Active beats passive in 7 year "bet" (again)

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Active beats passive in 7 year "bet" (again)

Postby Petrocelli » Mon Jul 01, 2013 9:35 am

Seven years ago, andy (Wagner) made a bet with me in which he picked a large value index fund and I picked a large value actively managed funds. Ithnk we both doubted we would still be posting seven years later.

Andy picked the ishares Russell 1000 Index ETF (and I spotted him the cost of trhe brokerage fee). I picked Windsor II.

Seven years ended yesterday. Here are the results, assuming a $10,000 investment in each:

Russell 1000 Value Index ETF: $13,503 (35.04% total return) (IWD)
Windsor II: $14,183 (41.83% total return) (VWNFX)

Thus, the actively managed fund won by about 1% a year.

Under the terms of the bet, Andy must wear women's clothing to work this week. Lucky for him, it's a 3 day week.
Last edited by Petrocelli on Mon Jul 01, 2013 10:20 am, edited 2 times in total.
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Re: Active beats passive in 7 year "bet" (again)

Postby Rick Ferri » Mon Jul 01, 2013 9:38 am

Russell 1000 isn't a large value Index. It's a large cap blend index. Do you mean another ETF that tracks a value index?
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Re: Active beats passive in 7 year "bet" (again)

Postby Garco » Mon Jul 01, 2013 9:51 am

Rick, for some reason M* calls/classifies the Russell 1000 as a value index, and uses it as a benchmark. This may be strictly incorrect but perhaps "accepted" practice.
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Re: Active beats passive in 7 year "bet" (again)

Postby RadAudit » Mon Jul 01, 2013 9:52 am

Let's try to keep this info from Mr. Wagner as he may be slightly upset when the news gets out that it was not exactly a fair bet according to Mr. Ferri.
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Re: Active beats passive in 7 year "bet" (again)

Postby nisiprius » Mon Jul 01, 2013 9:55 am

:?: :?: :?: :? :?

it almost looks to me as if the orange line, iShares Russell 1000 Index, IWB is above the blue line, Vanguard Windsor II, VWNFX. And, play with the live chart, it stays that way even if you tinker a bit with the starting point.

(And, no, Vanguard Windsor II Admiral shares VNWAX, green line, doesn't beat IWB, either).

$10,000 grew to $14,781,77 in iShares Russell 1000, only $14,183.19 in Windsor II, that's 0.59% less, annualized, for the active fund.

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Re: Active beats passive in 7 year "bet" (again)

Postby Petrocelli » Mon Jul 01, 2013 10:13 am

nisiprius wrote:
$10,000 grew to $14,781,77 in iShares Russell 1000, only $14,183.19 in Windsor II, that's 0.59% less, annualized, for the active fund.



Start with these figures:

On June 30, 2006 we bought: 309.598 shares of Windsor II at $32.20 and 136.761 shares of the Russell 1000 Index ETF at $73.12. All dividends reinvested.

I used M*'s portfolio tracker.
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Re: Active beats passive in 7 year "bet" (again)

Postby nisiprius » Mon Jul 01, 2013 10:13 am

Just for the record,dumb old Total Stock Market Index beat both of 'em.

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Re: Active beats passive in 7 year "bet" (again)

Postby Petrocelli » Mon Jul 01, 2013 10:15 am

Rick Ferri wrote:Russell 1000 isn't a large value Index. It's a large cap blend index. Do you mean another ETF that tracks a value index?


You are correct. I left out the word "Value" -- which is pretty important here I guess. I have edited the OP and added the ticker symbols.
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Re: Active beats passive in 7 year "bet" (again)

Postby Petrocelli » Mon Jul 01, 2013 10:17 am

nisiprius wrote:Just for the record,dumb old Total Stock Market Index beat both of 'em.


Funny you should mention that. On March 4, 2004, I made a bet on the old Diehards forum where I took Primecap and someone else took TSM. Primecap won the 5 year bet. I continue to track the portfolio. As of today, Primecap has beaten the Index Fund by about 30%.

And it would be great if we could bet with hindsight, wouldn't it?
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Re: Active beats passive in 7 year "bet" (again)

Postby 1210sda » Mon Jul 01, 2013 10:25 am

Are you just reporting the details of your bet?

