The end of an investing era (Market Watch article)

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BYUvol
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The end of an investing era (Market Watch article)

Post by BYUvol »

I found this article interesting.

http://www.marketwatch.com/story/the-en ... genumber=1

Of particular note was this paragraph, emphasis is mine:
The research on individual stock ownership is voluminous and overwhelmingly damning. Just one example: Brad Barber and Terrance Odean of the University of California showed in a 2011 study that individual stock pickers made every mistake in the book: underperforming index funds; selling winners and keeping losers; not learning from past errors, and holding undiversified stock portfolios. And through it all, they evinced a delusional overconfidence in their own abilities.

The note about individuals pouring into equity index funds gives me pause. I'm one of those people that enjoys finding enjoyment in non-mainstream activities.
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Taylor Larimore
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Purpose of investing.

Post by Taylor Larimore »

BYU:
I'm one of those people that enjoys finding enjoyment in non-mainstream activities.
In my opinion, investing is not for enjoyment, it is for reaching our financial goals.

When we are out of step in the parade, it's probably worthwhile to reconsider what we are doing.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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BYUvol
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Re: Purpose of investing.

Post by BYUvol »

Taylor Larimore wrote:BYU:
I'm one of those people that enjoys finding enjoyment in non-mainstream activities.
In my opinion, investing is not for enjoyment, it is for reaching our financial goals.

When we are out of step in the parade, it's probably worthwhile to reconsider what we are doing.

Best wishes.
Taylor
Some people may also feel work is not for enjoyment, but for the paycheck, to reach their financial goals. Fortunately I am not one of those people.

If you are suggesting that enjoying investing is not normal, then I can take solace in the knowledge that my enjoyment of the subject is at least non-mainstream, even if my medium is becoming less so. Thanks Taylor!
xram
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Re: Purpose of investing.

Post by xram »

BYUvol wrote:
Taylor Larimore wrote:BYU:
I'm one of those people that enjoys finding enjoyment in non-mainstream activities.
In my opinion, investing is not for enjoyment, it is for reaching our financial goals.

When we are out of step in the parade, it's probably worthwhile to reconsider what we are doing.

Best wishes.
Taylor
Some people may also feel work is not for enjoyment, but for the paycheck, to reach their financial goals. Fortunately I am not one of those people.

If you are suggesting that enjoying investing is not normal, then I can take solace in the knowledge that my enjoyment of the subject is at least non-mainstream, even if my medium is becoming less so. Thanks Taylor!
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iceman99
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Re: The end of an investing era (Market Watch article)

Post by iceman99 »

I don't see the enjoyment in investing either. It's a means to one end: making money. Although the end result (growth of your portfolio) may produce enjoyment, the process (especially the "Boglehead mentality" of investing) is implicitly boring.

But then, I'm an adopter of one of the Lazy Portfolio's so there's little excitement going on on my computer screen.
dkturner
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Re: Purpose of investing.

Post by dkturner »

Taylor Larimore wrote:
When we are out of step in the parade, it's probably worthwhile to reconsider what we are doing.
Look, ma, the're all out of step except me! 8-)
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graveday
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Re: Purpose of investing.

Post by graveday »

dkturner wrote:
Taylor Larimore wrote:
When we are out of step in the parade, it's probably worthwhile to reconsider what we are doing.
Look, ma, the're all out of step except me! 8-)
This gave me goosesteps.
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nedsaid
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Re: The end of an investing era (Market Watch article)

Post by nedsaid »

There is nothing wrong with a portfolio of well chosen individual stocks. I had some success with managing a portfolio of individual stocks though it was doubtful that I outperformed the averages. The education that I got in the process was priceless. I learned a lot about portfolio management, business, the economy, and the world. It was a great experience. I think I learned more from managing my stocks than I did from Business School at my University!!

It takes a lot of work and research time. I still have the stocks, but most of what I have now is in mutual funds and ETF's. I am more interested in asset classes than in individual issues.

You are best served by owning the broad indexes. Simple is better. Indexing works because it is cheap and it is boring and it pays a dividend.
A fool and his money are good for business.
fidelio
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Re: The end of an investing era (Market Watch article)

Post by fidelio »

i dunno, i have been around for awhile and managed to lose some dollars while deluded that i was somehow going to find an angle. my problem was always in the selling. it's a lot of work to properly manage a stock portfolio! then i was attracted to slice n dice. recently i thought small value was brilliant (and perhaps it is, who knows). but these views all had a (perhaps small) component of "i'm smarter than the market." as the years pass, i am increasingly in accord with jack bogle's 2 (or if you must, 3) fund portfolio -- boring, but i am not looking for excitement when it comes to my life savings. so far, i've whittled it down to 5 funds, i'm getting there .....
Levett
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Re: The end of an investing era (Market Watch article)

Post by Levett »

The notion that people are "pouring" into equity needs to be placed in a wider context.

