Talk Me Off the Active Investing Ledge!

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mbenoit116
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Talk Me Off the Active Investing Ledge!

Post by mbenoit116 » Fri Nov 08, 2019 7:02 pm

I am a dedicated index investor. I know that statistically, 2/3rds of funds under-perform their benchmark, and that there is roughly a 20% chance that a fund in a particular quintile will remain in that quintile, or move to any other given quintile. Still, when I see a fund that has outperformed its benchmark over a few years, it's hard not to bite!

My family's advisor wants to put us in some kind of "investment portfolio," with a blue chip growth strategy, run by an outside manager, a 30 year old Stanford grad (seems to act like a small mutual fund). I've been told that he doesn't invest in a company until he meets personally with the board of directors, and that he takes a more qualitative approach vs number crunching (I'm sure he crunches plenty of numbers). For the first few years of its life, this portfolio lagged the index overall, and then shot up sometime this year (values up to September 2019). Of course, maybe he just got lucky this year. Or maybe he's finally figuring things out, hence the significant 2019 improvement.

The non-qualitative component of his strategy appeals to me, and it's difficult for me to look at the 26 percentage points better the blue chip growth fund did over 5 years.

Talk me out of letting my account be actively managed!



BCG Active fund Performance: +97%
2019: 39.4%
2018: 1.1%
2017: 17.5%
2016: 19.2%
2015: -3.4%

Russell Growth 1000 Index: + 71%
2019: 25%
2018: -1.7%
2017: 30%
2016: 6.92%
2015: 5.48%

Monster99
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Re: Talk Me Off the Active Investing Ledge!

Post by Monster99 » Fri Nov 08, 2019 7:13 pm

To me, portfolio cost is important. What will it cost for the portfolio?
I also dislike other people (FA's) making money off of my money. I worked hard for my money and it should now work for me.....

surfstar
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Re: Talk Me Off the Active Investing Ledge!

Post by surfstar » Fri Nov 08, 2019 7:15 pm

Past performance...

retired@50
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Re: Talk Me Off the Active Investing Ledge!

Post by retired@50 » Fri Nov 08, 2019 7:25 pm

It appears to me that you're making two different bets that go against your index tendencies...

1. You've selected large cap growth to focus some portion of your dollars above and beyond the standard market weighting.
2. You've hinted that the person running this fund, (30 year old Stanford grad) is sharp, which may be true.

My argument against this move... Large cap growth is probably the most over-fished pond in the entire world, and you're relying on someone who, likely at most, has 8 years experience in the investing world. Do you really think this 30yr old is smarter than every other fisherman in this crowded pond? I'd keep my expense ratios under control, use an index fund like you "know" you should, and wish the youngster all the best. Either way, you'll get a decent story out of it... If he turns out to be the next Warren Buffet, you'll be able to gripe to strangers, "I could have invested in that fund", or you'll be able to say "Lucky me, I didn't fall for a nice story and an extremely short track record of success, I stuck to my guns and bought an index fund".

Regards,

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Wiggums
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Re: Talk Me Off the Active Investing Ledge!

Post by Wiggums » Fri Nov 08, 2019 7:31 pm

You know that it’s unlikely that he found the secret sauce. In fact, there are a handful of fund managers who have beat the market. That’s why Warren Buffett could offer a million dollars to beat the S&P 500 during a multi year period.

The cost matters because this will eat into your performance.

Just say, “no thank you...”

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Taylor Larimore
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Ticker Symbol?

Post by Taylor Larimore » Fri Nov 08, 2019 7:44 pm

mbenoit116:

What is the ticker symbol of this wonderful fund and it's cost? I cannot find a "BCG fund" on Morningstar?

Thank you.
Taylor
Jack Bogle's Words of Wisdom: "There remains no evidence--none--that superior past performance is predictive of future success."
"Simplicity is the master key to financial success." -- Jack Bogle

almostretired1965
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Re: Talk Me Off the Active Investing Ledge!

Post by almostretired1965 » Fri Nov 08, 2019 7:44 pm

I would resist if I were you. To convince yourself, all you have to do is to get a hold of a bunch of yearly performance data for active funds. Pick a year in the past then pull out all the funds that did better than your favorite index every year in the previous, say, 5 years. There ought to be a few. Now look at how they performed in year 6 against the index. Want to bet less than half will do better?

A

zlandar
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Re: Talk Me Off the Active Investing Ledge!

Post by zlandar » Fri Nov 08, 2019 7:48 pm

mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
I've been told that he doesn't invest in a company until he meets personally with the board of directors, and that he takes a more qualitative approach vs number crunching (I'm sure he crunches plenty of numbers).
That is what I think when I hear how fund manager X has met/interviewed/ate with/cohabited with senior management at Company Y.

Whoopdeedoo. Who cares?

https://markets.businessinsider.com/new ... 1028142204

"Despite this, Berkshire has had a surprisingly long run of underperformance relative to the benchmark S&P 500. According to The Financial Times' calculations, Buffett's posted double-digit outperformance from January 1979 to October 2008, but has since lagged the index, when taking into account reinvesting dividends.