Or are you implying that active is a "better" approach than passive ?

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Re: Active beats passive in 7 year "bet" (again)

Postby staythecourse » Mon Jul 01, 2013 10:27 am

Here is my analysis:

1. IWB is a large blend and NOT a large cap value. Always important to compare apples to apples. Windsor II: P/E: 12.4, P/B: 1.62 and IWB: P/E: 15.18 and P/B: 2.15 proves they are not apples to apples. Windsor also is not all domestic LCV, but currently 8% in international and 3% in cash as well.
2. Cost difference: WIndsor II (admiral): 0.27% expense+ 0.44 TCR last 5 yrs. vs. IWB: 0.15%+ 0.36% TCR last 5 yrs. This gives at least a 0.2% advantage to the index fund over a VERY low cost active managed fund. This you would think will increase in time in most active funds as the turnover and capital gains taxation increases over time.
3. I don't believe anyone says active can't win, but the question is does the costs overcome any advantage. You wisely chose a low cost active fund (Most are not that similar to index funds in ER or TCR) to say this comparison is the same for all active vs. index debates.

Now let's say you are comparing apples to apples and you just subtract the cost differences so it would seem you have a difference of 0.8% annualized (1% as you said- the cost difference). The point now is that folks ALWAYS make the same mistake of looking at funds in isolation. Let's say you have LCV as 50% of your ENTIRE portfolio you are now ahead (all else being equal in the other 50% of the portfolio) of 0.4% (weighted average of 0.5 x 0.8%). This was one big point of choosing active funds as a losers game in "Power of Passive Investing" from Mr. Ferri. When you add multiple active funds the chances of each beating it's benchmarks diminshes.

So at best you have a 0.4% advantage (most likely less unless you really have 50% of your entire portfolio in LCV only) after only 7 years of comparison.

Good luck.
Last edited by staythecourse on Mon Jul 01, 2013 10:36 am, edited 1 time in total.
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Re: Active beats passive in 7 year "bet" (again)

Postby Petrocelli » Mon Jul 01, 2013 10:28 am

1210sda wrote:Are you just reporting the details of your bet?

Or are you implying that active is a "better" approach than passive ?



I believe low cost actively managed funds are pretty darn good.

If anyone asks me how to invest, I tell them to buy a Target fund, so I think most people should buy index funds.

However, I have been squeezing a little extra return out of my portfolio using both index funds and actively managed funds.
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Re: Active beats passive in 7 year "bet" (again)

Postby staythecourse » Mon Jul 01, 2013 10:29 am

Petrocelli wrote:
nisiprius wrote:
$10,000 grew to $14,781,77 in iShares Russell 1000, only $14,183.19 in Windsor II, that's 0.59% less, annualized, for the active fund.



Start with these figures:

On June 30, 2006 we bought: 309.598 shares of Windsor II at $32.20 and 136.761 shares of the Russell 1000 Index ETF at $73.12. All dividends reinvested.

I used M*'s portfolio tracker.


Thanks even a better point of active vs. passive. All depends on the cherry picking of times. Of course, I know you didn't do this on purpose as you are just reporting the results of a bet, but just saying.

Good luck.
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Re: Active beats passive in 7 year "bet" (again)

Postby nisiprius » Mon Jul 01, 2013 10:29 am

Petrocelli wrote:
Rick Ferri wrote:Russell 1000 isn't a large value Index. It's a large cap blend index. Do you mean another ETF that tracks a value index?


You are correct. I left out the word "Value" -- which is pretty important here I guess. I have edited the OP and added the ticker symbols.
Oh, good. I was scratching my head with my left hand while counting on my fingers with my right hand, trying to figure out whether I had somehow charted 6 years starting in '07 when I meant to chart 7 years starting in '06.
Petrocelli wrote:And it would be great if we could bet with hindsight, wouldn't it?
In hindsight, your rival should have invested in the Russell 1000 index.

