Why do you have to "beat the market"?

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thelateinvestor43
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Why do you have to "beat the market"?

Post by thelateinvestor43 » Sun Nov 17, 2019 12:45 am

I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?

JBTX
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Re: Why do you have to "beat the market"?

Post by JBTX » Sun Nov 17, 2019 12:48 am

You generally won't hear that here.

Caduceus
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Re: Why do you have to "beat the market"?

Post by Caduceus » Sun Nov 17, 2019 1:43 am

I can't speak for everyone, but to the extent I try to beat the market, it is for two reasons.

I want to get rich.

And it's intellectually interesting to study financial statements, take the occasional action (I've had one good idea in the last three years - that one idea has returned much, much more than the total stock market index), and then see if you are proven right (or wrong).

I find the process itself interesting because there's so much to read about and to learn and so many intriguing accounting things you come across.

MotoTrojan
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Re: Why do you have to "beat the market"?

Post by MotoTrojan » Sun Nov 17, 2019 1:53 am

JBTX wrote:
Sun Nov 17, 2019 12:48 am
You generally won't hear that here.
I think it is pretty common for someone on Bogleheads to aim to beat the S&P500 actually. There area a lot of people that tilt to small-value who are doing just that. Sure, they may be proper Bogleheads and know they can't beat it on a risk-adjusted basis, but they can still expect to beat it quite easily.

I agree with Caduceus as to reasons. I tilt away from the overall market in a few ways but I track the XIRR of my most radial deviation against the S&P500 with dividends reinvested and so far it has been quite fun to see how they compare. Of course it may just be fun due to the 65%+ XIRR relative to mid-teens for the S&P500 :).

jsprag
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Re: Why do you have to "beat the market"?

Post by jsprag » Sun Nov 17, 2019 1:58 am

JBTX wrote:
Sun Nov 17, 2019 12:48 am
You generally won't hear that here.
I hear it here all the time, it's just in code.

Let's stipulate that "the market" is the global cap-weighted investable universe. There are near-daily threads of people eschewing international [debt or equities] or tilting towards small+value because of their historic or anticipated performance.

They are trying to achieve above-market returns and/or below-market risk. Either is an attempt to beat the market.

jsprag
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Re: Why do you have to "beat the market"?

Post by jsprag » Sun Nov 17, 2019 2:07 am

thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
Let me turn that around - why wouldn't you want to beat the market?

I'd like to beat the market every year, but any strategy with the potential of beating the market also has the potential to fall short of it.

For me the question is "why would I want to assume the risk of a strategy that attempts to beat the market?"

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Eagle33
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Re: Why do you have to "beat the market"?

Post by Eagle33 » Sun Nov 17, 2019 2:08 am

ego so can brag
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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Re: Why do you have to "beat the market"?

Post by MotoTrojan » Sun Nov 17, 2019 2:15 am

jsprag wrote:
Sun Nov 17, 2019 2:07 am

For me the question is "why would I want to assume the risk of a strategy that attempts to beat the market?"
Why do you hold 100% equities instead of 60/40? Because you are willing to accept more risk for more return. I would argue that a tilt to small-value increases expected return while maintaining risk-adjusted return.

I could see a reasonable Boglehead argument that a diversified total world equity portfolio is better than tilting for those that hold some bonds (if you want more risk/return, just hold less bonds) but once one is at 100/0 it is much more efficient than other means to increase risk/return, such as leverage.

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Re: Why do you have to "beat the market"?

Post by HEDGEFUNDIE » Sun Nov 17, 2019 2:20 am

Because I prefer more money to less money.

YMMV

rossington
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Re: Why do you have to "beat the market"?

Post by rossington » Sun Nov 17, 2019 2:55 am

What we are doing is investing "x" amount of dollars and attempting to increase the value of that investment.
"Beating the market" is purely a hypothetical statement and meaningless.
Simply, gains are what we want and losses are what we hope to avoid.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

Spirit Rider
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Re: Why do you have to "beat the market"?

Post by Spirit Rider » Sun Nov 17, 2019 3:16 am

Because people operate under the illusion they must be "better than average" to be successful in "all things" not just investing. When the persistent reality is that those "seeking alpa" are far more likely to underperform the market long term.