A dollar invested in the S&P 500 10 years ago would be worth $3.20 versus $2.40 for Berkshire, the FT said."

Is this superstud better then Buffett? Hope so.

averagedude
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Re: Talk Me Off the Active Investing Ledge!

Post by averagedude » Fri Nov 08, 2019 7:55 pm

If you believe and know statistically that two thirds of active manager's under-perform and that there is a 20% chance that a fund in a particular quintile will remain or move up in that quintile, then why would you put any money in active management. If you do this, you should recognize that this isn't a decision based on intelligent thought, but an emotional or a form of entertainment decision. Perhaps you should ponder if this is a gambling instinct, fear of missing out, greed, or some other motivation.

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arcticpineapplecorp.
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Re: Talk Me Off the Active Investing Ledge!

Post by arcticpineapplecorp. » Fri Nov 08, 2019 8:07 pm

mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
I am a dedicated index investor. I know that statistically, 2/3rds of funds under-perform their benchmark, and that there is roughly a 20% chance that a fund in a particular quintile will remain in that quintile, or move to any other given quintile. Still, when I see a fund that has outperformed its benchmark over a few years, it's hard not to bite!
this is called recency bias. Read Jack Bogle's "The Little Book of Commonsense Investing", pay particularly close attention to the chapter 9 titled, "Yesterday's Winners, Tomorrow's Losers". You'll see that the first shall be the last and the last shall be the first.
mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
My family's advisor wants to put us in some kind of "investment portfolio," with a blue chip growth strategy, run by an outside manager, a 30 year old Stanford grad (seems to act like a small mutual fund). I've been told that he doesn't invest in a company until he meets personally with the board of directors, and that he takes a more qualitative approach vs number crunching (I'm sure he crunches plenty of numbers).
meets with the board of directors? wow. does he make sure to eat the hershey bars and drink the diet coke too before investing? Meeting the board tells you they're nice people, they dress well. It doesn't tell you what's going to happen in the future. And boards of directors change too, so meeting with the board before you invest is one data point only.

He's trying to convince you he has some kind of inside knowledge that others don't have that gives him the edge over the competition and delivers better returns. If that were true then why did:
For the first few years of its life, this portfolio lagged the index overall,
I'm all for qualitative, but the quantitative part in me says that just doesn't add up (pun intended).
mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
For the first few years of its life, this portfolio lagged the index overall, and then shot up sometime this year (values up to September 2019). Of course, maybe he just got lucky this year. Or maybe he's finally figuring things out, hence the significant 2019 improvement.
therein lies the rub. You won't know if he's skilled or lucky. But you need to know that since your money's depending on him being skillful, not lucky. There are academic papers and Larry Swedroe has written about this I believe in The Incredible Shrinking Alpha that show there are ways researchers can measure the percentage of managers who were skillful vs. lucky. The numbers are not good. A very very very small percentage of managers who outperform do so because of skill. The rest did so due to luck. Don't confuse strategy with outcome. Luck is not a strategy.
mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
The non-qualitative component of his strategy appeals to me, and it's difficult for me to look at the 26 percentage points better the blue chip growth fund did over 5 years.
Then don't look.

The only reason to veer from the market is because you believe your guy will beat the market, otherwise why not just own the market. Are you 100% sure he will beat the market? If not, how confident are you? If not confident, don't do it. You'll regret it. Do you need to get higher returns than the market? Why? It's preferable to increase your savings rate, cut expenses, keep working than to take manager risk. This is an additional risk you take when you stray from the index. It's often a risk that's not compensated.

let us know what you decide.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Elric
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Re: Talk Me Off the Active Investing Ledge!

Post by Elric » Fri Nov 08, 2019 8:14 pm

I'm confused. I thought you said the portfolio had underperformed the index until last year, but then you showed figures showing it beat the index year after year. How long has this portfolio been around, and which is it? Is this for the entire stock portion of your investments or just a portion?
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Northern Flicker
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Re: Talk Me Off the Active Investing Ledge!

Post by Northern Flicker » Fri Nov 08, 2019 8:15 pm

If I had to guess, he was overweight Apple and was lucky in 2019. Sound active management at reasonable cost is not something I automatically rule out, but a portfolio run by a single individual does not pass a basic due diligence test. Other due diligence questions would be of a nature to avoid fraudsters like Bernie Madoff, such as asking if there is a rock solid third party custodian where assets are held and portfolio audits are done.

The question you need to answer is not whether this is a good idea, but whether suggesting this idea disqualifies the family advisor as someone who should have any input whatsoever into the management of your portfolio.
Index fund investor since 1987.

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Re: Ticker Symbol?

Post by whodidntante » Fri Nov 08, 2019 8:17 pm

Taylor Larimore wrote:
Fri Nov 08, 2019 7:44 pm
mbenoit116:

What is the ticker symbol of this wonderful fund and it's cost? I cannot find a "BCG fund" on Morningstar?