Obviously, this proves that although active beats passive, untilted beats tilted--and untilted passive beats tilted active. Right? :wink:

I think what it proves is that it's all mostly superstition and that almost nothing of what people believe about investing is robust enough to overcome the luck of the particular time period. Probably not for any period of time, however long, because if the time period is long enough to get sampling error small enough, it is long enough that it spans periods of time in which it is not really sensible to believe that you are looking at "the same thing" any more.
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Re: Active beats passive in 7 year "bet" (again)

Postby matjen » Mon Jul 01, 2013 10:30 am

I think he is implying that the largest factor in the active/passive debate is costs. If you pick well run and INEXPENSIVE active funds you have a chance. That is my take.
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Re: Active beats passive in 7 year "bet" (again)

Postby Dulocracy » Mon Jul 01, 2013 10:33 am

So, if I pick an actively managed apples fund, and Bob picks an indexed oranges fund, active is better than index because apples beat oranges?

One fund you discuss includes international and smaller capitalization stocks than the other, which has no international or smaller capitalization stocks.
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Re: Active beats passive in 7 year "bet" (again)

Postby YDNAL » Mon Jul 01, 2013 10:41 am

Petrocelli wrote:Seven years ago, andy (Wagner) made a bet with me in which he picked a large value index fund and I picked a large value actively managed funds. Ithnk we both doubted we would still be posting seven years later.
Andy picked the ishares Russell 1000 Index ETF (and I spotted him the cost of trhe brokerage fee). I picked Windsor II.


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Re: Active beats passive in 7 year "bet" (again)

Postby G-Money » Mon Jul 01, 2013 10:45 am

Dulocracy wrote:So, if I pick an actively managed apples fund, and Bob picks an indexed oranges fund, active is better than index because apples beat oranges?

One fund you discuss includes international and smaller capitalization stocks than the other, which has no international or smaller capitalization stocks.

When I compare VWNFX to IWD here: https://personal.vanguard.com/us/funds/ ... tingFrom=2 (you may need to re-enter the ticker symbols), I see that IWD actually had the small median market cap ($43.2 billion to $52.9 billion). It was also slightly "valuey-er". As of 5/31/13, VWNFX had 8.1% foreign, compared with 1.4% for IWD.

Your point about the active fund and the index fund still is true, although I don't think the two funds are dramatically different. But won't that always be the case? How often will you find an active fund that exactly mimics an index fund on every criteria? What would be the purpose of owning that kind of an active fund, anyway? IMO, VWNFX and IWD are similar enough for the purpose of Petro's and Andy's friendly wager.

I am not at all bothered by the results of the bet. I readily acknowledge that active will sometimes beat passive, and that low-cost active has a much better chance of doing so. I simply prefer to not wonder whether I picked the "right" active fund.

Congrats to Petro and condolences to Andy.
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Re: Active beats passive in 7 year "bet" (again)

Postby YDNAL » Mon Jul 01, 2013 10:51 am

G-Money wrote:Your point about the active fund and the index fund still is true, although I don't think the two funds are dramatically different. But won't that always be the case? How often will you find an active fund that exactly mimics an index fund on every criteria?

Thus, the reason why these comparisons (and bets) are largely a waste of time unless it is just for fun. ← That's not how I read the crux of OP.
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Re: Active beats passive in 7 year "bet" (again)

Postby Leesbro63 » Mon Jul 01, 2013 10:55 am

This reminds me of Bill Miller. He went more than double your 7 year bet. But in the end he gave it all back and did not beat passive. 7 years is not enough time to prove anything.
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Re: Active beats passive in 7 year "bet" (again)

Postby IlliniDave » Mon Jul 01, 2013 11:03 am

Petrocelli wrote:
1210sda wrote:Are you just reporting the details of your bet?

Or are you implying that active is a "better" approach than passive ?



I believe low cost actively managed funds are pretty darn good.

If anyone asks me how to invest, I tell them to buy a Target fund, so I think most people should buy index funds.

However, I have been squeezing a little extra return out of my portfolio using both index funds and actively managed funds.


I have to admit I agree. Usually to be "low cost" an active fund has to keep it's turnover relatively low (<< 100%) and you wind up with passive-style active management. Those style funds, unlike the "average" active fund, seem to hold their own relative to indexes (I've heard some called 'virtual indexes'). I do predominantly straight indexing myself these days, but I have no qualms against considering passive-style active funds in the arena of tilts and spice.

