (REIT fund)
8% various individual stocks for speculation
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I have followed the index investing philosophy and have made 3% return this year on ~$200k. Required only 10 minutes for me to do (opportunity cost ~2 dollars). $600/minute of effort is not a bad return! That is after the 0.05% index fees.
20% VGSAX (Small cap vanguard fund)
69% VTSAX (Total stock market fund)
3% VGSIX (REIT fund)
8% various individual stocks for speculation
Your overall expense ratio is 0.0603% for a total of about $120.60 per year.
You better be careful saying the word speculation around here! :-D
| % | Fund | ER |
| 20% | VSGAX | 0.09% |
| 69% | VTSAX | 0.05% |
| 3% | VGSIX | 0.26% |
| 8% | stocks | 0.00% |
| | 0.0603% |
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You are right, I ascribed the table 1 gaff to you, when in fact it was A1smith. Sorry!
My only point is that the study you cited perfectly agrees with my original contention about the performance of active versus passive traders (over long tome periods). Another reader bollocksed up the interpretation of the study, not you. again, apologies.
Now that we are in agreement that over long time horizons the vast majority of active traders will lose to passive, and that the losers will lose by more than the active traders will win by (despite their poor base rate odds of success) and I have apologized to you for ascribing someone else's sloppy reading of a study to you, perhaps we can move on.
More trolling? Sorry, I won't respond other than to say that someone can read the study and my comments and judge for themselves.
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Interesting few weeks. Only a week or so ago my portfolio was down enough to buy a new luxury SUV. A few days ago I was down enough to buy a nice new compact car. Now I'm only down enough to buy a clunker with no A/C. In coming sessions I may actually be up again. I'm just dollar cost averaging more and more money in. I'm currently only up about 5% for the year.
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4.2%
I took a recent hit in some positions that that I am holding. Thanks Greece. I wish I went with what I knew and was 100% Disney but the rest of my portfolio rebounds well. Not selling a thing and currently building cash.
In the interest of showing just how fast things can change my YTD is +6.24% today
Im starting to think YTD is poor metric and much longer versions need to be used-- or just sticking to the spread between your portfolio and the S&P 500. Honestly the closer I watch the market the more chaotic it appears
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Im starting to think YTD is poor metric and much longer versions need to be used-- or just sticking to the spread between your portfolio and the S&P 500...
YTD is possibly the worst metric anyone could use next to taking investment advice from Honey Boo Boo.
Source: http://awealthofcommonsense.com/my-advice-for-calpers/ (http://awealthofcommonsense.com/my-advice-for-calpers/)
Judging your portfolio based on one year’s worth of results is a great way to over-react, make unnecessary changes, take avoidable risks or abandon a legitimate process. In a diversified portfolio, one year returns are meaningless. It’s the long-term that you need to worry about in terms of performance
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You're right +7.38% today.
This market is nuts.
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You're right +7.38% today.
This market is nuts.
It's like the Greece thing never happened...it also helped that amazon had their prime day thing + Netflix getting high earnings...My networth alone went up by 3K$ in one day.
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Im starting to think YTD is poor metric and much longer versions need to be used
<snip>
Honestly the closer I watch the market the more chaotic it appears
I think these are good observations, mr%.
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Interesting few weeks. Only a week or so ago my portfolio was down enough to buy a new luxury SUV. A few days ago I was down enough to buy a nice new compact car. Now I'm only down enough to buy a clunker with no A/C. In coming sessions I may actually be up again. I'm just dollar cost averaging more and more money in. I'm currently only up about 5% for the year.
Well it's a few days later. There is now $6,000 more in my account than ever before. Two weeks ago I'm down nearly $40,000. Now doing nothing at all I'm up $6,000 more than I've ever had in history. Gotta love it!!!!
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Interesting few weeks. Only a week or so ago my portfolio was down enough to buy a new luxury SUV. A few days ago I was down enough to buy a nice new compact car. Now I'm only down enough to buy a clunker with no A/C. In coming sessions I may actually be up again. I'm just dollar cost averaging more and more money in. I'm currently only up about 5% for the year.
Well it's a few days later. There is now $6,000 more in my account than ever before. Two weeks ago I'm down nearly $40,000. Now doing nothing at all I'm up $6,000 more than I've ever had in history. Gotta love it!!!!
Maybe this is just a run up caused by people "buying on the dip" and the market is really rolling over. Even if it is, if you're AA is where you want it then you should keep doing what you're doing - "doing nothing at all."