Thank you.
Taylor
Jack Bogle's Words of Wisdom: "There remains no evidence--none--that superior past performance is predictive of future success."
It's not a mutual fund. The OP wrote:
My family's advisor wants to put us in some kind of "investment portfolio," with a blue chip growth strategy, run by an outside manager, a 30 year old Stanford grad (seems to act like a small mutual fund).

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whodidntante
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Re: Talk Me Off the Active Investing Ledge!

Post by whodidntante » Fri Nov 08, 2019 8:18 pm

It's really easy to beat the market. Just take more risk, and get lucky.

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1789
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Re: Talk Me Off the Active Investing Ledge!

Post by 1789 » Fri Nov 08, 2019 8:25 pm

whodidntante wrote:
Fri Nov 08, 2019 8:18 pm
It's really easy to beat the market. Just take more risk, and get lucky.
I like how you word this 😂
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WhyNotUs
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Re: Talk Me Off the Active Investing Ledge!

Post by WhyNotUs » Fri Nov 08, 2019 8:27 pm

Why is Russell 1000 the benchmark? What are they invested in? Does it have similar risk?

Sounds like your head is telling you to index but your little head wants more.
I own the next hot stock- VTSAX

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Re: Talk Me Off the Active Investing Ledge!

Post by 1789 » Fri Nov 08, 2019 8:29 pm

mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
I am a dedicated index investor. I know that statistically, 2/3rds of funds under-perform their benchmark, and that there is roughly a 20% chance that a fund in a particular quintile will remain in that quintile, or move to any other given quintile. Still, when I see a fund that has outperformed its benchmark over a few years, it's hard not to bite!

My family's advisor wants to put us in some kind of "investment portfolio," with a blue chip growth strategy, run by an outside manager, a 30 year old Stanford grad (seems to act like a small mutual fund). I've been told that he doesn't invest in a company until he meets personally with the board of directors, and that he takes a more qualitative approach vs number crunching (I'm sure he crunches plenty of numbers). For the first few years of its life, this portfolio lagged the index overall, and then shot up sometime this year (values up to September 2019). Of course, maybe he just got lucky this year. Or maybe he's finally figuring things out, hence the significant 2019 improvement.

The non-qualitative component of his strategy appeals to me, and it's difficult for me to look at the 26 percentage points better the blue chip growth fund did over 5 years.

Talk me out of letting my account be actively managed!



BCG Active fund Performance: +97%
2019: 39.4%
2018: 1.1%
2017: 17.5%
2016: 19.2%
2015: -3.4%

Russell Growth 1000 Index: + 71%
2019: 25%
2018: -1.7%
2017: 30%
2016: 6.92%
2015: 5.48%

OP,
You know this will not work. There is a lot of data already that tells us over 30 years of period, 98% of active funds are beaten by indexes.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

bltn
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Re: Ticker Symbol?

Post by bltn » Fri Nov 08, 2019 8:36 pm

Taylor Larimore wrote:
Fri Nov 08, 2019 7:44 pm
mbenoit116:

What is the ticker symbol of this wonderful fund and it's cost? I cannot find a "BCG fund" on Morningstar?

Thank you.
Taylor
Jack Bogle's Words of Wisdom: "There remains no evidence--none--that superior past performance is predictive of future success."
This quote from Jack Bogle is absolutely correct.
I learned this the hard way buying stock funds on the Forbes Honor Roll which most often reverted to the market mean by under performing the market during many of the years I held them. Included in my experience with these funds were the storied Fidelity Magellan and Vanguard Windsor funds.
Invest in market indexes and continue to work and save.

bltn
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Re: Talk Me Off the Active Investing Ledge!

Post by bltn » Fri Nov 08, 2019 8:42 pm

zlandar wrote:
Fri Nov 08, 2019 7:48 pm
mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
I've been told that he doesn't invest in a company until he meets personally with the board of directors, and that he takes a more qualitative approach vs number crunching (I'm sure he crunches plenty of numbers).
That is what I think when I hear how fund manager X has met/interviewed/ate with/cohabited with senior management at Company Y.

Whoopdeedoo. Who cares?

https://markets.businessinsider.com/new ... 1028142204

"Despite this, Berkshire has had a surprisingly long run of underperformance relative to the benchmark S&P 500. According to The Financial Times' calculations, Buffett's posted double-digit outperformance from January 1979 to October 2008, but has since lagged the index, when taking into account reinvesting dividends.

A dollar invested in the S&P 500 10 years ago would be worth $3.20 versus $2.40 for Berkshire, the FT said."

Is this superstud better then Buffett? Hope so.
Excellent information. I did not know this. And using the best stock market investor of our time as an example of the advisability of indexing is powerful.
Not to mention that I understand that Buffet has directed that all of his wife s inheritance be placed in the Vanguard Index 500 Fund.

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Re: Talk Me Off the Active Investing Ledge!

