Bogleheads endorse active management

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Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 7:19 am

I am reading The Boglehead's Guide to Investing. On the one hand it gives all the reasons for using passively managed funds with pointers to studies, reasoning behind it, a ton of quotes from respected people, etc. But then, on page 85, I find a section about actively managed funds. I had almost skipped it, but then to my surprise, I read the following statement by the authors (Taylor Larimore, Mel Lindauer, Michael LeBoeuf):

"While all three of us believe that indexing is an excellent investment strategy, all three of us own actively managed Vanguard funds too."

The section goes on to talk about some actively managed funds, specifically highlighting Vanguard's Health Care Fund and indicating that such funds should be in tax-deferred space. It does say that the authors are taking on more risk for the chance of greater return and that bulk of the portfolio should be in index funds.

Also I recently have come across this thread with a lot of discussion on actively managed funds apparently used by Bogleheads.

Does this surprise anyone else? I guess Bogleheads are not so strong believers into all the research showing passive investment's superiority after all? Else, why would you take on an outsized risk not compensated by the corresponding increase in expected extra returns (if you believe in all that research about active vs passive investments)?

I understand that majority of your funds are in passive funds and only some of it is in active ones, but does not that still indicate some doubt? I guess I can understand two reasons
- explicit "gambling" money that you place in the tax-deferred space for actively managed funds even though you know the chances are stacked against you
- strong hard-to-break family traditions of holding a certain fund for generations (mentioned in above-referenced thread)

But I find this confusing personally that above two reasons are sufficient for so many here to hold actively managed funds.

P.S. 3rd reason (and this one makes sense to me) would be muni bond funds for which (I think) there are no indexes... but all the funds mentioned and discussed in references above are non-tax-managed funds that include or exclusively consist of stocks.
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Re: Bogleheads endorse active management

Postby Call_Me_Op » Mon Jan 28, 2013 7:41 am

As you pointed out, some funds are not available as indexes, such as corporate or municipal bonds. But beyond that, what's important is not whether or not a fund tracks an index, but whether it is broadly diversified (within its category), keeps expenses low, and (for taxable investors) has good tax efficiency.
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Re: Bogleheads endorse active management

Postby NYBoglehead » Mon Jan 28, 2013 7:44 am

I understand what you are saying but here is my take on it:

-For starters, the Vanguard Health Care Fund you mention has an ER of 35 bps for investor shares and 30 bps for Admiral shares. Both of those ERs are significantly lower than the average actively managed fund so the drag on any return is not as severe

-#2 (and this is just an opinion) is Health Care is something like 16-18% of the US Economy and with millions of baby boomers approaching retirement age more and more care might be consumed. So while I wouldn't do it myself, I could see someone making the case that Health Care is likely to grow faster than other sectors

-Finally, Jack Bogle has said numerous times that if you want to own active funds, keep it 10% or less or your total portfolio. This might be the best way to convince yourself that indexing is the way to go since over time the index funds will outperform the lion's share of active funds. Seeing this for yourself in your own portfolio instead of an academic study or book might be the best way to keep you true to the Boglehead style of investing
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Re: Bogleheads endorse active management

Postby Bustoff » Mon Jan 28, 2013 8:05 am

I would like to see some of the more prominent Bogleheads display their personal portfolios.

They don't need to display the dollar amounts, however it would be interesting to see how their personal asset allocations comport with the theme of this forum.
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 8:31 am

Thanks for the responses so far

Call_Me_Op wrote:As you pointed out, some funds are not available as indexes, such as corporate or municipal bonds. But beyond that, what's important is not whether or not a fund tracks an index, but whether it is broadly diversified (within its category), keeps expenses low, and (for taxable investors) has good tax efficiency.


What about studies suggesting that there is no good stock pickers, or if there are it would be very hard to predict if they remain so with their outsized assets (due to prior success) going forward? Much of the premise for passive investing is that good pickers (and I presume good picking techniques / algorithms / screeners and such) do not really exist or are too hard to find... When you invest in active fund with all the characteristics you mentioned, you effectively assume you might have found such management team and/or the (secret market-beating) algorithm their systems are using...

@NYBoglehead:

For #1, same question as above
For #2, sounds like some may believe market is mispricing a sector.. ? Again, does not that go against the studies... ? How would a boglehead reconcile the two?
For #3, I see... I think one could do the same by trying this on paper and following the investments, but I guess it may not feel the same... And then, if your reason for owning these is to prove to yourself that passive approach wins, there is the risk of your active fund actually doing really well for a while, which would actually have the opposite effect and lead you to allocating more money to these.
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Re: Bogleheads endorse active management

Postby bilperk » Mon Jan 28, 2013 8:33 am

Taylor has said in the past that he has some active funds he has owned a long time due to capital gains issues. Mr. Bogle has indicated the same, IIRC. Mel has indicated he owns strategic equity fund, a quant that is pretty close to an index. He likes it because it fishes in the smaller end of the mid-cap space which is his particular preference.

I don't believe the Boglehead philosophexcludesds all active funds nor do I believe everyone who learns and posts here is a strict Boglehead. Mr. Bogle has made it clear that the main difference in the returns of indexing vs active is costs. Where it is possible to get active funds at very low costs and where they fit into ones overall asset allocation and IPS then they are not anti-Boglehead, IMO.

I disagree with the word endorse in the OP's header. I think Bogleheads have learned that there are many roads to Dublin and each investors needs and goals may be different.
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 8:43 am

Thanks bilperk,

bilperk wrote:Taylor has said in the past that he has some active funds he has owned a long time due to capital gains issues. Mr. Bogle has indicated the same, IIRC.


I hope he will clarify this. The section in the book does NOT indicate or imply this in any way.

Mel has indicated he owns strategic equity fund, a quant that is pretty close to an index. He likes it because it fishes in the smaller end of the mid-cap space which is his particular preference.


So, he believes that that market is mispriced and his manager will do a better job than the market going forward? It's ok if so, but again I would like to know how he reconciles this with their quoted studies that this is impossible / very unlikely.

Mr. Bogle has made it clear that the main difference in the returns of indexing vs active is costs.


It's important, but not the main difference necessarily. Another big difference is ability to predict which manager will do better in the future and the studies that address that part.
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Re: Bogleheads endorse active management

Postby sscritic » Mon Jan 28, 2013 8:51 am

A) If you are a boglehead, you don't own managed funds
B) Some bogleheads own Wellesley and Wellington.

Here is how you reconcile these two statements:

There is no such thing as a boglehead.

