Ridiculous CNBC Report on ETFs and Index Investing

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MrBrainwash
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Ridiculous CNBC Report on ETFs and Index Investing

Post by MrBrainwash »

Saw this on CNBC this morning. It was in a segment about investing for retirement. Starting at about 0:40:

http://video.cnbc.com/gallery/?video=3000070566
CNBC Reporter Sharon Epperson: "But they said that you need to be wary about ETFs that are based on a broad market index."
Doug Lockwood, Harbor Lights Financial Group: "An index is a ship without a rudder in a market like this. You're going to go up with it, you're going to go down with it. Sure, it's going to be cheap, but you have 0 chance of outpacing the market if you're buying the index."
Yet another example of how financial networks are hazardous to your wealth. I've been trying to help my parents with their retirement portfolio lately, introducing them to the Bogleheads way of thinking. It's tough when they are being bombarded by junk like this.
awval999
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by awval999 »

Well. He didn't say anything untrue. And that's why it's allowed. Of course he omitted that 80% of mutual funds fail to beat the index over the long-term.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by HomerJ »

Sure, it's going to be cheap, but you have 0 chance of outpacing the market if you're buying the index."
And zero chance of underperforming the market as well. :)
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by jebmke »

Rudders are over-rated. When I first learned to sail, the instructor lashed the rudder amidship and forced us to sail around without the rudder.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
am
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by am »

They are a wealth management firm. How can you survive if you sell low cost index funds in that type of business? High net worth individuals do not want to be average. They want access to the top stock pickers. It makes them feel like the 2+% in fees is justified.

On a side note, the broker for our 401k broke down once and told me that he can not make any money placing our small practice into a good 401k with low cost index funds. Unfortunately, I am not in a position to be aggressive and get us into a cheaper plan.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by afan »

I am actually pretty sympathetic to the guests. They sell a product of negative value. They hope to make a lot of money doing it. If you put them in front of a camera, what else would you expect them to say?The disappointing thing is that CNBC never calls them on their claims to be able to outperform the market. Anyone working for the network knows that the evidence is overwhelmingly against this proposition, but the never bring this up. I understand that CNBC sells ad time to brokers, mutual fund companies, etc, and that revenue would dry up if all guests who proclaimed their stock-picking or market timing ability were confronted with the data. It would be nice to talk about it sometimes.

It is still entertaining, and better than watching the nonsense that passes for news on CNN
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by bottlecap »

afan wrote:It is still entertaining, and better than watching the nonsense that passes for news on CNN
It's funny, I used to find CNBC entertaining, even after becoming a Boglehead. Over the last year it's ceased to have any entertainment value for me. I'm not sure why. Anymore, it's never more than a brief stop during my channel-surfing adventure.

JT
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by Barry Barnitz »

rrosenkoetter wrote:
Sure, it's going to be cheap, but you have 0 chance of outpacing the market if you're buying the index."
And zero chance of underperforming the market as well. :)
Wrong, here is the data,index fund performance usually underperforms the market:
Vanguard index funds vs. market: regards,
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by baw703916 »

It's a stock picker's market!

Anybody know where I can find a good and inexpensive stock picker?
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by sport »

I met a money manager socially one time. He told me that with mutual funds, you have to take all the bad companies along with the few good ones. He, of course, can identify and put you into the few good ones. I told him it all depended on whether you consider diversification an asset or a liability. This comment did not receive a response. :roll:

Jeff
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by PreserveCapital »

MrBrainwash wrote:Saw this on CNBC this morning. It was in a segment about investing for retirement. Starting at about 0:40:

http://video.cnbc.com/gallery/?video=3000070566
CNBC Reporter Sharon Epperson: "But they said that you need to be wary about ETFs that are based on a broad market index."
Doug Lockwood, Harbor Lights Financial Group: "An index is a ship without a rudder in a market like this. You're going to go up with it, you're going to go down with it. Sure, it's going to be cheap, but you have 0 chance of outpacing the market if you're buying the index."
Yet another example of how financial networks are hazardous to your wealth. I've been trying to help my parents with their retirement portfolio lately, introducing them to the Bogleheads way of thinking. It's tough when they are being bombarded by junk like this.
The relevant question is not the index fund's chance of beating "the market," but rather, the index fund's chance of beating Doug Lockwood and other active managers.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by mickeyd »