The fundamental philosophy of Bogleheads is that a diversified portfolio of broad-based passive investments. Is designed to and will get you market returns less minimal expenses.

However, this forum is more and more populated with schemes to get above market returns. Their proponents are convinced; this time, this plan, this etc... is different.

Those of us who have seen this all before just smile, steady the ship and stay the course to comfortable retirements. We have no need for above market returns and question the ability of those who claim they can, despite their willingness to take unnecessary risks.

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Re: Why do you have to "beat the market"?

Post by BionicBillWalsh » Sun Nov 17, 2019 3:16 am

WANTED: New or gently used time machine to be able to routinely pull this off
Saltwater has an amazing ability to wash away many of life’s troubles

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Re: Why do you have to "beat the market"?

Post by Call_Me_Op » Sun Nov 17, 2019 7:12 am

thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
Those are the people you should ignore.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

FRANK2009
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Re: Why do you have to "beat the market"?

Post by FRANK2009 » Sun Nov 17, 2019 8:14 am

I'm happy to take what the market gives. Not many people can consistently beat the market.

dcabler
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Re: Why do you have to "beat the market"?

Post by dcabler » Sun Nov 17, 2019 8:19 am

Some of us want to attempt to maximize our returns within our risk tolerance. To many of us, that thought process has nothing to do with "the market" if one considers any investment to be an equally viable candidate for consideration.

22twain
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Re: Why do you have to "beat the market"?

Post by 22twain » Sun Nov 17, 2019 8:39 am

jsprag wrote:
Sun Nov 17, 2019 2:07 am
Let me turn that around - why wouldn't you want to beat the market?
In my case, it's because I already have "enough", and don't need to reach for more. Besides, I have other ways to goose my overall expected returns without fiddling with tilting etc. I'm retired, with about a 50% stock allocation. If I wanted to reach for more, I'd simply increase my stock allocation.
My investing princiPLEs do not include absolutely preserving princiPAL.

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JoeRetire
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Re: Why do you have to "beat the market"?

Post by JoeRetire » Sun Nov 17, 2019 8:42 am

thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
Because more is better?

I don't know about anyone else, but if there were a guaranteed way to beat the market without increased risk and no additional work, I'd do it. Why not?
Don't be a lemming.

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beyou
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Re: Why do you have to "beat the market"?

Post by beyou » Sun Nov 17, 2019 8:49 am

There is a practical reason. Inflation.

If you make a below avg return with an avg starting portfolio, you will lose spending power over time vs those that start with an avg size portfolio but have >= avg returns.

grettman
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Re: Why do you have to "beat the market"?

Post by grettman » Sun Nov 17, 2019 8:52 am

beyou wrote:
Sun Nov 17, 2019 8:49 am
There is a practical reason. Inflation.

If you make a below avg return with an avg starting portfolio, you will lose spending power over time vs those that start with an avg size portfolio but have >= avg returns.
But we aren't talking about making a below average returns (unless I am missing something). We are talking about beating the market which isn't necessary. Let's say the market returns 10%. Inflation is 3%. My returns are any where between > 3% and < 10%, I am not beating the market and I am not losing buying power either.

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Re: Why do you have to "beat the market"?

Post by Wiggums » Sun Nov 17, 2019 8:53 am

22twain wrote:
Sun Nov 17, 2019 8:39 am
jsprag wrote:
Sun Nov 17, 2019 2:07 am
Let me turn that around - why wouldn't you want to beat the market?
In my case, it's because I already have "enough", and don't need to reach for more. Besides, I have other ways to goose my overall expected returns without fiddling with tilting etc. I'm retired, with about a 50% stock allocation. If I wanted to reach for more, I'd simply increase my stock allocation.
While accumulating (and working), I can appreciate wanted to grow the portfolio. Beating the market Sounds analogous to Being able to tell your friends that you caught a bigger fish.

I am also retired with great cash flow. I don’t need to grow the portfolio now with additional risk. I accept market returns. There is still plenty for my children and our charities.

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Re: Why do you have to "beat the market"?