Post by CedarWaxWing » Fri Nov 08, 2019 8:43 pm

" (seems to act like a small mutual fund)"

Ok... small... so post the stocks in it and some folks will tell you why it did well... and again, that is NOT a measure of how it WILL do over the next 5 years.

From Stanford... is just part of the sales pitch. That has no bearing on how this portfolio will do over the next 50 years (hopefully you will be investing at least that long).

No one who is not making money on your money... is going to recommend your going for that pitch.

BTW... what is the name of that company? They should know better.


Good luck.

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Re: Talk Me Off the Active Investing Ledge!

Post by JAZZISCOOL » Fri Nov 08, 2019 9:34 pm

mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
I am a dedicated index investor. I know that statistically, 2/3rds of funds under-perform their benchmark, and that there is roughly a 20% chance that a fund in a particular quintile will remain in that quintile, or move to any other given quintile. Still, when I see a fund that has outperformed its benchmark over a few years, it's hard not to bite!

My family's advisor wants to put us in some kind of "investment portfolio," with a blue chip growth strategy, run by an outside manager, a 30 year old Stanford grad (seems to act like a small mutual fund). I've been told that he doesn't invest in a company until he meets personally with the board of directors, and that he takes a more qualitative approach vs number crunching (I'm sure he crunches plenty of numbers). For the first few years of its life, this portfolio lagged the index overall, and then shot up sometime this year (values up to September 2019). Of course, maybe he just got lucky this year. Or maybe he's finally figuring things out, hence the significant 2019 improvement.

The non-qualitative component of his strategy appeals to me, and it's difficult for me to look at the 26 percentage points better the blue chip growth fund did over 5 years.

Talk me out of letting my account be actively managed!



BCG Active fund Performance: +97%
2019: 39.4%
2018: 1.1%
2017: 17.5%
2016: 19.2%
2015: -3.4%

Russell Growth 1000 Index: + 71%
2019: 25%
2018: -1.7%
2017: 30%
2016: 6.92%
2015: 5.48%
1. Past performance is no guarantee of future performance.
2. Is his performance net or gross of fees? This is critical to know with active managers.
3. What is his historical tracking error?
4. It seems he has a "growth" bias given he is showing a Russell style (growth) index. Growth is generally more volatile than value. Growth has outperformed value for many years now overall. Time for mean reversion? IMO you should also always evaluate vs. a core passive index in addition to any style index e.g. SP500, Russell 1000, etc.
5. How many assets were in the fund that this track record is based on?
6. Ask for attribution reports so you can see where most of his excess return has come from in detail.
7. Ask if the performance record is GIPS compliant. If so, get a copy that verifies that.
8. With all due respect, a 30 year fund manager has likely not managed a large pool of assets through tough markets, e.g. 2008, so that is another reason I would be suspect of this firm personally.
9. What are his fees?
10. Is he a Registered Investment Adviser with the SEC?
11. Is he long only or does he short securities? Any leverage?

See: https://www.gipsstandards.org/complianc ... index.aspx

P.S. Past performance is no guarantee of future performance. :happy
Last edited by JAZZISCOOL on Fri Nov 08, 2019 10:19 pm, edited 1 time in total.

HappyJack
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Re: Talk Me Off the Active Investing Ledge!

Post by HappyJack » Fri Nov 08, 2019 10:11 pm

Reminds me of this quote (from livesoft) I saw on the forum regarding fund managers (which may or may not apply) “We turn your money and our experience into our money and your experience”

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Re: Talk Me Off the Active Investing Ledge!

Post by JAZZISCOOL » Fri Nov 08, 2019 10:12 pm

HappyJack wrote:
Fri Nov 08, 2019 10:11 pm
Reminds me of this quote (from livesoft) I saw on the forum regarding fund managers (which may or may not apply) “We turn your money and our experience into our money and your experience”
LOL :)

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David Jay
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Re: Talk Me Off the Active Investing Ledge!

Post by David Jay » Fri Nov 08, 2019 10:15 pm

mbenoit: Are you are you a qualified investor? If the 30 year old Stanford genius is not running a registered mutual fund, what is the form of his business?
Last edited by David Jay on Sat Nov 09, 2019 9:53 am, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Talk Me Off the Active Investing Ledge!

Post by Robert T » Fri Nov 08, 2019 10:24 pm

mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
BCG Active fund Performance: +97%
2019: 39.4%
2018: 1.1%
2017: 17.5%
2016: 19.2%
2015: -3.4%

Russell Growth 1000 Index: + 71%
2019: 25%
2018: -1.7%
2017: 30%
2016: 6.92%
2015: 5.48%
Here's a story of an active manager - Bruce Berkowitz and his fund the Fairholme Fund (FAIRX). He was Morningstar Fund Manager of the Decade (2000-09). He even wrote a chapter in the 6th Edition of Security Analysis.

Annualized Return (%): 2000-09
+13.2 = Fairholme Fund (FAIRX)
-0.9 = S&P500
+7,6 = Russell MidCap Value Index (as FAIRX had a midcap value tilt)

What could possible go wrong - he was a superstar and AUM in his fund increased to over $14 billion.