It's CNBC. What did you expect?
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by mickeyd »

jsl11 wrote:I met a money manager socially one time. He told me that with mutual funds, you have to take all the bad companies along with the few good ones. He, of course, can identify and put you into the few good ones. I told him it all depended on whether you consider diversification an asset or a liability. This comment did not receive a response. :roll:

Jeff
Of the dozen money managers that I have met, all admit to indexing at least part of their personal portfolio. The closer that they get to retirement it seems that they index at a greater %. Not a scientific sample; just the facts.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by numbersguy »

am wrote:They are a wealth management firm. How can you survive if you sell low cost index funds in that type of business? High net worth individuals do not want to be average. They want access to the top stock pickers. It makes them feel like the 2+% in fees is justified.

On a side note, the broker for our 401k broke down once and told me that he can not make any money placing our small practice into a good 401k with low cost index funds. Unfortunately, I am not in a position to be aggressive and get us into a cheaper plan.
am, that's not true. I run a WM firm and invest 100% passively using DFA and Vanguard funds (and don't charge 2%). It works with the wealthy just like everyone else.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by neurosphere »

Doug Lockwood, Harbor Lights Financial Group: "An index is a ship without a rudder in a market like this."
Yeah, well that's better than a ship where the rudder is controlled by a guy randomly moving it back and forth no matter what the intended destination.

NS
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by ladders11 »

CNBC is just a business, their viewers are $treeters and they sell ads to active wealth managers and financial companies that all claim to be better than average. I'm sure that many indexers can harken back to time spent watching Kudlow or something and learning what a joke the industry really is. If you watch carefully and religiously, even the best of them will look very obviously like hypocrites and know-nothings after a while.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by Imperabo »

afan wrote:I am actually pretty sympathetic to the guests. They sell a product of negative value. They hope to make a lot of money doing it
Do you have sympathy for the Indian gentleman who calls me on the phone every day to ask if he can sell me some drugs to help with my alleged erectile dysfunction? At least his product has a higher likely of upside.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by abuss368 »

Par for the course!
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by papito23 »

Imperabo wrote:
afan wrote:I am actually pretty sympathetic to the guests. They sell a product of negative value. They hope to make a lot of money doing it
Do you have sympathy for the Indian gentleman who calls me on the phone every day to ask if he can sell me some drugs to help with my alleged erectile dysfunction? At least his product has a higher likely of upside.
LMAO! And so true.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by grabiner »

MrBrainwash wrote:Saw this on CNBC this morning. It was in a segment about investing for retirement. Starting at about 0:40:

http://video.cnbc.com/gallery/?video=3000070566
CNBC Reporter Sharon Epperson: "But they said that you need to be wary about ETFs that are based on a broad market index."
Doug Lockwood, Harbor Lights Financial Group: "An index is a ship without a rudder in a market like this. You're going to go up with it, you're going to go down with it. Sure, it's going to be cheap, but you have 0 chance of outpacing the market if you're buying the index."
Actually, that's not even true. Vanguard Institutional Index Institutional Plus, which is available in some 401(k) plans, has beaten the S&P 500 Index ten years in a row, and is probably the fund most likely to beat the S&P index in any year.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by robertalpert »

awval999 wrote:Of course he omitted that 80% of mutual funds fail to beat the index over the long-term.
That's not quite true, it's 80% index funds beat active management nearly every year. I think -- much much fewer than ONE percent of active beat indexed funds consistently over the long-term (net of fund expenses). Is there any more than ONE-HAND full of active managers (out of the 10,000+ active fund universe) that have consistently outperformed the indexes over a 40-year stretch?
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by mwm158 »

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riskonoff
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by riskonoff »