Problem solved.
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Re: Bogleheads endorse active management

Postby bilperk » Mon Jan 28, 2013 9:07 am

learning_head wrote:
Mr. Bogle has made it clear that the main difference in the returns of indexing vs active is costs.


It's important, but not the main difference necessarily. Another big difference is ability to predict which manager will do better in the future and the studies that address that part.


Actually, I believe Mr. bogle has posted a study that indicates it is the only real difference on average. This is just logical because on average all active managers will due as well as the market before costs, because they are the market.

So even though 65-70% of index funds outperform regularly, if you take costs out of the equation, it is a 50/50 toss up. So at equal costs, half of active funds will do better and half will do worse. I don't believe a 10bp difference in ER in a low turnover fund will change that much.
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Re: Bogleheads endorse active management

Postby tfb » Mon Jan 28, 2013 9:19 am

Not just Bogleheads. See what Charles Ellis says about select fund companies.

CONSUELO MACK: How about naming some names? What companies would you say really have set a standard of professionalism that you would feel comfortable referring, an investment management firm or financial advisory firm, that you would feel comfortable referring friends to?

CHARLES ELLIS: I’ll start with Mark’s favorite and mine, Vanguard and DFA, two truly outstanding outfits. We can get into more detail in it, if you want to. T. Rowe Price, outstanding organization. Capital Group, which manages the American Funds- outstanding organization. I know, they’ve had in the last couple of years some imperfection in their results. Don’t worry about it. They are a great organization, and they will figure out what the problems are, and get right back on track, and you can always trust them in the long run. Dodge and Cox is also quite a good firm.

http://wealthtrack.com/site/tag/charles-ellis/
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 9:19 am

bilperk wrote:
learning_head wrote:
Mr. Bogle has made it clear that the main difference in the returns of indexing vs active is costs.


It's important, but not the main difference necessarily. Another big difference is ability to predict which manager will do better in the future and the studies that address that part.


Actually, I believe Mr. bogle has posted a study that indicates it is the only real difference on average. This is just logical because on average all active managers will due as well as the market before costs, because they are the market.

So even though 65-70% of index funds outperform regularly, if you take costs out of the equation, it is a 50/50 toss up. So at equal costs, half of active funds will do better and half will do worse. I don't believe a 10bp difference in ER in a low turnover fund will change that much.


I think it's true that with same costs (and same taxes / low turnover) index funds should be around 50th percentile on after-tax basis in each given year, on average... Issue however is
(a) are some managers / funds more likely to be always in upper 50 and not lower 50, and
(b) if (a) is true, can you identify them prior to their outperformance in (a)?
Studies suggest that that answer is "no" to either (b) or both (a) and (b)...

Also, I recall one of the arguments made by Bogle was that once successful managers get large inflows of money, it becomes much harder for them to outperform. (And if they close the fund to new investments, well, you could not contribute then once they are "recognized"...)
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Re: Bogleheads endorse active management

Postby Wagnerjb » Mon Jan 28, 2013 9:27 am

I am a firm believer in the benefits of low costs, broad diversification and tax efficiency so I guess that makes me a Boglehead. Every investment that I own is the best trade-off for my situation among these three factors. But quite a few are not "index" funds. Examples:

a) I value the diversification I get from TIPs, but since there is no "index" fund I use the Vanguard TIPs fund...it is low cost and well diversified.

b) I prefer to hold shorter-term safer fixed income investments, so I own the Vanguard ST Treasury fund.

c) In my taxable account I value the tax efficiency of Muni bonds, so I hold a Vanguard Muni bond fund.

d) In my 401k plan I value the bargain nature (and relative safety) of the Stable Value fund. It is also very low cost.

e) In my taxable account - primarily for tax reasons - I hold a portfolio of individual stocks. They are passively held, extremely low cost and adequately well diversified. I tax manage these stocks through tax loss harvesting losers and donating big winners to charity and children.

Hope this helps.
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Re: Bogleheads endorse active management

Postby Islander » Mon Jan 28, 2013 9:56 am

The mistake here is to assume that all active funds are the same. For example, those managed by Wellington Management, and there are a number of them
at Vanguard, do not shoot for the stars and have relatively low expenses. On a personal note, I learned this the hard way investing in the late 60s in a Go-Go
fund (Ivy Growth) instead of Michael Price's Mutual shares. The memory is still painful.
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Re: Bogleheads endorse active management

Postby dbr » Mon Jan 28, 2013 9:59 am

Wagnerjb wrote:I am a firm believer in the benefits of low costs, broad diversification and tax efficiency so I guess that makes me a Boglehead. Every investment that I own is the best trade-off for my situation among these three factors. But quite a few are not "index" funds. Examples:

a) I value the diversification I get from TIPs, but since there is no "index" fund I use the Vanguard TIPs fund...it is low cost and well diversified.

b) I prefer to hold shorter-term safer fixed income investments, so I own the Vanguard ST Treasury fund.

c) In my taxable account I value the tax efficiency of Muni bonds, so I hold a Vanguard Muni bond fund.

d) In my 401k plan I value the bargain nature (and relative safety) of the Stable Value fund. It is also very low cost.

e) In my taxable account - primarily for tax reasons - I hold a portfolio of individual stocks. They are passively held, extremely low cost and adequately well diversified. I tax manage these stocks through tax loss harvesting losers and donating big winners to charity and children.

Hope this helps.


I am an owner of a) and d).

Anytime one reads a general statement or rule of thumb one should take it as a title for an article or a mnemonic for a more complex discussion and be sure one understands the underlying issues. Note also that the issues behind, for example, TIPS as a not-index fund and behind, for example, health care as a not-index fund, and behind, for example, Wellington as a not-index fund are completely different.
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Re: Bogleheads endorse active management

Postby Mel Lindauer » Mon Jan 28, 2013 10:05 am

As one of the authors of The Bogleheads' Guide, I'll respond to your concerns.

1. When I started investing in the late 60s, active funds were the order of the day. There were no index funds available then (Jack Bogle introduced the first retail index fund in 1976). Once you own active funds in your taxable account, there are tax consequenses when selling. My co-author, Taylor, has the same problem. Eventually, over time, I bit the bullet and disposed of those early tax-inefficient active funds. That's why we try to help investors get it right the first time with low cost, tax-efficient index funds.
2. Only one fund that I currently own (Vanguard's Admiral Inflation Protected Securities Fund - VAIPX) is not considered to be an index fund. So technically, I do own an active fund and said so in the book.
3. We wanted to provide some balance in the book so that readers wouldn't think that we were claiming that all active funds were evil. We're well aware that many investors don't have indexing options available in their retirement plans, so we wanted to let them know that costs matter when choosing active funds.
4. We tried to provide enough evidence regarding the difficulty of trying to pick (IN ADVANCE) the very few active managers who will eventually outperform their benchmarks over the long haul.

