"Why You Should Probably Just Give Up Trying To Beat The Stock Market"

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Taylor Larimore
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"Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by Taylor Larimore » Sat Jan 20, 2018 9:56 pm

Bogleheads:

For many years I was a loyal subscriber to the Hulbert Financial Digest edited by Mark Hulbert. Mr. Hulbert tracked the performance of Market Timing newsletters for over 25 years. He is the statistician who convinced me that it is impossible (except by luck) to forecast the stock market -- which is the reason I started our annual Boglehead Contest.

I once heard Mr. Hulbert tell a large audience that Louis Rukeyser's forecasts (and his "Elves") were worthless -- when he knew Mr. Rukeyser was the principal speaker later in the day. That took honesty -- and guts.

Mr. Hulbert now works for Dow Jones MarketWatch. Below is a link to Mr. Hulbert's latest article on the subject of trying to beat the stock market. No one knows better:

Why You Should Probably Just Give Up Trying To Beat The Stock Market

Best wishes.
Taylor
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by baw703916 » Sat Jan 20, 2018 10:49 pm

My problem with this article is it doesn't differentiate between active and passive strategies--it just says "mutual funds". I mean, Vanguard's TSM is a mutual fund. And, because it should closely mirror the performance of the market every year, while most funds will lag due to expenses, I'd expect VTSAX to be in the top 50% of mutual fund pretty much every year (it will never be in the top 10%, but neither will be much of anything else!)

If he's recommending a passive strategy, why doesn't he come out and say it in this column? It never mentions the words "index" or "passive"!
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by oldzey » Sat Jan 20, 2018 11:22 pm

Thanks for sharing, Taylor!
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by dwickenh » Sat Jan 20, 2018 11:29 pm

baw703916 wrote:
Sat Jan 20, 2018 10:49 pm
My problem with this article is it doesn't differentiate between active and passive strategies--it just says "mutual funds". I mean, Vanguard's TSM is a mutual fund. And, because it should closely mirror the performance of the market every year, while most funds will lag due to expenses, I'd expect VTSAX to be in the top 50% of mutual fund pretty much every year (it will never be in the top 10%, but neither will be much of anything else!)

If he's recommending a passive strategy, why doesn't he come out and say it in this column? It never mentions the words "index" or "passive"!
You obviously didn't watch the video [in the linked article] with Ellie, she explained it all including the advantage of passive over active. [Off-topic comment deleted by admin alex]
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by AtlasShrugged? » Sun Jan 21, 2018 7:31 am

I once heard Mr. Hulbert tell a large audience that Louis Rukeyser's forecasts (and his "Elves") were worthless -- when he knew Mr. Rukeyser was the principal speaker later in the day. That took honesty -- and guts.
Now that is a name I have not heard in a long, long time. I remember his shows! :happy
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by oldcomputerguy » Sun Jan 21, 2018 8:01 am

baw703916 wrote:
Sat Jan 20, 2018 10:49 pm
My problem with this article is it doesn't differentiate between active and passive strategies--it just says "mutual funds". I mean, Vanguard's TSM is a mutual fund. And, because it should closely mirror the performance of the market every year, while most funds will lag due to expenses, I'd expect VTSAX to be in the top 50% of mutual fund pretty much every year (it will never be in the top 10%, but neither will be much of anything else!)

If he's recommending a passive strategy, why doesn't he come out and say it in this column? It never mentions the words "index" or "passive"!
Your point is true, but I'm not sure how it is relevant. The subject of the linked article is how hard it is to pick a mutual fund that will beat the market, not how hard it is to pick one that generally outperforms the majority of other funds.
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by Howard Donnelly » Sun Jan 21, 2018 9:21 am

Thank you, Taylor. Very interesting.

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by Alexa9 » Sun Jan 21, 2018 9:31 am

Beating the stock market is almost impossible to do consistently. However, I think it is worthwhile to continue to research and tweak the Three Fund Portfolio. It is a good way but not the only or necessarily the best way.

Bogleheads has great advice but it is also a hive mentality and people should still be open minded about investing strategies. For example, I think the Larry Portfolio is a more than acceptable alternative to the Three Fund Portfolio. Still utilizes index funds, but doesn't ignore the small cap value premium. Similar returns with lower volatility.

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by pkcrafter » Sun Jan 21, 2018 9:37 am

Thanks Taylor. The article is short and to the point, and the message is clear. Hulbert did not go into the reasons mutual funds and stock pickers don't consistently stay above average except to say it's quite difficult. Investors need to understand this before they ask "What should I do about it."

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by Rowan Oak » Sun Jan 21, 2018 9:42 am

Alexa9 wrote:
Sun Jan 21, 2018 9:31 am
Beating the stock market is almost impossible to do consistently. However, I think it is worthwhile to continue to research and tweak the Three Fund Portfolio. It is a good way but not the only or necessarily the best way.