MrBrainwash wrote:Saw this on CNBC this morning. It was in a segment about investing for retirement. Starting at about 0:40:

http://video.cnbc.com/gallery/?video=3000070566
CNBC Reporter Sharon Epperson: "But they said that you need to be wary about ETFs that are based on a broad market index."
Doug Lockwood, Harbor Lights Financial Group: "An index is a ship without a rudder in a market like this. You're going to go up with it, you're going to go down with it. Sure, it's going to be cheap, but you have 0 chance of outpacing the market if you're buying the index."
Yet another example of how financial networks are hazardous to your wealth. I've been trying to help my parents with their retirement portfolio lately, introducing them to the Bogleheads way of thinking. It's tough when they are being bombarded by junk like this.
i personally know or know of many of the clowns they interview from the floor of the CME. None of them are traders, they are all sales guys (glorified phone clerks) and the most important decision they make every day is what shirt they are going to where that day. Just worthless and amazed they are still making a living doing whatever it is they do.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by Toons »

"Sure, it's going to be cheap, but you have 0 chance of outpacing the market if you're buying the index."


In all my investing life I've never been able to figure out why outpacing the market is necessary as long as
you have enough capital for capital expenditures in your life :peace
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by sometimesinvestor »

Is there any more than ONE-HAND full of active managers (out of the 10,000+ active fund universe) that have consistently outperformed the indexes over a 40-year stretch?

Yes ,I believe , if we compare to the S+ P 500 though I am not certain that all indexes are 40 years old so some of the funds I name may have not beaten all indices. Anyway here are a few relatively familar ones
Columbia Acorn , Sequoia T,Rowe Price New Horizon. Mutual shares.Fidelity Equity Income, , Royce Pennsylvania Mutual and I am pretty share if we pick the correct start year 40 or over that T.Rowe Price Growth Stock fund managed . What is true is that few of these beat the S+p 500 by a lot. I am also sure there are plenty more but again the argunment is that its not so easy to pick funds that will outperform early enough. It is also true that when they started and even now in most cases they were not large cap funds.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by Mel Lindauer »

sometimesinvestor wrote:Is there any more than ONE-HAND full of active managers (out of the 10,000+ active fund universe) that have consistently outperformed the indexes over a 40-year stretch?

Yes ,I believe , if we compare to the S+ P 500 though I am not certain that all indexes are 40 years old so some of the funds I name may have not beaten all indices. Anyway here are a few relatively familar ones
Columbia Acorn , Sequoia T,Rowe Price New Horizon. Mutual shares.Fidelity Equity Income, , Royce Pennsylvania Mutual and I am pretty share if we pick the correct start year 40 or over that T.Rowe Price Growth Stock fund managed . What is true is that few of these beat the S+p 500 by a lot. I am also sure there are plenty more but again the argunment is that its not so easy to pick funds that will outperform early enough. It is also true that when they started and even now in most cases they were not large cap funds.
Active funds need to be compared to the appropriate benchmark to see if they actually outperformed their benchmark, not the S&P 500.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by dumbmoney »

What's the appropriate benchmark for an index fund?

This is a trick question. Most people don't realize that trading costs (market impact) are embedded in the index return, so don't appear as tracking error.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by lawman3966 »

awval999 wrote:Well. He didn't say anything untrue. And that's why it's allowed. Of course he omitted that 80% of mutual funds fail to beat the index over the long-term.
I simply couldn't let this pass. Paraphrasing gives us: CNBC allowed it only because he didn't say anything untrue. I very much doubt that the CNBC interviewers know what is, and what is not, true about finance or much else as their guests present information in real time. We are seeing little other than thinly veiled advertising for the financial firms the guests represent. And the hosts are not likely to challenge the honesty of their guests whom they depend on to keep the show running.

Broadening out from CNBC to Cable and other news in general, the magnitude of untruth I have seen broadcast is simply staggering. And much of it was of a nature that did not profit the guest or report concerned, but merely reflected the limited vetting of facts and knowledge of the people presenting the news. They are on tv for their charisma and presentation skills not for being genuises. When they (which could be NCBC CNN or any other network) addresses a topic I have familiarity with through my profession or some longtime private interest, I become aware of their limitations in reporting the truth. I've seen CNN make high-school level errors on matters of science, law, and politics.