According to a Gallup analysis (less than a year old), equity ownership--relatively speaking--is at a 10-year low.

http://www.gallup.com/poll/147206/stock ... -1999.aspx

If one is going to respond to headlines (not a good idea to begin with), one should go behind the headlines and check things out.

I have no clue what the future of equity returns will be, but no headline or collection of headlines will affect how I invest.

Lev
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Re: The end of an investing era (Market Watch article)

Post by z3r0c00l »

iceman99 wrote: Although the end result (growth of your portfolio) may produce enjoyment, the process (especially the "Boglehead mentality" of investing) is implicitly boring.
You made 100 posts about something that bores you? :)

For my part, I enjoy reading and thinking about investing quite a bit. But for me the most fun is saving money by being smart about it, more fun than investing even.
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VictoriaF
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Re: The end of an investing era (Market Watch article)

Post by VictoriaF »

BYUvol wrote:I found this article interesting.

http://www.marketwatch.com/story/the-en ... genumber=1

Of particular note was this paragraph, emphasis is mine:
The research on individual stock ownership is voluminous and overwhelmingly damning. Just one example: Brad Barber and Terrance Odean of the University of California showed in a 2011 study that individual stock pickers made every mistake in the book: underperforming index funds; selling winners and keeping losers; not learning from past errors, and holding undiversified stock portfolios. And through it all, they evinced a delusional overconfidence in their own abilities.

The note about individuals pouring into equity index funds gives me pause. I'm one of those people that enjoys finding enjoyment in non-mainstream activities.
Maybe you have a delusional overconfidence that you are not in the main stream? :)

Victoria
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Re: The end of an investing era (Market Watch article)

Post by nisiprius »

Levett wrote:According to a Gallup analysis (less than a year old), equity ownership--relatively speaking--is at a 10-year low. http://www.gallup.com/poll/147206/stock ... -1999.aspx
If all they asked was "Do you, jointly or with a spouse, have any money directly invested in the stock market right now--either in an individual stock, a stock mutual fund, or in a self-directed 401(k) or IRA," with no additional explanation--I would seriously challenge the accuracy of the answers, although of course the relative year-to-year responses might still be meaningful.

I think a significant number of 401(k) savers have no idea what their asset composition is.

I base this on, yes, a single anecdotal data point--a colleague who told me in late 2008 that he couldn't hack the volatility and had sold everything in his 401(k) and gone entirely to the money market. When I asked him, gingerly, if he had been 100% in stocks, he answered "Oh, no, a lot of it was international."

I did not probe, but this was a Fidelity managed 401(k) with a variety of Fidelity funds. About 3/4 of the choices all of them were stock funds (and most of the rest were Freedom target-date fund and "asset manager," which had medium-to-high stock percentages).

Some of them had the word "stock" in their name ("Fidelity Low-Priced Stock Fund," "Fidelity Small-Cap Stock Fund,") and some did not ("Fidelity Magellan Fund," "Fidelity Diversified International Fund.") And I think that's significant. I think that many people do not understand that they have money "directly invested in the stock market right now" if they have chosen funds that don't have the word "stock" in their name. The fact that some of the funds do have the word "stock" in their name reinforces that belief.

If you asked people "Are you invested in the stock market" and probed, I believe many would answer, "No, it's all in a retirement fund."

Yes, of course there's a pie chart printed on most statements these days. Yes, of course, to someone with a college education and the most rudimentary investing smarts--like knowing the meaning of the word "equity" (what, it's not the actors' union?) the following language is clear:
Objective
Seeks high total return until its target retirement date. Thereafter the fund's objective will be to seek high current income and, as a secondary objective, capital appreciation.
Strategy
Investing in a combination of underlying Fidelity domestic equity, international equity, bond, and short-term funds using a moderate asset allocation strategy designed for investors expecting to retire around the year 2055. Allocating assets among underlying Fidelity funds according to an asset allocation strategy that becomes increasingly conservative until it reaches approximately 15% in domestic equity funds, 5% in international equity funds, 40% in bond funds, and 40% in short-term funds (approximately 10 to 15 years after the year 2055). Ultimately, the fund will merge with Fidelity Freedom Income Fund.
Imagine a 20-year-old worker who has been defaulted into this fund in their 401(k), skimming through the pack of new-hire material. A year later, imagine asking this worker "Do you have any money directly invested in the stock market?"

What percentage of them do you think would answer "yes?"
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Re: The end of an investing era (Market Watch article)

Post by Levett »

Love to agree with you, Nisi, but I don't think your skepticism stands up.

The sample was required to differentiate between real estate, savings accounts/CDs, stocks/mutual funds, and bonds.

Further, the link to questions asked is listed in the article.

Now if respondents had been asked about tilts, TIPS, contango, and slice and dice that would be another matter. :wink:

Lev
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