Post by Dottie57 » Sun Nov 17, 2019 8:58 am

FRANK2009 wrote:
Sun Nov 17, 2019 8:14 am
I'm happy to take what the market gives. Not many people can consistently beat the market.
This.

I didn’t beat the market with fancy active funds which had smart , educated managers. How can I beat the market. The accounts where I have had low cost index funds have done mychbetter than other accounts.

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Re: Why do you have to "beat the market"?

Post by beyou » Sun Nov 17, 2019 9:04 am

grettman wrote:
Sun Nov 17, 2019 8:52 am
beyou wrote:
Sun Nov 17, 2019 8:49 am
There is a practical reason. Inflation.

If you make a below avg return with an avg starting portfolio, you will lose spending power over time vs those that start with an avg size portfolio but have >= avg returns.
But we aren't talking about making a below average returns (unless I am missing something). We are talking about beating the market which isn't necessary. Let's say the market returns 10%. Inflation is 3%. My returns are any where between > 3% and < 10%, I am not beating the market and I am not losing buying power either.
If everyone you know earns 10% on avg and you earn 7% over your life, you will have less savings than others. And you don’t think this will impact your future auto or home purchases ? CPI is one measure of inflation, not the only. Anyone who went to all TIPS/I bond porfolio last 10 years may have earned “inflation” but not keeping up with the real cost of living (or keeping up with the Joneses).

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Re: Why do you have to "beat the market"?

Post by Spirit Rider » Sun Nov 17, 2019 9:44 am

beyou wrote:
Sun Nov 17, 2019 9:04 am
If everyone you know earns 10% on avg and you earn 7% over your life, you will have less savings than others. And you don’t think this will impact your future auto or home purchases ? CPI is one measure of inflation, not the only. Anyone who went to all TIPS/I bond porfolio last 10 years may have earned “inflation” but not keeping up with the real cost of living (or keeping up with the Joneses).
But, we are not talking about everyone you know earning a greater risk adjusted return. We are talking about people seeking above market returns and in many cases claiming they receive them. When the overwhelming evidence is that they are far more likely to underperform the market long-term. It is rare for individual overperformance to be long-term.

Many such people don't even calculate their returns. They almost never calculate after-tax returns. If they do, they rarely compare to appropriate risk adjusted benchmarks. They often like gamblers, accenuate their winners and understate their losers.

The significant majority of family, friends and acquaintances who claim above market returns can not substantiate their claims. The minority who can are generally because of increased risk. However, with the exception of a BIL, I do not have a long-term view and he got crushed in 2000-2002 and 2008-2009. It easy to claim gains during what is now a 10+ year bull market with one of the largest persistent gain.

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Re: Why do you have to "beat the market"?

Post by jsprag » Sun Nov 17, 2019 10:00 am

22twain wrote:
Sun Nov 17, 2019 8:39 am
jsprag wrote:
Sun Nov 17, 2019 2:07 am
Let me turn that around - why wouldn't you want to beat the market?
In my case, it's because I already have "enough", and don't need to reach for more. Besides, I have other ways to goose my overall expected returns without fiddling with tilting etc. I'm retired, with about a 50% stock allocation. If I wanted to reach for more, I'd simply increase my stock allocation.
Markets also go down, and "beating the market" becomes not about capturing more than market gains, but about taking less than market losses.

Irrespective of all other factors, in a scenario where markets went down by 30% in a given period would you prefer that:
a. Your portfolio also goes down by at least 30% (not beat the market), or
b. Your portfolio goes down by less than 30% (beat the market)

Given an otherwise equal choice, I'd always choose to beat the market, on both the ups and the downs, because it gives us more of the very thing we are investing for. Now, would I pay additional costs or assume additional risk for a chance to do so? Not what was asked.

zlandar
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Re: Why do you have to "beat the market"?

Post by zlandar » Sun Nov 17, 2019 10:01 am

Because the commercials say I'm supposed to.

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JoMoney
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Re: Why do you have to "beat the market"?