More so than index funds, the fight to reestablish that passive-style management for Wellington Fund was what led Bogle to establish Vanguard.
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Re: Active beats passive in 7 year "bet" (again)

Postby gwrvmd » Mon Jul 01, 2013 11:10 am

Way to go Petro
I am a BH but a little more of a Vanguard BH than a Index BH
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Re: Active beats passive in 7 year "bet" (again)

Postby 1210sda » Mon Jul 01, 2013 11:14 am

I'm a passive investor all the way. However, I accept that active investing can outdo passive under certain circumstances.

For those that choose active.......I wonder how much of the "Lake Wobegon" factor is at play?

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Re: Active beats passive in 7 year "bet" (again)

Postby KyleAAA » Mon Jul 01, 2013 11:16 am

Petrocelli wrote:Under the terms of the bet, Andy must wear women's clothing to work this week. Lucky for him, it's a 3 day week.


I look forward to the pictures.
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Re: Active beats passive in 7 year "bet" (again)

Postby Rodc » Mon Jul 01, 2013 11:20 am

Dulocracy wrote:So, if I pick an actively managed apples fund, and Bob picks an indexed oranges fund, active is better than index because apples beat oranges?

One fund you discuss includes international and smaller capitalization stocks than the other, which has no international or smaller capitalization stocks.


To be fair, there was a bet on particular funds. No fair going back and saying my side would have won if only we had picked a winning fund.
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Re: Active beats passive in 7 year "bet" (again)

Postby camontgo » Mon Jul 01, 2013 11:24 am

FWIW, Windsor II wins even if performance is measured using Fama-French or CAPM regression. (June 2013 returns excluded since the factor data is not yet available).

Both funds have a negative alpha using either model.

I'm still sticking with my index funds. :happy

Code: Select all
IWD Fama-French Loading
Alpha (monthly)   -0.13% 
rmrf               0.987
smb               -0.162
hml                0.304
R-squared: 0.985,   

VWNFX Fama-French Loading   
(Intercept)       -0.05% 
rmrf               1.00
smb               -0.220
hml                0.160
R-squared: 0.976   

IWD CAPM Loading
Alpha (monthly)   -0.21%   
rmrf  (Beta)       1.02   
R-squared: 0.965

VWNFX CAPM Loading
Alpha (monthly)   -0.11%     
rmrf (Beta)        0.996
R-squared: 0.965
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Re: Active beats passive in 7 year "bet" (again)

Postby momar » Mon Jul 01, 2013 11:42 am

I enjoy these posts by Petrocelli because they perfectly illustrate that what matters is cost. On average, passive vs active does not matter otherwise. Many don't seem to entirely grasp this.
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Re: Active beats passive in 7 year "bet" (again)

Postby Rick Ferri » Mon Jul 01, 2013 12:44 pm

momar wrote:I enjoy these posts by Petrocelli because they perfectly illustrate that what matters is cost. On average, passive vs active does not matter otherwise. Many don't seem to entirely grasp this.


Actually, it does matter. Even if the split was 50/50 between very low fee active funds and index funds (which is isn't), the average amount of out-performance and under-performance has to be considered. If the winning half of active funds beat index funds by 0.5% and the other half lose by -0.9%, then an investors should use all index funds.

50/50 isn't the right number, BTW. Actively managed fund portfolios choosen from the lowest 10% in fees puts the winning percentage for all index fund portfolios around 60% (only 40% of active fund portfolios won). This is better than the 75% advantage for all index fund portfolios when selecting from the bottom-half of fees for actively managed funds, and around 85% advantage favoring all index funds when no fee filter is used for actively managed funds. Survivorship-bias is taken into consideration in these results.

It is possible to beat index funds, it's just not probable. We just competed a large study on this, so I'm quite confident in my data.

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Re: Active beats passive in 7 year "bet" (again)

Postby momar » Mon Jul 01, 2013 12:48 pm

Fees aren't the only cost.
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Re: Active beats passive in 7 year "bet" (again)

Postby Rick Ferri » Mon Jul 01, 2013 12:54 pm

momar wrote:Fees aren't the only cost.