Hopefully we provided enough information in the book so that you could make an informed decision and avoid some of the mistakes we made along the way. The rest is up to you.
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Re: Bogleheads endorse active management

Postby bottomfisher » Mon Jan 28, 2013 10:07 am

Sector funds such as Vanguard Healthcare are inherently riskier funds. The increased risk associated with investing in Vanguard Healthcare, Energy, REIT has been rewarded well in the past. The long term returns of these funds are very impressive. Some investors are able to tolerate more risk in exchange for the possibility of better returns from these sector funds. So they can provide a role in certain risk tolerant investors' portfolios provided they are well diversified through the rest of their portfolio.
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Re: Bogleheads endorse active management

Postby bilperk » Mon Jan 28, 2013 10:16 am

learning_head wrote:


I think it's true that with same costs (and same taxes / low turnover) index funds should be around 50th percentile on after-tax basis in each given year, on average... Issue however is
(a) are some managers / funds more likely to be always in upper 50 and not lower 50, and
(b) if (a) is true, can you identify them prior to their outperformance in (a)?
Studies suggest that that answer is "no" to either (b) or both (a) and (b)...

Also, I recall one of the arguments made by Bogle was that once successful managers get large inflows of money, it becomes much harder for them to outperform. (And if they close the fund to new investments, well, you could not contribute then once they are "recognized"...)


(a) No, not always, but then this is not necessary. It is only necessary that they are in the upper 50% more often than not and that the extent they are in the upper 50% be greater than the extent they are in the lower. I will agree that it will be unlikely that a single active fund will outperform forever. But I don't expect to live that long :D
(b) Studies of all active funds investors have shown that, but studies of Vanguards active funds against their index funds are less conclusive. As Bogle has said, these funds have a "fighting chance" to beat the indexes.

But to your main point in the OP, Rick Ferri is certainly a Boglehead and he has at least one active fund he puts clients in. Of the 10 points of Boglehead philosophy, only one mentions the use of index funds, and that one is #6. It was suggested at the last BH reunion that it be changed from "Use index funds when possible" to "use index funds when practical", I believe. I see it hasn't changed on the WIKI and both words are a little vague I guess, but possible the first could mean that you should always use an index fund, since they are pretty much available in all classes now, regardless of costs. I doubt that was the intent.

My question to you is, can a person be a Boglehead, in your view, if they follow 90% of the philosophy completely and only some of #6?
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Re: Bogleheads endorse active management

Postby SSSS » Mon Jan 28, 2013 10:17 am

The only actively-managed funds I hold are Vanguard TIPS and Vanguard High-Yield Corporate, since they're not available in index form (at least, not at Vanguard).

Vanguard does have a very new short-term TIPS index.
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Re: Bogleheads endorse active management

Postby midareff » Mon Jan 28, 2013 10:23 am

Owning an actively managed fund such as Wellesley, Wellington, Health Care (index only available for $100K & >), Muni Bonds, Commodities, GNMAs, Intermediate Term Corporates and High Yield Bonds and such are not about an attempt to identify managers who can beat the returns of the market (at least in my case) but rather a desire to obtain (or not) exposure to market sectors which may be under weight or unavailable in an index. I wish to have a greater exposure to Health Care than is present in the Total Market Funds and I don't want to put $100K in to own the index so I bought the Admiral fund.

To be a Boglehead MUST I own short term treasuries paying an SEC of .12%, or intermediates paying an SEC .72% by having to own the Total Bond Market Index Fund when I can get .95% in an Ally Bank money market and not have the interest rate risk?

Doing so does not make me any less of a Boglehead just as jaywalking (or something similar) does not make you any less of a law abiding citizen. Does that help you with the concept?
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Re: Bogleheads endorse active management

Postby plannerman » Mon Jan 28, 2013 10:49 am

I just did a very unscientific study. I looked at the 10-year returns of 35 Vanguard mutual funds that didn't have index in their name. I did not include funds of funds or state specific funds. So I make no assertions that this study includes every managed fund Vanguard offers.

I think most would concede all are “low-cost managed funds.”

Then, I counted up the number that beat their (Vanguard) benchmark and the number that under performed their index.

19 of these funds outperformed and 16 under performed their respective benchmarks. Another unscientific observation is that the spread between the Vanguard managed fund’s returns and benchmark returns were for the most part small.

My conclusion is that there are a lot of worse things an investor can do than invest in Vanguard managed funds. You are going to win some and lose some, but in the end it will make very little difference.

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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 10:58 am

bilperk wrote:My question to you is, can a person be a Boglehead, in your view, if they follow 90% of the philosophy completely and only some of #6?


I don't know. I think my main surprise stems from so many bogleheads using actively managed funds that it makes it very confusing when there are many threads and discussions indicating how bad it is and pointers to all the studies showing how bad it is. I don't care if one or few people deviate in one or few aspects of boglehead philosophy. I am trying to understand however how most people reconcile the two things in their heads and counter all the research with the opposite behavior.

From the responses so far, it sounds like the title to this thread is accurate and Bogleheads (as a group) do endorse active management (as long as it's low cost). Some replies here also indicate folks willingness to overweight certain sectors that they feel are mispriced (and thus are "under-represented" in a total index) or provide perhaps a different (higher or lower) return/risk profile than the total portfolio and for which there is no index option. BTW, for examples like Wellington, I believe there is an index option of using 2 or 3 index funds...

midareff wrote:To be a Boglehead MUST I own short term treasuries paying an SEC of .12%, or intermediates paying an SEC .72% by having to own the Total Bond Market Index Fund when I can get .95% in an Ally Bank money market and not have the interest rate risk?


No, owning Ally Bank account is not the same as owning actively managed fund. I am unaware of research that would contradict above-mentioned replacements / substitutions in current environments. However, there is a lot of research about active vs passive management that bogleheads often quote, and yet act in the opposite manner. That's the confusing part to me.

midareff wrote:Doing so does not make me any less of a Boglehead just as jaywalking (or something similar) does not make you any less of a law abiding citizen.