Post by JoMoney » Sun Nov 17, 2019 10:13 am

jsprag wrote:
Sun Nov 17, 2019 10:00 am
22twain wrote:
Sun Nov 17, 2019 8:39 am
jsprag wrote:
Sun Nov 17, 2019 2:07 am
Let me turn that around - why wouldn't you want to beat the market?
In my case, it's because I already have "enough", and don't need to reach for more. Besides, I have other ways to goose my overall expected returns without fiddling with tilting etc. I'm retired, with about a 50% stock allocation. If I wanted to reach for more, I'd simply increase my stock allocation.
Markets also go down, and "beating the market" becomes not about capturing more than market gains, but about taking less than market losses.

Irrespective of all other factors, in a scenario where markets went down by 30% in a given period would you prefer that:
a. Your portfolio also goes down by at least 30% (not beat the market), or
b. Your portfolio goes down by less than 30% (beat the market)

Given an otherwise equal choice, I'd always choose to beat the market, on both the ups and the downs, because it gives us more of the very thing we are investing for. Now, would I pay additional costs or assume additional risk for a chance to do so? Not what was asked.
Should probably qualify "beating the market" as a function of being on a "risk adjusted" basis.
One can always leverage up or down to amplify or remove market risk, but that's not beating it on a "risk adjusted" basis.
The problem however, is we have relatively poor measures of market "risk".
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Why do you have to "beat the market"?

Post by goodenyou » Sun Nov 17, 2019 10:20 am

Because we need market makers. I am thankful for those trying to beat the market. I don’t confuse have to and want to. Of course, if you could beat the market consistently without excessive risk, you would use that strategy.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

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Re: Why do you have to "beat the market"?

Post by retired@50 » Sun Nov 17, 2019 10:24 am

zlandar wrote:
Sun Nov 17, 2019 10:01 am
Because the commercials say I'm supposed to.
This is the myth started by financial planners, advisers, etc. They want you to save more, and "reach" for higher returns because it helps them with higher expense ratios and higher AUM totals... Every wasted basis point goes toward someone's yacht.

Personally, I'm happy with market matching returns minus the tracking error. I use all 4 major areas, equity & bonds in both U.S. & international.

Regards,

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Re: Why do you have to "beat the market"?

Post by H-Town » Sun Nov 17, 2019 10:29 am

thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
People who need to beat the market are in trouble. They probably don’t save enough. They don’t recognize saving is much more important than investing return.

People who want to beat the market are either foolish or don’t know what they don’t know. It’s okay to be foolish, because that’s how you learn and become more knowledgable.

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Re: Why do you have to "beat the market"?

Post by tibbitts » Sun Nov 17, 2019 10:47 am

thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
You don't hear a lot about that here, but...

I think Bogleheads will be a different place if market (stock, bond) performance is terrible for some extended period of time. Right now we have a bunch of people here who have benefited from historically excellent returns - beyond not just inflation, but - was we see in the international debates -beyond what almost the entire world has experienced. We tend to brush off downturns with the confidence that markets will bounce back well within our expected windows of time. If we get much worse than Japan for longer than Japan, I don't know. The idea so far has been that with market returns you can do really, really well for your retirement with market returns, so nobody really "needs" above-market returns. What happens if only investors who exceed market returns - even if only 5% of investors - do really well? Or even somewhat well? I know there are theoretical arguments that the economy will adjust to that, but it can take a long time for it to adjust. And maybe the relationship between, say, wage and salary earnings and asset earnings can diverge more than expected - and not in favor of asset earnings.

So I guess the answer is you need to beat the market if matching it doesn't accomplish what you need it to over the period of time you have available.

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Re: Why do you have to "beat the market"?

Post by HEDGEFUNDIE » Sun Nov 17, 2019 10:50 am

tibbitts wrote:
Sun Nov 17, 2019 10:47 am
thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
You don't hear a lot about that here, but...

I think Bogleheads will be a different place if market (stock, bond) performance is terrible for some extended period of time. Right now we have a bunch of people here who have benefited from historically excellent returns - beyond not just inflation, but - was we see in the international debates -beyond what almost the entire world has experienced. We tend to brush off downturns with the confidence that markets will bounce back well within expected our windows of time. If we get much worse than Japan for longer than Japan, I don't know. The idea so far has been that with market returns you can do really, really well for your retirement with market returns, so nobody really "needs" above-market returns. What happens if only investors who exceed market returns - even if only 5% of investors - do really well? Or even somewhat well? I know there are theoretical arguments that the economy will adjust to that, but it can take a long time for it to adjust. And maybe the relationship between, say, wage and salary earnings and asset earnings can diverge more than expected - and not in favor of asset earnings.