Then the next 10 years...

Annualized Return (%): 2010-2019 (to-date)
+4.6 = Fairholme Fund (FAIRX)
+13.2 = S&P500
+12.2 = Russell MidCap Value Index

AUM is now just over $1 billion.

The next 10 years may be stellar again, or maybe not - that is the uncertainty with active managers (and everyone thinks they are above average).

Robert
.

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David Jay
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Re: Talk Me Off the Active Investing Ledge!

Post by David Jay » Fri Nov 08, 2019 10:29 pm

mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
BCG Active fund Performance: +97%
2019: 39.4%
2018: 1.1%
2017: 17.5%
2016: 19.2%
2015: -3.4%

Russell Growth 1000 Index: + 71%
2019: 25%
2018: -1.7%
2017: 30%
2016: 6.92%
2015: 5.48%
You do realize that the ENTIRE outperformance is for a partial year (2019)? The cumulative performance for 2015 through 2018 is BCG 36.8%, R1000 44.6%.

[edit] He likely made one good call earlier this year. And you are ready to jump on board???
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Talk Me Off the Active Investing Ledge!

Post by JAZZISCOOL » Fri Nov 08, 2019 10:33 pm

Robert T wrote:
Fri Nov 08, 2019 10:24 pm
mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
BCG Active fund Performance: +97%
2019: 39.4%
2018: 1.1%
2017: 17.5%
2016: 19.2%
2015: -3.4%

Russell Growth 1000 Index: + 71%
2019: 25%
2018: -1.7%
2017: 30%
2016: 6.92%
2015: 5.48%
Here's a story of an active manager - Bruce Berkowitz and his fund the Fairholme Fund (FAIRX). He was Morningstar Fund Manager of the Decade (2000-09). He even wrote a chapter in the 6th Edition of Security Analysis.

Annualized Return (%): 2000-09
+13.2 = Fairholme Fund (FAIRX)
-0.9 = S&P500
+7,6 = Russell MidCap Value Index (as FAIRX had a midcap value tilt)

What could possible go wrong - he was a superstar and AUM in his fund increased to over $14 billion.

Then the next 10 years...

Annualized Return (%): 2010-2019 (to-date)
+4.6 = Fairholme Fund (FAIRX)
+13.2 = S&P500
+12.2 = Russell MidCap Value Index

AUM is now just over $1 billion.

The next 10 years may be stellar again, or maybe not - that is the uncertainty with active managers (and everyone thinks they are above average).

Robert
.
Alas, there are many stories similar to this in the active management space! But now the managers are rich and may be retired so they have no reason to care. :shock:

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Taylor Larimore
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Re: Talk Me Off the Active Investing Ledge!

Post by Taylor Larimore » Fri Nov 08, 2019 10:35 pm

mbenoit116:

You have not replied to my question (above). However, based on the Replies of others, it appears that your advisor is suggesting you invest in some kind of non-mutual fund. If this is correct, I think you would be making a BIG mistake. Below is a quotation from Kiplinger:
Funds are subject to very strict regulations that protect your money.

The Investment Company Act of 1940 created an intricate system of checks and balances to keep mutual fund money safe.

Each mutual fund is organized as a separate company from the fund's management, and its assets are held by an independent custodian, usually a specialized bank. Even if the fund-management company goes bankrupt, its creditors can't touch the money in the mutual fund, which is held in a separate trust for investors.

The custodian must keep the mutual fund's assets separate from its other accounts and can't touch the money even if the bank fails.

The mutual funds must also file detailed semiannual reports with the Securities and Exchange Commission, provide financial reports to shareholders and be audited annually by an outside firm.

The Investment Company Act of 1940 also requires a percentage of the fund's board to be independent from the fund's investment adviser. And it requires anyone who has access to the fund's securities to hold a fidelity bond, which would pay out if someone did manage to steal any of the money.
Personally, I would never invest in something without the protections listed above.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Making whatever sells--never mind whether it will stand the test of time--effectively ignores the welfare of our clients."
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Re: Talk Me Off the Active Investing Ledge!

Post by z3r0c00l » Fri Nov 08, 2019 11:11 pm

Consider the non-zero risk that this a scam, ponzi scheme or something similar. Those tend to be young hotshots who you hear about through affinity marketing.

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Re: Talk Me Off the Active Investing Ledge!

Post by nedsaid » Sat Nov 09, 2019 12:27 am

z3r0c00l wrote:
Fri Nov 08, 2019 11:11 pm
Consider the non-zero risk that this a scam, ponzi scheme or something similar. Those tend to be young hotshots who you hear about through affinity marketing.
Make certain there are safeguards here. A mutual fund has its securities held by a custodian bank and investment advisors will have their client portfolios at a third party broker like Charles Schwab. In the case of the investment advisors, the monthly statements won't come from the advisor but from the third party broker. These safeguards greatly reduce the chance of someone absconding with the assets. Any reputable firm will do this.
A fool and his money are good for business.