To use your analogy, I would not be surprised or ask questions about your jaywalking if I did not hear you talking about all the research that you believe in about dangers of jaywalking in thousands of threads, books, etc.
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Re: Bogleheads endorse active management

Postby bottlecap » Mon Jan 28, 2013 11:04 am

learning_head wrote:Does this surprise anyone else? I guess Bogleheads are not so strong believers into all the research showing passive investment's superiority after all? Else, why would you take on an outsized risk not compensated by the corresponding increase in expected extra returns (if you believe in all that research about active vs passive investments)?


Why are you shocked that all Bogleheads are not completely the same. Many Bogleheads don't own active funds, some own some low cost active funds. Maybe even some (shock!) own not-so-low cost funds.

While I agree that if you truly believe in the theory behind indexing, there is no need for active funds and owning them is not really logical. But the most important thing about a fund is a) knowing what its strategy is and how it fits in your portfolio and b) its expense ratio, turnover rate and tax efficiency. The fact that it's active is not the most important consideration.

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Re: Bogleheads endorse active management

Postby porcupine » Mon Jan 28, 2013 11:04 am

learning_head:

For what it is worth, I agree with the general tenor of your thread.
learning_head wrote:[...]
midareff wrote:Doing so does not make me any less of a Boglehead just as jaywalking (or something similar) does not make you any less of a law abiding citizen.


To use your analogy, I would not be surprised or ask questions about your jaywalking if I did not hear you talking about all the research that you believe in about dangers of jaywalking and how it is being "against law" in thousands of threads, books, etc.
That said, yesterday I was going to a basketball game and jaywalked. Do you know why? Because the crossing guard dude told us to!! I'm not kidding you - I could see traffic headed my way from the upstream signal, but the crossing guard stood on the road and waved us along (in my defense, a) the light did turn red for those dudes as we were crossing and b) I kept an eye on the traffic as I was walking across).

- Porcupine

* - you will never catch me approve of jaywalking or - worse - promoting it!
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 11:10 am

bottlecap wrote:While I agree that if you truly believe in the theory behind indexing, there is no need for active funds and owning them is not really logical...


So then why do people invest in them? Even if as you said it's not a very important consideration (which I am not sure whether it is or not), but say you are right for a moment, and it's not very important... still, why invest in them? what advantage would people get out of it?
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 11:13 am

One observation I am coming to based on the replies so far: many folks here (at least from the ones that replied) would rather invest in actively managed fund than an index fund if the former had lower cost...

This does not explain the main question of the OP, i.e. why people would invest in actively managed fund even when there is a same or lower-cost index fund, but I thought this was an interesting (and not obvious to me) observation as well...
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Re: Bogleheads endorse active management

Postby bilperk » Mon Jan 28, 2013 11:36 am

LH:

"From the responses so far, it sounds like the title to this thread is accurate and Bogleheads (as a group) do endorse active management (as long as it's low cost)."

I would change the word from endorse to accept. "Bogleheads range in age from teens to those in their 80's of 90's, we have different goals, needs, horizons, and emotional traits. There have been, and probably still are, some here who believe only in total index funds, others believe in slice and dice, other believe in tilting to small or value or both. They all use only index funds, but how can you reconcile those choices since the results favor one or the other? Isn't that just as confusing to you? Is holding 10 asset classes better than Taylor's 3 or 4 fund portfolio. Is Larry or Rick right? HY or commodities or both or neither?

Most here probably don't overthink this issue and just invest the way they feel comfortable within the general philosophy.

And some here are clearly not Bogleheads and come here for all the other information.
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Re: Bogleheads endorse active management

Postby nisiprius » Mon Jan 28, 2013 11:39 am

I have a suggestion for you. Read John C. Bogle's essay, The Twelve Pillars of Wisdom. It isn't terribly long. Exactly what does John C. Bogle have to say about indexing versus active management? Find it, point it out, and quote it. I mean seriously, it's worth taking the time to do that. Hint: Pillars #1 and #8.

The core of the issue is that far less is known about investing than anyone is willing to admit. People make all sorts of confident-sounding, even cocksure statements about it. It's made worse by the fact that most of the people making those statements are in the business and have something to sell.

There's a huge, wide zone in which the most straightforward truth-seekers will argue forever without reaching any conclusion. So don't obsess over "which is best." Inevitably everyone is going to form their own individual opinions and defend them, but just take it as a game, like arguing sports teams or brands of coffee.

What's possible, however, is to get some broad general agreement about what's good enough. Low-cost index funds are good enough. Gourmet DFA not-an-index-but-factor-focussed funds are good enough. Three-fund portfolios are good enough, seven-fund Coffeehouse Portfolios are good enough. Wellington is good enough, Wellesley is good enough.

There's all the difference in the world between any of those and investing in five individual stocks that Jim Cramer agrees are "diversified." Or buying an equity indexed annuity that you think goes up with the market but never goes down. Or paying an advisor with a radio show 1.3% of your portfolio every year. Or buying into that investment that your lodge brother, who really knows about investing can put you into, that has virtually no risk at all. Or even something relatively harmless, like buying a big slice of a NASDAQ index fund because you think technology is currently undervalued.
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Re: Bogleheads endorse active management

Postby Keep It Simple » Mon Jan 28, 2013 11:46 am

I agree with what you are saying Nisiprius. Even loosely following the Boglehead ideas is far better than 99% of the "noise" out there.

Having said that, my personal view is that active management is not necessary. A Three fund portfolio provides everything an investor needs, and in a simplified manner.

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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 11:50 am

bilperk wrote:There have been, and probably still are, some here who believe only in total index funds, others believe in slice and dice, other believe in tilting to small or value or both. They all use only index funds, but how can you reconcile those choices since the results favor one or the other? Isn't that just as confusing to you? Is holding 10 asset classes better than Taylor's 3 or 4 fund portfolio. Is Larry or Rick right? HY or commodities or both or neither?


When there are long threads with discussions on what's better, it does not surprise me if half of the people follow one way and another half do it another way.

When there are virtually no threads where bogleheads argue about pro's and con's of active management however and if a new poster asks some question about this, there is a very one-sided response normally and when folks often post quotes and references to books and research that all comes out one side of the issue... that's where I get confused...
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 11:56 am

nisiprius wrote:I have a suggestion for you. Read John C. Bogle's essay, The Twelve Pillars of Wisdom. It isn't terribly long. Exactly what does John C. Bogle have to say about indexing versus active management? Find it, point it out, and quote it.