So I guess the answer is you need to beat the market if matching it doesn't accomplish what you need it to over the period of time you have available.
Almost every forecast of US stock market performance shows muted performance in the mid to long term.

As I have said before, if this starts to show up, folks will be driven to market beating strategies. Which is where responsibly leveraged risk parity comes in...
Last edited by HEDGEFUNDIE on Sun Nov 17, 2019 11:06 am, edited 1 time in total.

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Re: Why do you have to "beat the market"?

Post by UpperNwGuy » Sun Nov 17, 2019 10:56 am

I don't try to beat the market.

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JoMoney
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Re: Why do you have to "beat the market"?

Post by JoMoney » Sun Nov 17, 2019 10:58 am

Being able to earn more, or sell your product/service for more than the "average" is a signal of success.
If you're aiming at "beating the market" and successful at it, perhaps even more rewarding than financially is the psychological impact of doing something difficult and succeeding beyond your peers. For those of us who aren't professional investors, trying to beat those that are pro's, and in your spare time, would seem an even bigger challenge.
Often what is being sold is just a "story", people sometimes underestimate how valuable the story is. People are more than willing to pay a premium to be a part of a story that suits them. People will endure all sorts of market turmoil, and pay for the privilege, if they really believe in the story. They'll patiently endure all kinds of under-performance as if it was just a story-arch where they'll be triumphant in the end... and maybe, if it makes them feel good, maybe they are (at least from their perspective) getting something out of it beyond the commodity "market" return.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Why do you have to "beat the market"?

Post by wootwoot » Sun Nov 17, 2019 11:03 am

This is like asking why do you have to "make more money"? The answer should be obvious.

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Re: Why do you have to "beat the market"?

Post by wolf359 » Sun Nov 17, 2019 11:09 am

thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
Everybody starts out wanting to beat the market. There is a idea out there that if you are smart enough, or disciplined enough, or know enough, you can learn how to win at this stock market thing. If YOU can't do it, you can certainly pay for the guy who has those skills to manage your money for you. In fact, many people who came to Bogleheads probably ended up there because they wanted to learn how to invest, believing that they could actually become a master investor, or at least decent enough to do it themselves.

The radical idea behind Bogleheads is that the concept of beating the market is a fantasy. To nuance it -- it is certainly possible to beat the market in any given year. It is also possible to beat the market year after year. But it is so difficult, and so expensive, that it is not practical to beat the market after costs, or possible to know in advance who is going to beat the market in the long run.

If you follow the Bogleheads strategy, you will not beat the market. In fact, if you buy bonds, you will TRAIL the market. What you WILL do is outperform the majority of all other investors both every year, and over the long term. With a Bogleheads strategy, it is not necessary to beat the market to achieve your goals.

It is possible for a Boglehead strategy to beat the general market by doing one of the following:
1) Take more risk. Tilting towards a more volatile asset than the general market, such as small caps or value or other factors, MAY result in bigger gains. It also may result in bigger losses. The bigger gains are compensation for the greater risk.
2) Dollar cost average, and make no adjustments to the portfolio. The biggest threat to your returns is investor behavior. Studies have shown that people who automate their investments into a simple low-cost target date index fund will outperform even traditional Boglehead investors. The reason is that it is extremely difficult to buy and hold, especially when the market is volatile. The automated investor has no emotions, buys more shares by default when the market is down, and outperforms over the long term.

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Re: Why do you have to "beat the market"?

Post by DesertDiva » Sun Nov 17, 2019 11:18 am

Spirit Rider wrote:
Sun Nov 17, 2019 3:16 am
Because people operate under the illusion they must be "better than average" to be successful in "all things" not just investing. When the persistent reality is that those "seeking alpa" are far more likely to underperform the market long term.