Bogleheads has great advice but it is also a hive mentality and people should still be open minded about investing strategies. For example, I think the Larry Portfolio is a more than acceptable alternative to the Three Fund Portfolio. Still utilizes index funds, but doesn't ignore the small cap value premium. Similar returns with lower volatility.
Are you talking about short-term (10 years or less) or long-term (30 years or more) results?
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by Alexa9 » Sun Jan 21, 2018 9:54 am

Rowan Oak wrote:
Sun Jan 21, 2018 9:42 am
Are you talking about short-term (10 years or less) or long-term (30 years or more) results?
The small value premium seems to be more noticeable long term with true small value funds like DFA. Definitely periods of underperformance. It seems to be one of the best ways to try to beat the market if you're willing to take on more risk. Or take on less risk with more bonds like a barbell strategy.

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by Rowan Oak » Sun Jan 21, 2018 10:31 am

Alexa9 wrote:
Sun Jan 21, 2018 9:54 am
Rowan Oak wrote:
Sun Jan 21, 2018 9:42 am
Are you talking about short-term (10 years or less) or long-term (30 years or more) results?
The small value premium seems to be more noticeable long term with true small value funds like DFA. Definitely periods of underperformance. It seems to be one of the best ways to try to beat the market if you're willing to take on more risk. Or take on less risk with more bonds like a barbell strategy.
Interesting.

I found this article by Ben Carlson to be informative about why an investor may choose an alternative (strategic and/or tactical) asset allocation. It may not beat the Three-fund portfolio long-term, but maybe it can lessen short-term volatility. Of course, he doesn't say exactly how it works; for that you need to become a client of his firm and therefore pay higher fees. For me, the Three-fund portfolio, stay-the-course, and controlling risk by adjusting stock/bond ratio works, but I do acknowledge there are other ways.
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by Dottie57 » Sun Jan 21, 2018 10:43 am

JCE66 wrote:
Sun Jan 21, 2018 7:31 am
I once heard Mr. Hulbert tell a large audience that Louis Rukeyser's forecasts (and his "Elves") were worthless -- when he knew Mr. Rukeyser was the principal speaker later in the day. That took honesty -- and guts.
Now that is a name I have not heard in a long, long time. I remember his shows! :happy
Me too. It was a family ritual to watch the show. I never really understood what he said and the market remained magical.

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by baw703916 » Sun Jan 21, 2018 4:54 pm

Dottie57 wrote:
Sun Jan 21, 2018 10:43 am
Me too. It was a family ritual to watch the show. I never really understood what he said and the market remained magical.
Where are the elves' yachts? :twisted:
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by JBTX » Sun Jan 21, 2018 5:07 pm

Over the years I’ve read his columns and found them interesting. It tells you something when a guy who’s primary focus was to track the best performing newsletters come to the conclusion it isn’t worth the effort.

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by Dottie57 » Sun Jan 21, 2018 5:19 pm

baw703916 wrote:
Sun Jan 21, 2018 4:54 pm
Dottie57 wrote:
Sun Jan 21, 2018 10:43 am
Me too. It was a family ritual to watch the show. I never really understood what he said and the market remained magical.
Where are the elves' yachts? :twisted:
Hehe. Mwybe with Louis himself!

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by BrooklynInvest » Sun Jan 21, 2018 5:48 pm

Don't disagree with any of the conclusions BUT . . .

Instead of comparing to S&P for large cap, what happens to the likelihood of outperformance for active if you deduct an aggregate of passive fees and approximate an investor's experience?

When you compound over longer periods, have to think that even Vanguard-like fees push some (guessing not many) active funds above the "outperformance" threshold.

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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by David Jay » Sun Jan 21, 2018 6:40 pm

BrooklynInvest wrote:
Sun Jan 21, 2018 5:48 pm
When you compound over longer periods, have to think that even Vanguard-like fees push some (guessing not many) active funds above the "outperformance" threshold.
I don't think there is much debate that active funds, in aggregate, perform similarly to passive funds before fees. The problem is that active funds are more expensive to run and command higher markups due to their "mystique".
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by itstoomuch » Sun Jan 21, 2018 7:21 pm

Never did.
Kinda hoped that we would achieve 12% CAGR in our accumulation years. Maybe because the projections were at 12%.
Now that we have enough, the focus is keeping assets and protecting from great loss.
example: Today, Spouse and son are out exploring for a 1031 exchange to be used for a rental. They are putting in an offer that will only yield 1-3% ROI. We will gain on future RE market appreciation and tax depreciation.

example: We bought LTCi 15 years ago. It's Insurance but it allows me to do certain investments without regard to LTC.
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Re: "Why You Should Probably Just Give Up Trying To Beat The Stock Market"

Post by packer16 » Sun Jan 21, 2018 9:13 pm

The one issue with the Larry Portfolio is timing risk. If you put one together after his article you would underperform & have as much volatility as a TSM/bond portfolio. It is good in theory but the shortfalls from the expected premium can be painful if you expect them to show up and they do not.

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