First, there is plenty of research other than Bogle's, but if you want me to quote Bogle, from the link you mentioned right above, here is one:

"Low-cost bond index funds and low-cost stock index funds, I should note, provided even higher returns than their low-cost counterparts that were actively managed."

(Please note that italicized parts are Bogle's, not mine...)
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Re: Bogleheads endorse active management

Postby bertilak » Mon Jan 28, 2013 12:02 pm

I own two Vanguard managed funds for nearly ALL of my assets.
  • In my IRA I am 95% Wellington and 5% VGSLX (REITs)
  • In my mother's trust account I am 96% Wellesely and 4% cash (money market)

My reasons are that
  1. It will be simpler for my beneficiary to deal with these. Previously I had six-fund portfolios of index funds but thought that was to complex for anyone but me to manage. My beneficiary was not involved in setting this up and is totally unfamiliar with any of the concepts we take for granted here.
  2. They are "close enough" to index funds for me, given their diversification and low expense ratios.

There are index funds that are also appropriate:
  • Vanguard Balanced Index Adm (VBIAX) for the IRA
  • Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) for the taxable trust
I could have gone with those but they did not have the AAs I wanted.

My original six-fund portfolio had an ER of 12 basis points. Wellington is 19 and Wellesely is 18. So I am paying 6 or 7 basis points to have someone manage the two portfolios for me, and more importantly my beneficiary. Hard to beat that! (Note that the 5% REITs can drift around all they want without any need to rebalance. If they drop way down, so be it. If they go through the roof, well thanks for the unexpected help!)
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Re: Bogleheads endorse active management

Postby bottlecap » Mon Jan 28, 2013 12:19 pm

learning_head wrote:
bottlecap wrote:While I agree that if you truly believe in the theory behind indexing, there is no need for active funds and owning them is not really logical...


So then why do people invest in them? Even if as you said it's not a very important consideration (which I am not sure whether it is or not), but say you are right for a moment, and it's not very important... still, why invest in them? what advantage would people get out of it?


I think it's because of human nature, which does not always pull one to the logical conclusion. We may believe, but we hedge our bets. Or maybe we've owned an active fund for so long, there is some attachment. Or maybe we think it is interesting to make one little "bet" for entertainment value (let's face it, when you index, individual performance becomes less interesting) or to reserve the right to brag at cocktail parties. Maybe it's just the need to be different. You see a number of technically illogical posts about the need to deviate from Boglehead strategy without a decent rationale, even if the poster has 95% of his or her portfolio in index funds. People like to rebel.

I don't know. I found the Bogleheads before I invested in mutual funds. I don't feel the need to be different in the investing area. But you can't expect everyone to be perfect. :wink:

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Re: Bogleheads endorse active management

Postby bilperk » Mon Jan 28, 2013 12:22 pm

learning_head wrote:
nisiprius wrote:I have a suggestion for you. Read John C. Bogle's essay, The Twelve Pillars of Wisdom. It isn't terribly long. Exactly what does John C. Bogle have to say about indexing versus active management? Find it, point it out, and quote it.


First, there is plenty of research other than Bogle's, but if you want me to quote Bogle, from the link you mentioned right above, here is one:

"Low-cost bond index funds and low-cost stock index funds, I should note, provided even higher returns than their low-cost counterparts that were actively managed."

(Please note that italicized parts are Bogle's, not mine...)


This refers to a 10 year period starting in 1991. Wouldn't we expect indexes to do better in a mega bull? They are always fully invested with no cash drag. And, of course, Mr. Bogle didn't know thos results in advance. What is important here is that many years after he authored the 12 pillars in 1994, he still is indicating that low cost active is a viable choice. If Bogle isn't a Boglehead, then who is?
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Re: Bogleheads endorse active management

Postby bottlecap » Mon Jan 28, 2013 12:27 pm

learning_head wrote:When there are virtually no threads where bogleheads argue about pro's and con's of active management however and if a new poster asks some question about this, there is a very one-sided response normally and when folks often post quotes and references to books and research that all comes out one side of the issue... that's where I get confused...


There are plenty of threads, you just need to look for them. There are two issues at play here. First, this forum existed elsewhere before, where these arguments were hashed out ad nauseam. Second, you can't expect forum members to rehash the arguments, pro and con, every time a new poster shows up. Although I haven't thoroughly explored the wiki, one would hope it addresses some of these issues. At some point the arguments for indexing become boring, especially when the arguments for active investing are so thin. Why have a forum dedicated to index investing only to continue to debate its merits?

JT

P.S. This is really where Bogleheads can't win. If they only permit adherents (as if they have control over adherents) to index, you're narrow-minded and intolerant. If you suggest that there are more than one way to skin a cat, you are accused of logical inconsistency. The fact is that a well diversified, low cost, low turnover active fund with a clear strategy is going to have tracking error with the appropriate indices, but it will not sink your portfolio. The goal is not to achieve the highest return, but to minimize the risk of portfolio failure.
Last edited by bottlecap on Mon Jan 28, 2013 12:34 pm, edited 1 time in total.
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Re: Bogleheads endorse active management

Postby YDNAL » Mon Jan 28, 2013 12:34 pm

learning_head wrote:Bogleheads endorse active management

"Endorse" is not really accurate. People use managed Funds for a variety of reasons just as many (a large majority?) tilt/overweight various Asset Classes - even IF using Index Funds.

I believe the Wiki has the term "Boglehead" pretty well defined.
Wiki wrote:The Bogleheads® follow a small number of simple investment principles....

These ideas come from the investing philosophy of Vanguard-founder Jack Bogle.
    Develop a workable plan.
    Invest early and often.
    Never bear too much or too little risk.
    Diversify.
    Never try to time the Market.
    Use Index Funds when possible.
    Keeps cost low.
    Minimize taxes.
    Invest with simplicity.
    Stay the course.
http://www.bogleheads.org/wiki/Boglehea ... philosophy
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Re: Bogleheads endorse active management

Postby retiredjg » Mon Jan 28, 2013 12:38 pm

What are the reasons that actively managed funds are generally not recommended (when there is a choice) for a "pure" boglehead approach?

Costs. Cost is relative. Some actively managed funds are not high cost at all. Vanguard has several choices of actively managed funds that are higher cost than an Admiral Index fund, but still not what I would consider high cost. If such a fund offers something I want, I might buy it. The portfolio could still be low cost overall and that is the goal, isn't it?