The fundamental philosophy of Bogleheads is that a diversified portfolio of broad-based passive investments. Is designed to and will get you market returns less minimal expenses.

However, this forum is more and more populated with schemes to get above market returns. Their proponents are convinced; this time, this plan, this etc... is different.

Those of us who have seen this all before just smile, steady the ship and stay the course to comfortable retirements. We have no need for above market returns and question the ability of those who claim they can, despite their willingness to take unnecessary risks.
+1. Perfect answer!

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fortfun
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Re: Why do you have to "beat the market"?

Post by fortfun » Sun Nov 17, 2019 11:29 am

My problem isn't with the people on this forum alluding to the idea. However, I do have a problem with the Edward Jones' of the world using it as a marketing tactic, to vulnerable middle class workers that are just trying to save for their retirement, in order to take a 1.5% AUM and put their clients in high ER products with front end sales loads. Those vulnerable people will fall easily to their glossy brochures that have cherry picked dates, or excluded their other funds that have performed well below the index.

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Re: Why do you have to "beat the market"?

Post by 1789 » Sun Nov 17, 2019 11:34 am

Because people act emotionally not logically.
"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)

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Re: Why do you have to "beat the market"?

Post by Toons » Sun Nov 17, 2019 11:37 am

I have said that for decades,
If you have reached the land of financial independence
without doing so,
It makes no difference
whatsoever
:mrgreen:
"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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fortfun
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Re: Why do you have to "beat the market"?

Post by fortfun » Sun Nov 17, 2019 11:38 am

Toons wrote:
Sun Nov 17, 2019 11:37 am
I have said that for decades,
If you have reached the land of financial independence
without doing so,
It makes no difference
whatsoever
:mrgreen:
And it could be the reason that you have :)

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Toons
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Re: Why do you have to "beat the market"?

Post by Toons » Sun Nov 17, 2019 11:42 am

fortfun wrote:
Sun Nov 17, 2019 11:38 am
Toons wrote:
Sun Nov 17, 2019 11:37 am
I have said that for decades,
If you have reached the land of financial independence
without doing so,
It makes no difference
whatsoever
:mrgreen:
And it could be the reason that you have :)
Bingo :sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

tibbitts
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Re: Why do you have to "beat the market"?

Post by tibbitts » Sun Nov 17, 2019 12:06 pm

Toons wrote:
Sun Nov 17, 2019 11:37 am
I have said that for decades,
If you have reached the land of financial independence
without doing so,
It makes no difference
whatsoever
:mrgreen:
Exactly. The test will be when or if one or more generations of investors properly following a Boglehead approach are in fact not able to reach the land of financial independence. Average is good only if it's successful.

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Phineas J. Whoopee
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Re: Why do you have to "beat the market"?

Post by Phineas J. Whoopee » Sun Nov 17, 2019 12:06 pm

The purpose of the attempt is so the investor's adviser salesperson can make next month's boat payment.

Anybody who deviates from the market will experience a different net return: some higher; some lower. How reliably a person can put themselves into the first category rather than the second is open to question. Someone will be there, and maybe for several years in a row.

PJW

Ocean77
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Re: Why do you have to "beat the market"?

Post by Ocean77 » Sun Nov 17, 2019 12:31 pm

If "the market" is the S&P500, then I'd already be happy if I can smooth out "the market" a bit, rather than beating it.

Actually only 4% of my portfolio is in an S&P500 index fund, so I'm virtually guaranteed my return will be somewhat different than "the market". I have significant portions in small cap, value, international developed and emerging market index funds etc. I would expect that asset classes like small cap and emerging markets may outperform the S&P500 over the long run. On the other hand, 30% of my portfolio is in bond index funds (treasury and TIPS), which will surely give lower returns than the S&P500. Overall, I'm expecting a 4% real return of the S&P500 over the next decade or two (given the current 2% dividend yield + 2% GDP growth). With the particular mix of asset classes I have, I calculated an expected real return of 4.5% for my portfolio.

But all this is just academic. As I mentioned in the beginning, if I don't get that theoretical extra 0.5%, I'd already be happy if I get the "market" return, with my broad diversification hopefully at least providing a bit less fluctuation than the S&P500 alone.

