Indexing fail?

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Bratbill
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Joined: Fri Mar 15, 2019 8:45 pm

Indexing fail?

Post by Bratbill » Mon Apr 20, 2020 12:29 pm

Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?

anil686
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Re: Indexing fail?

Post by anil686 » Mon Apr 20, 2020 12:41 pm

They make up a very tiny percentage of TSM - I think they make up the following:
Delta 0.05% of TSM
Southwest 0.05% of TSM
United and American - 0.02% each
Carnival Cruise - 0.02%

Total made up there about 0.15%. Which means 99.85% of TSM is not made up of these.

Source ITOT holdings
https://www.ishares.com/us/products/239 ... market-etf

Hope that helps...

whereskyle
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Re: Indexing fail?

Post by whereskyle » Mon Apr 20, 2020 12:45 pm

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
What indexes do you hold?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

roadnottaken
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Re: Indexing fail?

Post by roadnottaken » Mon Apr 20, 2020 12:46 pm

I thought the whole point of indexing was that you're not actively trying to pick winners...

retired@50
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Re: Indexing fail?

Post by retired@50 » Mon Apr 20, 2020 12:46 pm

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
Changes may come to the industry, but what matters is whether or not companies find a way to turn a profit.

As a stockholder, you're part owner of a company. The goal is to share in the profits. I'd suggest you keep a long term view.

Regards,
This is one person's opinion. Nothing more.

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vineviz
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Re: Indexing fail?

Post by vineviz » Mon Apr 20, 2020 12:47 pm

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
My thought is that you're probably not the first investor to figure that cruise lines and airlines have been impacted by the global pandemic.

As a result, I am confident in saying that you should not expect to come out ahead making the "adjustment" you propose.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

zlandar
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Re: Indexing fail?

Post by zlandar » Mon Apr 20, 2020 12:53 pm

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
Because selling out now would lock in your losses in those industries.

I'm sure there were a bunch of people swearing up and down never to invest in tech stocks after the 2000 dot com crash.

RadAudit
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Re: Indexing fail?

Post by RadAudit » Mon Apr 20, 2020 12:54 pm

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Nothing personal; but, no one can know what the future long term returns of these or any other businesses at this point. The point of a broad based, total market index is to (closely) match the market return, not beat it. You can't match the return if you don't own (essentially all of) it.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The cavalry isn't coming, kids. You are on your own.

FoolMeOnce
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Re: Indexing fail?

Post by FoolMeOnce » Mon Apr 20, 2020 12:55 pm

Can you short an entertainment ETF like PEJ (Invesco Dynamic Leisure and Entertainment ETF)? Top holdings include several airlines, hotels, and movie theaters.

I would not necessarily recommend this for many reasons, including that I wouldn't know how to do this.

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David Jay
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Re: Indexing fail?

Post by David Jay » Mon Apr 20, 2020 2:18 pm

This is a recurring theme here at BH. It seems obvious to many folks that if they start with an index and just remove the “bad” companies that they will outperform the index. I think I have read twenty or thirty threads over the years that are a variant on this theme.

The only problem is that it doesn’t work that way.
Last edited by David Jay on Mon Apr 20, 2020 4:52 pm, 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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Phineas J. Whoopee
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Re: Indexing fail?

Post by Phineas J. Whoopee » Mon Apr 20, 2020 4:31 pm

What do you mean by success or failure? Indexing is not meant to provide the maximum possible return. It is meant to provide the market return minus a very small cost (unless you go with an unscrupulous fund sponsor).

If you know what in the future will go down and up, accurately know it, reliably, then of course go long and short. It wouldn't be useful to complain to us if over time you turned out to have lost relative to the index.

Nobody needs our permission to invest as they please.

PJW

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cheese_breath
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Re: Indexing fail?

Post by cheese_breath » Mon Apr 20, 2020 5:13 pm

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
Even if that was a good idea (which it's not), where would you find an index that contains everything except what you don't want?
The surest way to know the future is when it becomes the past.

pkcrafter
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Re: Indexing fail?

Post by pkcrafter » Mon Apr 20, 2020 5:18 pm

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
What index fund or funds are you holding?

And to address the title of your post--no, index funds have not, and will not fail.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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DrPayItBack
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Re: Indexing fail?

Post by DrPayItBack » Mon Apr 20, 2020 5:20 pm

‘Index except for everything that has recently performed poorly’ is a pretty profoundly bad way to invest.

pascalwager
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Re: Indexing fail?