:happy

+1

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Re: Active beats passive in 7 year "bet" (again)

Postby rkhusky » Mon Jul 01, 2013 1:48 pm

Leesbro63 wrote:This reminds me of Bill Miller. He went more than double your 7 year bet. But in the end he gave it all back and did not beat passive. 7 years is not enough time to prove anything.


100 years is not even enough time to prove anything - you can only show evidence for a particular position. Plus there is always the assumption that the future will be the same as the past. When dealing with human behavior, that is a dangerous assumption to make.
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Re: Active beats passive in 7 year "bet" (again)

Postby Rodc » Mon Jul 01, 2013 1:52 pm

Rick Ferri wrote:
momar wrote:Fees aren't the only cost.

:happy

+1

Rick Ferri


There is also risk in some funds that is not in general compensated, namely having a fund that concentrates in too few companies to be well diversified.

Windsor II is low cost (ER and trading costs) and well diversified. I don't use it myself, but hardly a bad fund even if not an index fund.

Articles and research on the evils of active funds really focus on high cost, high turn over, highly concentrated funds, which are the real danger.
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Re: Active beats passive in 7 year "bet" (again)

Postby Dulocracy » Mon Jul 01, 2013 5:29 pm

Rodc wrote:
To be fair, there was a bet on particular funds. No fair going back and saying my side would have won if only we had picked a winning fund.


That made me laugh.
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Re: Active beats passive in 7 year "bet" (again)

Postby SVariance1 » Mon Jul 01, 2013 5:43 pm

Leesbro63 wrote:This reminds me of Bill Miller. He went more than double your 7 year bet. But in the end he gave it all back and did not beat passive. 7 years is not enough time to prove anything.


Costs should not be the only consideration. I would look at the manager/analysts' educational backgrounds. Studies have shown that managers from top ranked schools produce better results than people from lesser ranked schools. The managers from the higher ranked school might be more intelligent but probably more importantly, they likely have better networks. Bill Miller has a relatively weak educational background.
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Re: Active beats passive in 7 year "bet" (again)

Postby Leesbro63 » Mon Jul 01, 2013 7:15 pm

SVariance1 wrote: Costs should not be the only consideration. I would look at the manager/analysts' educational backgrounds. Studies have shown that managers from top ranked schools produce better results than people from lesser ranked schools. The managers from the higher ranked school might be more intelligent but probably more importantly, they likely have better networks. Bill Miller has a relatively weak educational background.


This is an interesting comment. Can you name a few of these stars? And have they beaten passive investing...or just the dummies without ivy league business school credentials?
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Re: Active beats passive in 7 year "bet" (again)

Postby nisiprius » Mon Jul 01, 2013 7:52 pm

SVariance1 wrote:I would look at the manager/analysts' educational backgrounds. Studies have shown that managers from top ranked schools produce better results than people from lesser ranked schools. The managers from the higher ranked school might be more intelligent but probably more importantly, they likely have better networks. Bill Miller has a relatively weak educational background.
How would you score educational strength?

Miller graduated with honors from a nationally recognized liberal arts college. U. S. News judges that Washington & Lee ranks #14, tied with the U.S. Naval Academy. Do you happen to know much or how good his uncompleted Ph.D. work at Johns Hopkins was?

What educational strength would you assign to, a Bachelor of Arts from the University of Toledo, summa cum laude, and an MBA from Case Western Reserve? Weak, relatively weak, somewhat weak, mediocre, somewhat strong, relatively strong, very strong? Note: U. S. News shows "rank not published" for the University of Toledo. They show Case Western Reserve ranking #52 among graduate business schools.
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Re: Active beats passive in 7 year "bet" (again)

Postby Grt2bOutdoors » Mon Jul 01, 2013 8:01 pm

I would like to see those pictures. Where's Andy Wagner today?, all these posts on the forum and nary a squeak from him. :wink: Ah, yes, I forgot :oops: , he must be pulling some long hours today, it's quarter end.
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Re: Active beats passive in 7 year "bet" (again)

Postby gkaplan » Mon Jul 01, 2013 8:02 pm

SVariance1 wrote:
Leesbro63 wrote:This reminds me of Bill Miller. He went more than double your 7 year bet. But in the end he gave it all back and did not beat passive. 7 years is not enough time to prove anything.