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nedsaid
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Re: Ticker Symbol?

Post by nedsaid » Sat Nov 09, 2019 12:34 am

Taylor Larimore wrote:
Fri Nov 08, 2019 7:44 pm
mbenoit116:

What is the ticker symbol of this wonderful fund and it's cost? I cannot find a "BCG fund" on Morningstar?

Thank you.
Taylor
Jack Bogle's Words of Wisdom: "There remains no evidence--none--that superior past performance is predictive of future success."
I found BCG Securities:

https://www.bcgsecurities.com/

I found this firm that specializes in private equity:

https://www.bcg.com/industries/principa ... perts.aspx
A fool and his money are good for business.

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JAZZISCOOL
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Re: Talk Me Off the Active Investing Ledge!

Post by JAZZISCOOL » Sat Nov 09, 2019 11:36 am

Another data point:

United States
Percentage of Large-Cap funds that underperformed the S&P 500®

Data as of Dec 31, 2018

Five-Year
82.14%

Three-Year
78.98%

One-Year
64.49%

Source: S&P Dow Jones Indices

Caduceus
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Re: Talk Me Off the Active Investing Ledge!

Post by Caduceus » Sat Nov 09, 2019 4:14 pm

You don't have the skills to evaluate who would be a good investment manager, so it seems really strange that you would even consider something like this. Unlike most Bogleheads here, I think there are many people who can and will beat the market averages. And I believe it is possible to tell this ahead of time, not by looking at their fund performance, but by understanding how they go about the investment process.

But looking at your initial post gives me the shudders. All you do is speak in abstract terms about "qualitative" or "quantitative" processes and you seem fixated by a one-year outperformance, which is easily attributable to luck.

The paradox about active investing is this. The people who are most capable of selecting investment managers who will be able to outperform the markets don't actually need investment managers - they are more than capable of running their own investments themselves. What you get is a lot of salesmen peddling junk in actively managed funds. What they care about is increasing their AUM.

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David Jay
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Re: Talk Me Off the Active Investing Ledge!

Post by David Jay » Sat Nov 09, 2019 11:01 pm

And what is the AUM fee of the ”family advisor”? Don’t forget that will be deducted from your results every year.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Talk Me Off the Active Investing Ledge!

Post by deltaneutral83 » Sun Nov 10, 2019 10:30 am

Active management will not work out probability wise, it's that simple. In a vacuum, if you had active management with 0 cost (transactions, front or back end load, ER, AUM, etc etc) in a retirement account it would still be a coin flip as the indexes by default get "average" returns that the market yields. It has to.

In a taxable account with two of the five variables present (taxes, loads, high ER, transactional costs, AUM) your goose is cooked over a 20 year span. Data supports this very clearly. All 5 variables present(?) and a six figure account at age 35 buys the broker a few ferraris by age 60.

"Meets with the board of directors." That quote had me laughing.

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mbenoit116
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Re: Talk Me Off the Active Investing Ledge!

Post by mbenoit116 » Wed Nov 20, 2019 7:03 pm

Taylor Larimore wrote:
Fri Nov 08, 2019 10:35 pm
mbenoit116:

You have not replied to my question (above). However, based on the Replies of others, it appears that your advisor is suggesting you invest in some kind of non-mutual fund. If this is correct, I think you would be making a BIG mistake. Below is a quotation from Kiplinger:
Funds are subject to very strict regulations that protect your money.

The Investment Company Act of 1940 created an intricate system of checks and balances to keep mutual fund money safe.

Each mutual fund is organized as a separate company from the fund's management, and its assets are held by an independent custodian, usually a specialized bank. Even if the fund-management company goes bankrupt, its creditors can't touch the money in the mutual fund, which is held in a separate trust for investors.

The custodian must keep the mutual fund's assets separate from its other accounts and can't touch the money even if the bank fails.

The mutual funds must also file detailed semiannual reports with the Securities and Exchange Commission, provide financial reports to shareholders and be audited annually by an outside firm.

The Investment Company Act of 1940 also requires a percentage of the fund's board to be independent from the fund's investment adviser. And it requires anyone who has access to the fund's securities to hold a fidelity bond, which would pay out if someone did manage to steal any of the money.
Personally, I would never invest in something without the protections listed above.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Making whatever sells--never mind whether it will stand the test of time--effectively ignores the welfare of our clients."
Taylor,

It's not a mutual fund. I truthfully don't understand what kind of vehicle it is.

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mbenoit116
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Re: Talk Me Off the Active Investing Ledge!

Post by mbenoit116 » Wed Nov 20, 2019 7:08 pm

Thank you everyone for your comments. A few points that stuck with me

1) Ensuring that the investment has the proper protections
2) The manager wants to put all my money into this fund, which is very scary given the management risk i'm taking on
3) This one year period of significant over performance does sound likely that it's attributable to luck
4) I'm 30 years old, and I don't trust myself to manage this much money. Such an age seems too young to trust someone else!
5) The comments about the Morningstar Fund Manager of the Decade and Warren Buffet are powerful. Why think this kid is any better?
6) Performance was net of all fees including manager fees, which around ~1%
7) This manager has gotten my family into at least one investment where the principals went to jail. So it's not a negligable chance that this guy is a fraud, Although almost 5 years of performance seems like a long fraud (but perhaps that's just the way it goes!).