Post by pascalwager » Tue Apr 21, 2020 9:21 pm

cheese_breath wrote:
Mon Apr 20, 2020 5:13 pm
Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
Even if that was a good idea (which it's not), where would you find an index that contains everything except what you don't want?
A closet index with excluded industries.
Retired, pension, no SS | Bond funds: TIPS, TBM | Global stocks: total market, large value, small company, emerging market funds

MotoTrojan
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Re: Indexing fail?

Post by MotoTrojan » Tue Apr 21, 2020 9:24 pm

David Jay wrote:
Mon Apr 20, 2020 2:18 pm
This is a recurring theme here at BH. It seems obvious to many folks that if they start with an index and just remove the “bad” companies that they will outperform the index. I think I have read twenty or thirty threads over the years that are a variant on this theme.

The only problem is that it doesn’t work that way.
But but but, my backtest of only investing in the top 10 stocks of each year DESTROYED the 3-fund portfolio!

pascalwager
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Re: Indexing fail?

Post by pascalwager » Tue Apr 21, 2020 9:24 pm

DrPayItBack wrote:
Mon Apr 20, 2020 5:20 pm
‘Index except for everything that has recently performed poorly’ is a pretty profoundly bad way to invest.
Not performed poorly, but expected to totally collapse and disappear. Devil's advocate.
Retired, pension, no SS | Bond funds: TIPS, TBM | Global stocks: total market, large value, small company, emerging market funds

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bottlecap
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Re: Indexing fail?

Post by bottlecap » Tue Apr 21, 2020 11:04 pm

Brilliant! Why didn’t tens of thousands of other people think of this?!?

Especially since you could say that about a handful of companies in the index at any given point in time and more than a handful in times of crises.

JT

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JoMoney
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Re: Indexing fail?

Post by JoMoney » Tue Apr 21, 2020 11:35 pm

I think if you're an active investor, believing that decisions like that will get you something extra, then a broad market index fund doesn't seem like a good fit for that strategy to begin with. Hopefully your other decisions work out better.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Independent George
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Re: Indexing fail?

Post by Independent George » Tue Apr 21, 2020 11:42 pm

pascalwager wrote:
Tue Apr 21, 2020 9:24 pm
Not performed poorly, but expected to totally collapse and disappear. Devil's advocate.
Because nobody is ever going to fly on an airplane or a ship ever again?

When airlines starts selling their assets for scrap because the aluminum is more valuable than the engines, I'll consider it a possibility. Not before.

dboeger1
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Re: Indexing fail?

Post by dboeger1 » Tue Apr 21, 2020 11:43 pm

pascalwager wrote:
Tue Apr 21, 2020 9:24 pm
DrPayItBack wrote:
Mon Apr 20, 2020 5:20 pm
‘Index except for everything that has recently performed poorly’ is a pretty profoundly bad way to invest.
Not performed poorly, but expected to totally collapse and disappear. Devil's advocate.
The beauty of companies going bankrupt is that by the time it is known they're disappearing, they've usually already been a small percentage of the total market for quite some time. It'd be one thing if Apple or Microsoft suddenly announced they were going out of business, but that usually doesn't happen overnight.

Ambitious994
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Re: Indexing fail?

Post by Ambitious994 » Wed Apr 22, 2020 12:16 am

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
What index do you have?

dru808
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Re: Indexing fail?

Post by dru808 » Wed Apr 22, 2020 12:50 am

MotoTrojan wrote:
Tue Apr 21, 2020 9:24 pm
David Jay wrote:
Mon Apr 20, 2020 2:18 pm
This is a recurring theme here at BH. It seems obvious to many folks that if they start with an index and just remove the “bad” companies that they will outperform the index. I think I have read twenty or thirty threads over the years that are a variant on this theme.

The only problem is that it doesn’t work that way.
But but but, my backtest of only investing in the top 10 stocks of each year DESTROYED the 3-fund portfolio!

If you pick the single best you’d outperform even more!
60% US equity | 25% International equity | 15% US Treasury bonds

MotoTrojan
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Re: Indexing fail?

Post by MotoTrojan » Wed Apr 22, 2020 7:34 am

dru808 wrote:
Wed Apr 22, 2020 12:50 am
MotoTrojan wrote:
Tue Apr 21, 2020 9:24 pm
David Jay wrote:
Mon Apr 20, 2020 2:18 pm
This is a recurring theme here at BH. It seems obvious to many folks that if they start with an index and just remove the “bad” companies that they will outperform the index. I think I have read twenty or thirty threads over the years that are a variant on this theme.

The only problem is that it doesn’t work that way.
But but but, my backtest of only investing in the top 10 stocks of each year DESTROYED the 3-fund portfolio!

If you pick the single best you’d outperform even more!
I prefer diversification ;).

pkcrafter
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Re: Indexing fail?