Tax-ineffiency. As for tax-inefficiency, if you have to pay a tax cost to fix a tax problem, you may not be improving anything. Or you might. It depends on the particular circumstance. I don't think many people who feel they are following a boglehead approach would choose to put an actively managed fund into a taxable account (exception of low tax bracket, in withdrawal). If they happen to have one there, it may or may not be best to "fix" it.

Actively managed funds are evil. I don't think there is anything in the boglehead mantra about such funds being evil. The main points are cost and tax-efficiency. There are countless exceptions to the "use index funds" rule that make perfectly good sense. The point is not to have a "perfectly pure" index portfolio, but to achieve a good portfolio with what you have offered that fits into your lifestyle and personal needs. Whether that involves actively managed funds is not relevant.
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Re: Bogleheads endorse active management

Postby SSSS » Mon Jan 28, 2013 1:07 pm

retiredjg wrote:I don't think there is anything in the boglehead mantra about such funds being evil.


Well, there are funds like VICEX where being evil is in the prospectus.
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Re: Bogleheads endorse active management

Postby YDNAL » Mon Jan 28, 2013 1:19 pm

SSSS wrote:
retiredjg wrote:I don't think there is anything in the boglehead mantra about such funds being evil.

Well, there are funds like VICEX where being evil is in the prospectus.

You made me look!
Code: Select all
Vice Investor VICEX TOP 25

Altria Group Inc.   6.2
Philip Morris International, Inc.   5.14
Lorillard, Inc.   4.61
Galaxy Entertainment Group Ltd.   4.47
Honeywell International, Inc.   3.9
Penn National Gaming   3.66
Diageo PLC ADR   3.58
United Technologies Corp   3.24
SABMiller PLC   3.22
British American Tobacco PLC ADR   3.11
Reynolds American Inc   3.09
MGM Resorts International   3.01
Boeing Co   2.97
Wynn Resorts Ltd   2.69
Anheuser-Busch Inbev SA   2.67
Lockheed Martin Corporation   2.51
Las Vegas Sands Corp   2.51
Heineken N.V.   2.34
Molson Coors Brewing Company   2.23
Companhia de Bebidas das Americas Ambev ADR   2.21
General Dynamics   2.13
Wynn Macau Ltd.   2.07
Carlsberg AS   1.98
Sands China Ltd.   1.92
L-3 Communications Holdings Inc   1.75
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 1:31 pm

@bottlecap

bottlecap wrote:There are plenty of threads, you just need to look for them. There are two issues at play here. First, this forum existed elsewhere before, where these arguments were hashed out ad nauseam. Second, you can't expect forum members to rehash the arguments, pro and con, every time a new poster shows up. Although I haven't thoroughly explored the wiki, one would hope it addresses some of these issues. At some point the arguments for indexing become boring, especially when the arguments for active investing are so thin. Why have a forum dedicated to index investing only to continue to debate its merits?


So, you agree with me then, right? Noone is discussing these topics here because they are considered "hashed out" and settled... As you said "At some point the arguments for indexing become boring, especially when the arguments for active investing are so thin."... So, then you should also question why after all this, many people here own actively managed funds... ?

I do like your earlier explanations by the way.

@retiredjg: I believe those are not the only reasons. Inability to chose good / winning managers / fund strategies is another one.

@YDNAL:

YDNAL wrote:People use managed Funds for a variety of reasons just as many (a large majority?) tilt/overweight various Asset Classes - even IF using Index Funds.


There are plenty of debates regarding tilts on these boards. Whether to use actively managed funds is considered a "settled" issue however... (until of course someone recommends a Vanguard active fund like Wellington).

@bertilak: Thank you for listing your reasons. Sounds like you had not found an index fund with proper allocation and you wanted to keep it simple for the heirs. I understand. I wonder if the recently revamped LifeStrategy funds would serve that purpose by the way. ;-)
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 1:44 pm

Let me try to paraphrase my OP...

On the one hand, I read posts like this:


What the experts say:

"A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth." Warren Buffet

"Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 oupaced the market by more than 1% a year. These are terrible odds." Jack Bogle (2007)

"Most investors would be better off in an index fund." Peter Lynch

"Only about one out of every four equity funds outperforms the stock market. That's why I'm a firm believer in the power of indexing." Charles Schwab

"Index funds are perhaps the most underrated stock funds in existence." "Mutual Funds for Dummies"

"The fund industry's dirty little secret: most actively managed funds never do as well as their benchmark." Arthur Levitt, Chairman, SEC

"Over the long-term the superiority of indexing is a mathematical certainty." Jason Zweig, senior writer for "Money"

"The media focuses on the temporarily winning active funds that score the more spectacular bull's eyes, not index funds that score every year and accumulate less flashy, but ultimately winning, scores." W. Scott Simon, author

"I love index funds." William Sharpe, Nobel Laurete

"Indexing is for winners only." Jane Bryant Quinn, author, syndicated columnist

"Most people should simply have index funds so they can keep their fees low and their taxes down." Jack Meyer, CEO, Harvard Management

"Four years ago I was a fan of index funds. Today I am a true believer." Jonathan Clements, senior writer, Wall Street Journal

"We find that on average, active management reduces a portfolio's returns and increases its volatility compared with a static index." Vanguard Investment Counseling & Research Analysis

"They're just not going to do it (beat the market). It's just not going to happen. Daniel Kahneman, Nobel Laureate

"I was not always an obnoxious indexing zealot. Ten years of believing in and selling active management strategies in the brokerage industry made me this way." Rick Ferri,CFA, author, financial adviser

"Active portfolio management thus tends to generate lower returns and higher taxes." John Haslem, author,

"Indexing virtually guarantees you superior performance. Bill Bernstein, author, financial adviser

"Index funds save on management and marketing expenses, reduce transacton costs, defer capital gain, and control risk--and in the process beat the vast majority of actively managed mutual funds." Good & Hermansen, authors

"In every asset class where they are available. Index! Four of five funds will fail to meet or beat an appropriate index." Frank Armstrong, author, financial adviser

"With an index fund--the certainty of keeping up with the market is a very worthwhile trade-off for the possibility of beating it. Jack Brennan, CEO Vanguard

"Searching through a list of 234 domestic equity funds that have survived for 20 years, only 31 did better than the Vanguard 500 Index. That means the odds are really, really poor that any of us will do better than a low-cost broad index fund." Scott Burns, syndicated columnist

"Choosing actively managed funds is the triumph of hope over reason and experience." Larry Swedroe. author, financial adviser.