EDIT: And their website has some grammatical errors, and a big typo after spending about 2-3 minutes on it.
Last edited by mbenoit116 on Wed Nov 20, 2019 7:10 pm, edited 1 time in total.

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Re: Talk Me Off the Active Investing Ledge!

Post by TropikThunder » Wed Nov 20, 2019 7:10 pm

mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
My family's advisor wants to put us in some kind of "investment portfolio," with a blue chip growth strategy, run by an outside manager, a 30 year old Stanford grad (seems to act like a small mutual fund). I've been told that he doesn't invest in a company until he meets personally with the board of directors, and that he takes a more qualitative approach vs number crunching (I'm sure he crunches plenty of numbers).
Sorry, but why would any board of directors bother meeting with the 30-year old manager of "a small mutual fund"?? Doesn't pass the smell test for me.

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Re: Talk Me Off the Active Investing Ledge!

Post by Dave55 » Wed Nov 20, 2019 7:24 pm

mbenoit116 wrote:
Wed Nov 20, 2019 7:08 pm
Thank you everyone for your comments. A few points that stuck with me

1) Ensuring that the investment has the proper protections
2) The manager wants to put all my money into this fund, which is very scary given the management risk i'm taking on
3) This one year period of significant over performance does sound likely that it's attributable to luck
4) I'm 30 years old, and I don't trust myself to manage this much money. Such an age seems too young to trust someone else!
5) The comments about the Morningstar Fund Manager of the Decade and Warren Buffet are powerful. Why think this kid is any better?
6) Performance was net of all fees including manager fees, which around ~1%
7) This manager has gotten my family into at least one investment where the principals went to jail. So it's not a negligable chance that this guy is a fraud, Although almost 5 years of performance seems like a long fraud (but perhaps that's just the way it goes!).

EDIT: And their website has some grammatical errors, and a big typo after spending about 2-3 minutes on it.
# 7 tells me run the other way as fast as you can.

Dave

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Re: Talk Me Off the Active Investing Ledge!

Post by retiringwhen » Wed Nov 20, 2019 7:36 pm

Private Equity / Hedge funds have serious expenses (fees, tax preparation, legal, delays, etc.) when it comes time to get out them. If you die before you sell, your heirs will not thank you. If you have to sell them, you will kick yourself.

I suggest that for the vast majority of the population, all PE investing amounts to is a creative way for advisors to pick your pocket.

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Re: Talk Me Off the Active Investing Ledge!

Post by retiringwhen » Wed Nov 20, 2019 7:38 pm

Dave55 wrote:
Wed Nov 20, 2019 7:24 pm
7) This manager has gotten my family into at least one investment where the principals went to jail. So it's not a negligable chance that this guy is a fraud, Although almost 5 years of performance seems like a long fraud (but perhaps that's just the way it goes!).
Bernie Madoff ran his scam for DECADES!

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Re: Talk Me Off the Active Investing Ledge!

Post by RadAudit » Wed Nov 20, 2019 10:35 pm

HappyJack wrote:
Fri Nov 08, 2019 10:11 pm
Reminds me of this quote (from livesoft) I saw on the forum regarding fund managers (which may or may not apply) “We turn your money and our experience into our money and your experience”
When you've read enough about passive investing and still fill the urge to jump in to active investing, sometimes the only way to get off the active investing ledge is to jump. Best of luck.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

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Re: Talk Me Off the Active Investing Ledge!

Post by CarpeDiem22 » Wed Nov 20, 2019 10:50 pm

mbenoit116 wrote:
Fri Nov 08, 2019 7:02 pm
BCG Active fund Performance: +97%
2019: 39.4%
2018: 1.1%
2017: 17.5%
2016: 19.2%
2015: -3.4%

Russell Growth 1000 Index: + 71%
2019: 25%
2018: -1.7%
2017: 30%
2016: 6.92%
2015: 5.48%
"Most investors are primarily oriented toward return, how much they can make, and pay little attention to risk, how much they can lose." - Seth Klarman, Margin of Safety.

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Re: Talk Me Off the Active Investing Ledge!

Post by heart_in_san_francisco » Thu Nov 21, 2019 12:22 am

arcticpineapplecorp. wrote:
Fri Nov 08, 2019 8:07 pm
this is called recency bias. Read Jack Bogle's "The Little Book of Commonsense Investing", pay particularly close attention to the chapter 9 titled, "Yesterday's Winners, Tomorrow's Losers". You'll see that the first shall be the last and the last shall be the first.
Is it possible to inverse this strategy, and purchase the worst performing mutual funds in a given year? Has anyone backtested such a "fund"?

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Re: Talk Me Off the Active Investing Ledge!