Post by pkcrafter » Wed Apr 22, 2020 9:36 am

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
Your vision is short-sighted. What do you think will happen to cruise lines and airlines when things return to normal? Now is the time to buy them, not sell them.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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David Jay
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Re: Indexing fail?

Post by David Jay » Wed Apr 22, 2020 10:22 am

pkcrafter wrote:
Wed Apr 22, 2020 9:36 am
Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
Your vision is short-sighted. What do you think will happen to cruise lines and airlines when things return to normal? Now is the time to buy them, not sell them.

Paul
That is a recurring human flaw. We live in the present and filter the past and the future through our current world view.

Hence airlines and cruise line must not function in the future because airliners and cruise ships are idle today.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

MarkBarb
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Re: Indexing fail?

Post by MarkBarb » Wed Apr 22, 2020 10:27 am

Your index held cruise lines before the pandemic. They dropped in value once the pandemic's impacts became clear. The cruise ship stocks have dropped to a price that makes sense for their more difficult future. That's how markets work. When new information appears, it gets priced in.

If you believe that cruise ship stocks have been beaten down too much, you buy them. If you believe that their future is worse than anticipated, you sell them short. The price that results as people do this is the market price.

Those of us with index funds stay out of the business of trying to predict which stocks are over and undervalued and just hold all of them. What you are suggesting is logically no different then asking why should hold an index instead of buying lots of stock in companies that make masks and hand sanitizer.

Haeysh
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Re: Indexing fail?

Post by Haeysh » Wed Apr 22, 2020 10:51 am

Index investing by its very nature is self adjusting...companies will rise and fall within the index on their own.

MotoTrojan
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Re: Indexing fail?

Post by MotoTrojan » Wed Apr 22, 2020 10:53 am

Haeysh wrote:
Wed Apr 22, 2020 10:51 am
Index investing by its very nature is self adjusting...companies will rise and fall within the index on their own.
Market weight index funds, yes. My fundamental indexes on the other hand are rebalancing into airlines, banks, energy companies, and cruise companies right now :twisted:.

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Rick Ferri
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Re: Indexing fail?

Post by Rick Ferri » Wed Apr 22, 2020 10:56 am

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
Hindsight is always 20/20.

You may correctly guess what the news will be and correctly guess what other people will say, and you could still be wrong about what the market does.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

Haeysh
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Re: Indexing fail?

Post by Haeysh » Wed Apr 22, 2020 10:57 am

MotoTrojan wrote:
Wed Apr 22, 2020 10:53 am
Haeysh wrote:
Wed Apr 22, 2020 10:51 am
Index investing by its very nature is self adjusting...companies will rise and fall within the index on their own.
Market weight index funds, yes. My fundamental indexes on the other hand are rebalancing into airlines, banks, energy companies, and cruise companies right now :twisted:.
+1

Flyer24
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Re: Indexing fail?

Post by Flyer24 » Wed Apr 22, 2020 1:22 pm

I have removed a couple of posts that strayed.

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abuss368
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Re: Indexing fail?

Post by abuss368 » Wed Apr 22, 2020 5:18 pm

Bratbill wrote:
Mon Apr 20, 2020 12:29 pm
Thinking about adjusting the indexes in my portfolio.
Why would I want any index that has cruise lines or airlines in it at this point going forward ?
Just can’t see that this won’t change the way folks travel for business and leisure .
Thoughts ?
If the value of those industries decrease, a market weighted index will adjust for that change. If other technologies or companies replace those industries, an index will adjust for that change.

Stay the course and don't overthink it!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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bluquark
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Re: Indexing fail?

Post by bluquark » Wed Apr 22, 2020 5:26 pm

anil686 wrote:
Mon Apr 20, 2020 12:41 pm
They make up a very tiny percentage of TSM - I think they make up the following:
Delta 0.05% of TSM
Southwest 0.05% of TSM
United and American - 0.02% each
Carnival Cruise - 0.02%

Total made up there about 0.15%. Which means 99.85% of TSM is not made up of these.

Source ITOT holdings
https://www.ishares.com/us/products/239 ... market-etf

Hope that helps...
If you switch to an actively managed fund that excludes airlines and cruise ship companies as well as makes other hopefully smart weighing/filtering adjustments, then the absolute best ER you can find for any active fund is around 0.20% (a few of Vanguard's active funds -- usually it's much higher). Meanwhile, VTSAX's ER is 0.04%.

So the amount of money you would pay in expenses for that "improvement" per year is equivalent to both industries going fully bankrupt. Every year.
70/30 portfolio | Equity: global market weight | Bonds: 20% long-term munis - 10% LEMB

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