"It's just not true that you can't beat the market. Every year about one-third do it. Of course, each year it is a different group." Robert Stovall, investment manager

"Giving up the futile pursuit of beating the market is the surest way to increase your investment efficiency and enhance your financial peace of mind." Ron Ross, author and adviser.

"It is basically impossible to beat the market." Prof. Eugene Fama

"Indexing is a marvelous technique, I wasn't a true believer, I was just an ignoramus. Now I am a convert. Indexing is an extraordinarily sophisticated thing to do." Douglas Dial, former CREF portfolio manager.

"Simple buy-and-hold index investing is one of the best, most efficient ways to grow your money. Michael Lebouf, Ph.D., author

"The best plan for most of us, is to commit to buying some index funds and do nothing else." Charles Ellis, author

"With the market beating 91% of surviving managers since the beginning of 1982, it looks pretty efficient to me." Bill Miller, portfolio manager

"We should just forget about choosing fund managers and settle for index funds to mimic the market." Pat Regnier, former Morningstar analyst.

"Because active and passive returns are equal before cost, and because active managers bear greater cost, it follows that the after-cost return from active management MUST be lower than that from passive management." Wm Sharpe, Nobel Laurete

"The most efficient way to diversify a stock portfolio is with a low fee index fund." Paul Samuelson, Nobel Laurete

"We find that on average, active management reduces a portfolio's returns and increases its volatility compared with a static index implementation of the portfolio's asset allocation policy." Vanguard study

"Buy and hold. Diversify. Put your money in Index Funds." Justin Fox, Fortune senior writer

"Index funds save on management and marketing expenses, reduce transaction costs, defer capital-gain, and control risk--and in the process, beat the vast majority of actively manage mutual funds." Good & Hermansen, authors

"You should switch all your investment in stocks to index funds as soon as possible, after giving proper consideration to any tax consequences." Chandan Sengupta, author.

"I am somewhat skeptical about anyone's ability to consistently beat the market." Moshe Milevsky, author

"With an index fund--the certainty of keeping up with the market is a very worthwhile trade-off for the possibility of beating it." Jack Brennan, Vanguard CEO

"With a very simple and basic understanding of index funds, you can consistently beat 70% to 80% of all professionally managed index funds." Tweddell & Pierce, authors.

"Invest in a stock index mutual fund. What a brilliant, ingenious, common sense idea that I can't take credit for, but can religiously pass along to those of you who want to unclutter your financial lives and own a sophisticated portfolio." Bill Schultheis, author

"For most of us, trying to beat the market leads to disastrous results." Prof. Jeremy Siegel, author

"The surest way to make money in the stock market is not to work very hard at it. Don't try to outsmart the market; settle for matching it. Put most of your money in an index mutual fund." Gary Belsky, author

"My strongest commitment in the mutual fund arena is to index funds." Richard Young, editor

"I recommend that the long-term buy-and-hold portion of your equity portfolio be invested in equity mutual funds." Sheldon Jacobs, author

"The smartest thing people can do if they want money in the equities market is buy an index fund that is run for 30 basis points a year and forget about it." Elliot Spitzer, NY Attorney General

"The only consistent superior performer is the market itself and the only way to capture the superior consistency is to invest in a properly diversified portfolio of index funds." Rex Sinquefield, researcher.

"It's extremely difficult to beat the market." Peter Brimlow, Forbes senior editor

"There can be no question that indexing for most categories of taxable invesor and for most marketable conditions, will outperform conventional active management." Robert Arnott, CEO First Quadrant

"A passive index fund managed by a not-for-profit investment management organization represents the combination most likely to satisfy investor aspirations." David Swensen, author

"The S&P index benchmarks outperformed their active peer funds in all nine Morningstar style boxes over the past ten years." Gus Sauter (1-25-05)

"It's amazing to me that, by one estimate, only 14% of money is indexed in this country!! What a shame." Lynn O'Shaughnessy, author

"I continue to believe that unless you are extremely skilled (and lucky) for most investors, index funds remain the simplest and most efficient vehicle for investing in stocks." Annette Thou, author

"When you realize how few advisors have beaten the market over the last several decades, you may acquire the discipline to do something even better: become a long-term index fund investor." Mark Hulbert, newsletter tracker.

"Most investors should simply invest in index funds." Robert Rubin, Former Secretary of the Treasury



On the other hand, from same folks, I see:

While all three of us believe that indexing is an excellent investment strategy, all three of us own actively managed Vanguard funds too.


This is just to illustrate the kind of message I (and perhaps other readers) come away with from reading the boards...

Somewhere I missed "When there are passively managed index funds available, you should instead own actively managed funds in same area if ... "
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If we could start over . . .

Postby Taylor Larimore » Mon Jan 28, 2013 1:56 pm

From The Bogleheads Guide to Investing:
"While all three of us believe that indexing is an excellent investment strategy, all three of us own actively managed Vanguard funds too."

Learning_head:

That sentence taken by itself is somewhat misleading. As one of the authors, and speaking for myself, it is true that my wife and I hold actively managed money market, TIPS and two managed stock funds. These funds were purchased many years ago and the stock funds contain significant capital-gains which would trigger a large tax bill if we were to sell or exchange now (capital-gain taxes are cancelled at death).

If Pat and I could start over, we would own the The Three Fund Portfolio.

Best wishes.
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Re: Bogleheads endorse active management

Postby YDNAL » Mon Jan 28, 2013 1:57 pm

learning_head wrote:@YDNAL:
YDNAL wrote:People use managed Funds for a variety of reasons just as many (a large majority?) tilt/overweight various Asset Classes - even IF using Index Funds.

There are plenty of debates regarding tilts on these boards. Whether to use actively managed funds is considered a "settled" issue however... (until of course someone recommends a Vanguard active fund like Wellington).

Settled issue... how? Tell me, learning_head, what's the difference between:

    1. A Boglehead that believes in tilting/overweighing to beat an Index at Market Weights,
    - and -
    2. A Boglehead that believes a managed "Sector" investment to help beat an Index at Market Weights?
    learning_head wrote:The section goes on to talk about some actively managed funds, specifically highlighting Vanguard's Health Care Fund and indicating that such funds should be in tax-deferred space. It does say that the authors are taking on more risk for the chance of greater return and that bulk of the portfolio should be in index funds.
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Re: Bogleheads endorse active management

Postby bottlecap » Mon Jan 28, 2013 2:12 pm

learning_head wrote:@bottlecap

bottlecap wrote:There are plenty of threads, you just need to look for them. There are two issues at play here. First, this forum existed elsewhere before, where these arguments were hashed out ad nauseam. Second, you can't expect forum members to rehash the arguments, pro and con, every time a new poster shows up. Although I haven't thoroughly explored the wiki, one would hope it addresses some of these issues. At some point the arguments for indexing become boring, especially when the arguments for active investing are so thin. Why have a forum dedicated to index investing only to continue to debate its merits?