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telemark
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Re: Why do you have to "beat the market"?

Post by telemark » Sun Nov 17, 2019 12:38 pm

My goal has never been to beat the market, but to underperform with less risk.

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Re: Why do you have to "beat the market"?

Post by MotoTrojan » Sun Nov 17, 2019 12:39 pm

JoeRetire wrote:
Sun Nov 17, 2019 8:42 am
thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
Because more is better?

I don't know about anyone else, but if there were a guaranteed way to beat the market without increased risk and no additional work, I'd do it. Why not?
I think a better question is: If you could beat it (on an expected return basis), but risk would proportionally increase (risk adjusted return is constant) how far would you go? Tough decision really, just like overall allocation it’s very emotionally dependent.

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JoMoney
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Re: Why do you have to "beat the market"?

Post by JoMoney » Sun Nov 17, 2019 12:56 pm

MotoTrojan wrote:
Sun Nov 17, 2019 12:39 pm
JoeRetire wrote:
Sun Nov 17, 2019 8:42 am
thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
Because more is better?

I don't know about anyone else, but if there were a guaranteed way to beat the market without increased risk and no additional work, I'd do it. Why not?
I think a better question is: If you could beat it (on an expected return basis), but risk would proportionally increase (risk adjusted return is constant) how far would you go? Tough decision really, just like overall allocation it’s very emotionally dependent.
"expected return" is a red herring, anyone can create a model where their portfolios "expected return" is whatever they want it to be....
There's quite a few pension funds out there using some pretty far fetched "expected returns" to justify their current funding (or lack thereof).

... Speaking of which, perhaps that's a reason so many institutional investors look to "beat the market" - they have to try, knowing that their plan will fail otherwise.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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JoeRetire
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Re: Why do you have to "beat the market"?

Post by JoeRetire » Sun Nov 17, 2019 1:03 pm

MotoTrojan wrote:
Sun Nov 17, 2019 12:39 pm
I think a better question is: If you could beat it (on an expected return basis), but risk would proportionally increase (risk adjusted return is constant) how far would you go? Tough decision really, just like overall allocation it’s very emotionally dependent.
That is a completely different question. I don't know if it's better or not. There's certainly no one definitive answer like there is for the original question as asked.

We all run the mental calculus that involves risk, possible return, goals, age, etc.

No one formula could possibly fit everyone.
Don't be a lemming.

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JoeRetire
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Re: Why do you have to "beat the market"?

Post by JoeRetire » Sun Nov 17, 2019 1:04 pm

JoMoney wrote:
Sun Nov 17, 2019 12:56 pm
MotoTrojan wrote:
Sun Nov 17, 2019 12:39 pm
JoeRetire wrote:
Sun Nov 17, 2019 8:42 am
thelateinvestor43 wrote:
Sun Nov 17, 2019 12:45 am
I here people always trying to "beat the market" or the S&P 500. Why would I want to or need to try and beat it?
Because more is better?

I don't know about anyone else, but if there were a guaranteed way to beat the market without increased risk and no additional work, I'd do it. Why not?
I think a better question is: If you could beat it (on an expected return basis), but risk would proportionally increase (risk adjusted return is constant) how far would you go? Tough decision really, just like overall allocation it’s very emotionally dependent.
"expected return" is a red herring, anyone can create a model where their portfolios "expected return" is whatever they want it to be....
There's quite a few pension funds out there using some pretty far fetched "expected returns" to justify their current funding (or lack thereof).
That's true. Just as "risk" is a squishy, non-exact term.

And when you have two squishy terms in the same equation, your confidence in the result must be diminished accordingly (squishy squared?).
Don't be a lemming.

illumination
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Re: Why do you have to "beat the market"?

Post by illumination » Sun Nov 17, 2019 4:33 pm

I am largely happy with just "meeting the market", but I would say when I do try and reach for an edge (say for example a tilt towards small cap value) it's more driven by a fear that total market returns moving forward won't be as good as they were in the last 30 or so years. And maybe that helps the gap a bit.

If I was certain a total market gave the same trailing returns as it has in the past (obviously impossible) beating the market would probably not be something I cared much about because it would be such a comfortable rate of return.

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