Costs should not be the only consideration. I would look at the manager/analysts' educational backgrounds. Studies have shown that managers from top ranked schools produce better results than people from lesser ranked schools. The managers from the higher ranked school might be more intelligent but probably more importantly, they likely have better networks. Bill Miller has a relatively weak educational background.


Quite the elitist, aren't you.
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Re: Active beats passive in 7 year "bet" (again)

Postby btenny » Mon Jul 01, 2013 8:03 pm

Petro and others,

According to Rick Ferri at this post we just discussed a few days ago mixing passive funds is the KEY ingrediant besides low cost....

viewtopic.php?f=10&t=118626&p=1733249

The paper says that investing in a MIX of index funds is by far the best for PORTFOLIO returns 75% or more of the time. Even better than single index funds. The key in all these comparisons of one active single fund versus one passive single fund misses the key ingerdiant, diversification. A single active fund might only win 50% or more of the time statistically in comparison. But two or more active funds only wins 25% of the time against a mix of 2 passive bond/stock indexes. And it gets even worse if you use 3 or more active funds if the type of funds over laps versus 3 or so index funds......

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Re: Active beats passive in 7 year "bet" (again)

Postby SVariance1 » Mon Jul 01, 2013 8:06 pm

nisiprius wrote:
SVariance1 wrote:I would look at the manager/analysts' educational backgrounds. Studies have shown that managers from top ranked schools produce better results than people from lesser ranked schools. The managers from the higher ranked school might be more intelligent but probably more importantly, they likely have better networks. Bill Miller has a relatively weak educational background.
How would you score educational strength?

Miller graduated with honors from a nationally recognized liberal arts college. U. S. News judges that Washington & Lee ranks #14, tied with the U.S. Naval Academy. Do you happen to know much or how good his uncompleted Ph.D. work at Johns Hopkins was?

What educational strength would you assign to, a Bachelor of Arts from the University of Toledo, summa cum laude, and an MBA from Case Western Reserve? Weak, relatively weak, somewhat weak, average, somewhat strong, relatively strong, very strong?
John Neff, manager of the Vanguard Windsor fund, has a Bachelor of Arts from the University of Toledo, summa cum laude, and an MBA from Case Western Reserve.


I would consider the following to be top schools for investing: (I might leaving out a couple but this is where the investment people go:

Columbia
Harvard
Wharton
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Re: Active beats passive in 7 year "bet" (again)

Postby SVariance1 » Mon Jul 01, 2013 8:11 pm

gkaplan wrote:
SVariance1 wrote:
Leesbro63 wrote:This reminds me of Bill Miller. He went more than double your 7 year bet. But in the end he gave it all back and did not beat passive. 7 years is not enough time to prove anything.


Costs should not be the only consideration. I would look at the manager/analysts' educational backgrounds. Studies have shown that managers from top ranked schools produce better results than people from lesser ranked schools. The managers from the higher ranked school might be more intelligent but probably more importantly, they likely have better networks. Bill Miller has a relatively weak educational background.


Quite the elitist, aren't you.


Certainly not. If am paying a fee, I should be able to decide the criteria for hiring a fund manger. Would you call Fidelity or Vanguard elitist organizations. They have plenty of people from top schools working as PMs or analysts.
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Re: Active beats passive in 7 year "bet" (again)

Postby nisiprius » Mon Jul 01, 2013 8:24 pm

SVariance1 wrote:I would consider the following to be top schools for investing: (I might leaving out a couple but this is where the investment people go:
Columbia
Harvard
Wharton
Is it then, fair to say that you think an MBA is from #52-ranked Case Western Reserve is distinctly substandard, and a fund manager with that degree probably doesn't have a really first-rate personal network? And that to be on safe side it might be a good idea to ignore his fund, when it's so easy to find ones managed by Columbia, Harvard, and Wharton grads?
John Neff, manager of the Vanguard Windsor fund from inception through 1995, has a Bachelor of Arts from the University of Toledo, summa cum laude, and an MBA from Case Western Reserve.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Active beats passive in 7 year "bet" (again)

Postby SVariance1 » Mon Jul 01, 2013 8:37 pm

nisiprius wrote:
SVariance1 wrote:I would consider the following to be top schools for investing: (I might leaving out a couple but this is where the investment people go:
Columbia
Harvard
Wharton
Is it then, fair to say that you think an MBA is from #52-ranked Case Western Reserve is distinctly substandard, and a fund manager with that degree probably doesn't have a really first-rate personal network? And that to be safe side it might be a good idea to ignore his fund, when it's so easy to find ones managed by Columbia, Harvard, and Wharton grads?