So, you agree with me then, right? Noone is discussing these topics here because they are considered "hashed out" and settled... As you said "At some point the arguments for indexing become boring, especially when the arguments for active investing are so thin."... So, then you should also question why after all this, many people here own actively managed funds... ?

I do like your earlier explanations by the way.


I agree with you that, if you believe in the superiority of index investing over active investing, buying an active fund makes no sense (unless you already own it and there are adverse tax implications).

I don't agree that Bogleheads continually talk about how "bad" active investing is. Bogleheads largely point out that active investing does not perform as well as index investing, on average, after costs. Bogleheads consistently speak about how the property of a fund with the most predictive value is the cost of the fund. So it's not really a case of do as I say, not as I do, but when you get right down to it, owning active funds isn't logical if you buy the indexing arguments. Some people don't, however, and some people can't bring themselves to invest only in index funds, regardless of what their brain tells them.

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Re: If we could start over . . .

Postby learning_head » Mon Jan 28, 2013 2:39 pm

Taylor Larimore wrote:From The Bogleheads Guide to Investing:
"While all three of us believe that indexing is an excellent investment strategy, all three of us own actively managed Vanguard funds too."

Learning_head:

That sentence taken by itself is somewhat misleading. As one of the authors, and speaking for myself, it is true that my wife and I hold actively managed money market, TIPS and two managed stock funds. These funds were purchased many years ago and the stock funds contain significant capital-gains which would trigger a large tax bill if we were to sell or exchange now (capital-gain taxes are cancelled at death).

If Pat and I could start over, we would own the The Three Fund Portfolio.

Best wishes.
Taylor


Thank you Taylor. This reason makes sense to me and I wish this were explicitly included in the guide as a possible reason on why someone may want to hold on to (or "end up with") such funds (maybe in next revision ;-)).

I think the book section that I mentioned and some threads on this forum (like the one I mentioned in the OP) are much more "accepting" of the actively managed funds than what you mentioned above (I am guessing you did not write it or perhaps things have changed since then).

I am glad you provided your perspective - it makes sense to me. (Would be happy to hear from other authors too.)
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Re: Bogleheads endorse active management

Postby Rick Ferri » Mon Jan 28, 2013 2:43 pm

I use three Vanguard active funds:

Vanguard Intermediate-Tax Exempt Fund
Vanguard Treasury Inflation Protected Fund
Vanguard High Yield Corporate Bond Fund

Is this an endorsement of active management? No, it's a necessity. If Vanguard manages index funds in these categories, then I'd like to know about them. (They don't, BTW) :wink:

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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 2:48 pm

YDNAL wrote:Tell me, learning_head, what's the difference between:
1. A Boglehead that believes in tilting/overweighing to beat an Index at Market Weights,
- and -
2. A Boglehead that believes a managed "Sector" investment to help beat an Index at Market Weights?


The difference is that there is some research showing that small / value tilt provides higher returns for higher risk and this topic is being discussed a lot in the forum.

I am unaware of research about tilting Health or any other of the S&P sectors providing extra benefits and I have not seen nearly as many discussion topics on the forum about this; nor have I seen many recommended portfolio's with such overweights (except for REITs I guess)

Nor do I see any general discussions on whether to have "managed" sector investments is any better than having "active" ones.

In any case, my main question in the thread is about why there is a discrepancy between overall tone of "passive" / "indexed" investments are clearly the "best" and personal portfolios of folks with active funds that are taken as no big deal. (Or at least the discrepancy that I perceive...)
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Re: Bogleheads endorse active management

Postby learning_head » Mon Jan 28, 2013 2:50 pm

@Rick Ferri: Yes Rick, this reason (inability to find corresponding index fund) is clear and understood. My question is about funds like the Health Care one in the book or the Wellington on from Vanguard. (That's why I have the "P.S." part of the OP ;-) )
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Re: Bogleheads endorse active management

Postby Rick Ferri » Mon Jan 28, 2013 2:55 pm

learning_head wrote:@Rick Ferri: Yes Rick, this reason (inability to find corresponding index fund) is clear and understood. My question is about funds like the Health Care one in the book or the Wellington on from Vanguard. (That's why I have the "P.S." part of the OP ;-) )


Well, everyone has their reason, I suppose. Like tilting to small-value, I don't think a little low-cost active management from Vanguard will harm a diversified portfolio very much, although unlike small-value, I don't think it will help either. Here are my other thoughts on this matter:

3 Keys to a Successful Investment Strategy

Rick Ferri
Mutual fund investing is simple. There is risk, there is return, and there are costs. All else is marketing.
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Re: Bogleheads endorse active management

Postby dkturner » Mon Jan 28, 2013 3:30 pm

Rick Ferri wrote:I use three Vanguard active funds:

Vanguard Intermediate-Tax Exempt Fund
Vanguard Treasury Inflation Protected Fund
Vanguard High Yield Corporate Bond Fund

Is this an endorsement of active management? No, it's a necessity. If Vanguard manages index funds in these categories, then I'd like to know about them. (They don't, BTW) :wink:

Rick Ferri


You must not have gotten the memo.

https://personal.vanguard.com/us/funds/ ... IntExt=INT
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Re: Bogleheads endorse active management

Postby Rick Ferri » Mon Jan 28, 2013 3:34 pm

dkturner wrote:
Rick Ferri wrote:I use three Vanguard active funds:

Vanguard Intermediate-Tax Exempt Fund
Vanguard Treasury Inflation Protected Fund
Vanguard High Yield Corporate Bond Fund

Is this an endorsement of active management? No, it's a necessity. If Vanguard manages index funds in these categories, then I'd like to know about them. (They don't, BTW) :wink:

Rick Ferri


You must not have gotten the memo.

https://personal.vanguard.com/us/funds/ ... IntExt=INT


Pardon me! Then again, INT is not a total TIPS index fund, it's a short-term TIPS index fund. It only owns 15 TIPS. There are 33 TIPS traded in the market and Vanguard Inflation-Protected Securities Fund Admiral Shares (VAIPX) owns all of them, so it's tough to say it's not an total TIPS index fund.

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