Returning to the practicalities of wathching financial broadcasts, I would take anything I hear on TV with many grains of salt. Ignorance and self-interest are bad enough by themselves. But, in combination, they can be toxic to the net worth of anyone who takes the information at face value. I assume that most Bogleheads know to heavily filter the information from the financial media since the Boglehead authors (especially W. Bernstein) tend to teach skepticism about the intentions of the investment industry. However, the other 99% of the population is at risk of falling prey to the propaganda.

I have a relative in Canada who lobbied to have the govt there force financial advisor ads to carry a warning, as with cigarette packages, notfiying the public that the advisors are acting in their own best interest and that their interests frequently conflict with those of their clients. As always, he was shot down by industry lobbyists who inevitably have more weight and money to throw around within the govt bodies that regulate the industry than the not-for-profit advocates do. Thus, the only remedy is to learn about this by reading for oneself, and actively distrusting what one hears on the for-profit investment media.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by awval999 »

lawman3966 wrote:
awval999 wrote:Well. He didn't say anything untrue. And that's why it's allowed. Of course he omitted that 80% of mutual funds fail to beat the index over the long-term.
I simply couldn't let this pass. Paraphrasing gives us: CNBC allowed it only because he didn't say anything untrue. I very much doubt that the CNBC interviewers know what is, and what is not, true about finance or much else as their guests present information in real time. We are seeing little other than thinly veiled advertising for the financial firms the guests represent. And the hosts are not likely to challenge the honesty of their guests whom they depend on to keep the show running.

Broadening out from CNBC to Cable and other news in general, the magnitude of untruth I have seen broadcast is simply staggering. And much of it was of a nature that did not profit the guest or report concerned, but merely reflected the limited vetting of facts and knowledge of the people presenting the news. They are on tv for their charisma and presentation skills not for being genuises. When they (which could be NCBC CNN or any other network) addresses a topic I have familiarity with through my profession or some longtime private interest, I become aware of their limitations in reporting the truth. I've seen CNN make high-school level errors on matters of science, law, and politics.

Returning to the practicalities of wathching financial broadcasts, I would take anything I hear on TV with many grains of salt. Ignorance and self-interest are bad enough by themselves. But, in combination, they can be toxic to the net worth of anyone who takes the information at face value. I assume that most Bogleheads know to heavily filter the information from the financial media since the Boglehead authors (especially W. Bernstein) tend to teach skepticism about the intentions of the investment industry. However, the other 99% of the population is at risk of falling prey to the propaganda.

I have a relative in Canada who lobbied to have the govt there force financial advisor ads to carry a warning, as with cigarette packages, notfiying the public that the advisors are acting in their own best interest and that their interests frequencly conflict with those of their clients. As always, he was shot down by industry lobbyists who inevitably have more weight and money to throw around within the govt bodies that regulate the industry. Thus, the only remedy is to learn about this by reading for oneself, and actively distrusting what one hears on the for-profit investment media.
I agree with everything you said. I'm just saying if the network/host was called on it, that's what their response would be. "Can't beat the index with an index, son. You are guarrenteeing youself average returns. Look at my pretty graph. I have beaten the index in the last 18 month period, blah, blah." Let me tell you this, they don't put the people on TV that didn't beat the market. You just never hear from them again.
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Re: Ridiculous CNBC Report on ETFs and Index Investing

Post by afan »

they don't put the people on TV that didn't beat the market.
I doubt this is true. They interview a LOT of people, but they rarely discuss their records. I suspect they are drawn from the universe of active managers at firms that get the attention of CNBC. Not just from the much smaller universe of those who are ahead of some index with some portfolios at the time they are booked.

I would love to see an addition to the disclosure graphic they are forced to do on analysts. Wouldn't it be great to see 3, 5, and 10 year multifactor alphas, net of fees, on the portfolios run by the people they interview? It would be easy to generate, but all those negative numbers would not help the CNBC advertising budget.
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