I would not describe it as substandard (I don't know the school at all). Does it have a strong finance program? I do not recall ( I have not done the research in quite some time) many PMs or analysts going to that school. I would prefer to invest with a company who hires out of schools known for having strong finance programs such as the schools I mentioned. Columbia University, for example is essentially where value investing started and still maintains a culture rich in value investing.
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Re: Active beats passive in 7 year "bet" (again)

Postby Ranger » Mon Jul 01, 2013 8:42 pm

Is funds managed by U. Chicago grad a lemon?
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Re: Active beats passive in 7 year "bet" (again)

Postby SVariance1 » Mon Jul 01, 2013 8:45 pm

Ranger wrote:Is funds managed by U. Chicago grad a lemon?


My list was not all inclusive. The schools were examples.
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Re: Active beats passive in 7 year "bet" (again)

Postby LadyGeek » Mon Jul 01, 2013 8:59 pm

Please stay on-topic, which is Petrocelli's bet outcome.
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Re: Active beats passive in 7 year "bet" (again)

Postby Petrocelli » Mon Jul 01, 2013 9:01 pm

SVariance1 wrote:Columbia
Harvard
Wharton


I went to one of these three schools so I am probably smarter than most people. At a minimum, for three hours on a Saturday morning in 1976, I was better at filling in circles with a no. 2 pencil than 99 out of 100 high school seniors. I rule.
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Re: Active beats passive in 7 year "bet" (again)

Postby Petrocelli » Mon Jul 01, 2013 9:08 pm

As for the bet, let's get two things straight.

First, I recommend to pretty much everyone who asks to buy a Target Fund. Since I oversee a 401(k) plan, I am pimping index funds like Super Fly.

Second, if any adviser I hired put Windsor II in my portfolio, I'd fire them. I can screw around with money. They shouldn't ( and most around here don't).

However, with that said, I use varying mixes of actively managed funds in my portfolio. I track my performance against Target 2025. I hold the same target bond allocation as Target 2025, and have beaten handily (over an admittedly short period.) Given past performance, you are going to have a very tough time getting me to sell, for example, International Growth for International Index. It just won't happen.

My point was made in several other posts by other posters. It doesn't matter if a fund is active or index to me. Costs and turnover matter. That's all. I think active management is worth something, and paying about .10% for active management is not a bad deal.

The real point is that I have now won two bets. Back to back. I am the Bogleheads' version of Lebron now. The second championship banner will be raised tomorrow.
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Re: Active beats passive in 7 year "bet" (again)

Postby momar » Mon Jul 01, 2013 9:22 pm

Petrocelli wrote:As for the bet, let's get two things straight.

First, I recommend to pretty much everyone who asks to buy a Target Fund. Since I oversee a 401(k) plan, I am pimping index funds like Super Fly.

Second, if any adviser I hired put Windsor II in my portfolio, I'd fire them. I can screw around with money. They shouldn't ( and most around here don't).

However, with that said, I use varying mixes of actively managed funds in my portfolio. I track my performance against Target 2025. I hold the same target bond allocation as Target 2025, and have beaten handily (over an admittedly short period.) Given past performance, you are going to have a very tough time getting me to sell, for example, International Growth for International Index. It just won't happen.

My point was made in several other posts by other posters. It doesn't matter if a fund is active or index to me. Costs and turnover matter. That's all. I think active management is worth something, and paying about .10% for active management is not a bad deal.

The real point is that I have now won two bets. Back to back. I am the Bogleheads' version of Lebron now. The second championship banner will be raised tomorrow.

What forum's heart did you break?
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Re: Active beats passive in 7 year "bet" (again)

Postby TO39 » Mon Jul 01, 2013 9:36 pm

according to my math petrocelli had a 30 dollar headstart
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