Post by heart_in_san_francisco » Thu Nov 21, 2019 12:32 am

whodidntante wrote:
Fri Nov 08, 2019 8:18 pm
It's really easy to beat the market. Just take more risk, and get lucky.
Great way to put it. This so-called strategy worked for me. I made a huge windfall working at a pre-IPO tech company. No, not the first one. Not the second one. Not the third one. Not the fourth one... even though it did very well I didn't draw up my contract right and got screwed. The 5th time was the charm though! I thought I could repeat it for a 6th time because I had finally figured it out, but the 6th time was a bust. :oops: :D

Best of luck to anyone trying to beat the market. I made some lucky money in bitcoin once too, owned over 100 coins and sold at the peak after a runup to... *drumroll* $900. :oops: Oops. Oh well. I've since lost a good amount of money in crypto and individual stocks and this has saved me a lot of money ironically because having my Robinhood "play-money" account is the best thing at continually keeping myself humble and making the right decisions with my larger accounts.

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Re: Talk Me Off the Active Investing Ledge!

Post by heart_in_san_francisco » Thu Nov 21, 2019 12:41 am

Caduceus wrote:
Sat Nov 09, 2019 4:14 pm
Unlike most Bogleheads here, I think there are many people who can and will beat the market averages. And I believe it is possible to tell this ahead of time, not by looking at their fund performance, but by understanding how they go about the investment process.
I believe your first statement. I don't believe your second statement... if you have the skills to evaluate who will beat the market, you have enough knowledge to beat the market on your own, and you'd make more money that way. Maybe there's a few prodigies out there too lazy to invest on their own who still manage to find the right manager, but those people are unicorns.

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Re: Talk Me Off the Active Investing Ledge!

Post by Caduceus » Thu Nov 21, 2019 12:49 am

heart_in_san_francisco wrote:
Thu Nov 21, 2019 12:41 am
Caduceus wrote:
Sat Nov 09, 2019 4:14 pm
Unlike most Bogleheads here, I think there are many people who can and will beat the market averages. And I believe it is possible to tell this ahead of time, not by looking at their fund performance, but by understanding how they go about the investment process.
I believe your first statement. I don't believe your second statement... if you have the skills to evaluate who will beat the market, you have enough knowledge to beat the market on your own, and you'd make more money that way. Maybe there's a few prodigies out there too lazy to invest on their own who still manage to find the right manager, but those people are unicorns.
You should have quoted my whole post. You'd see that not only do I agree with you, you basically repeated what I said in the last paragraph of my post.

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Re: Talk Me Off the Active Investing Ledge!

Post by heart_in_san_francisco » Thu Nov 21, 2019 1:38 am

Caduceus wrote:
Thu Nov 21, 2019 12:49 am
heart_in_san_francisco wrote:
Thu Nov 21, 2019 12:41 am
Caduceus wrote:
Sat Nov 09, 2019 4:14 pm
Unlike most Bogleheads here, I think there are many people who can and will beat the market averages. And I believe it is possible to tell this ahead of time, not by looking at their fund performance, but by understanding how they go about the investment process.
I believe your first statement. I don't believe your second statement... if you have the skills to evaluate who will beat the market, you have enough knowledge to beat the market on your own, and you'd make more money that way. Maybe there's a few prodigies out there too lazy to invest on their own who still manage to find the right manager, but those people are unicorns.
You should have quoted my whole post. You'd see that not only do I agree with you, you basically repeated what I said in the last paragraph of my post.
You’re right! I was so triggered by your first paragraph I didn’t finish. Sorry! :D

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Re: Talk Me Off the Active Investing Ledge!

Post by Dottie57 » Thu Nov 21, 2019 2:34 am

mbenoit116 wrote:
Wed Nov 20, 2019 7:08 pm
Thank you everyone for your comments. A few points that stuck with me

1) Ensuring that the investment has the proper protections
2) The manager wants to put all my money into this fund, which is very scary given the management risk i'm taking on
3) This one year period of significant over performance does sound likely that it's attributable to luck
4) I'm 30 years old, and I don't trust myself to manage this much money. Such an age seems too young to trust someone else!
5) The comments about the Morningstar Fund Manager of the Decade and Warren Buffet are powerful. Why think this kid is any better?
6) Performance was net of all fees including manager fees, which around ~1%
7) This manager has gotten my family into at least one investment where the principals went to jail. So it's not a negligable chance that this guy is a fraud, Although almost 5 years of performance seems like a long fraud (but perhaps that's just the way it goes!).

EDIT: And their website has some grammatical errors, and a big typo after spending about 2-3 minutes on it.
You forgot a very importantpoint.

You dont understand the investment. Stay away. There are so many red flags - pay attention before you lose all ofyour money!

GoldenFinch
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Re: Talk Me Off the Active Investing Ledge!

Post by GoldenFinch » Thu Nov 21, 2019 5:23 am

No way would I do this! Keep reading here and learn how to take care of your money yourself. You don’t even need to have gone to Stanford to be able to do it well.

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