Rob Arnott:index Investors Buy High, Sell Low

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nisiprius
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Re: Rob Arnott:index Investors Buy High, Sell Low

Post by nisiprius » Wed May 23, 2018 6:00 am

JoMoney wrote:
Tue May 22, 2018 9:37 pm
nisiprius wrote:
Tue May 22, 2018 8:30 pm
...But the goal of passive investing is not passivity in the sense of no transactions, the goal is to replicate the "market portfolio."...
I'm not sure if I agree with that or not :-?
Something about that definition rubs a little bit funny.
The idea of "passive investing" has been around long before one could actually replicate the "market portfolio", and seems to me the passivity was in not making frequent decisions
Benjamin Graham in The Intelligent Investor wrote:... The defensive (or passive) investor will place his chief emphasis on the avoidance of serious mistakes or losses. His second aim will be freedom from effort, annoyance, and the need for making frequent decisions. ..
But at the same time, the expectation for a passive investor was to garner average returns and not taking unusual risks, and it's hard to argue against the "market portfolio" being the embodiment of that.
Maybe I agree with you about maybe not agreeing with me. I think you (and AlohaJoe) have a point.
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dumbmoney
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Re: Rob Arnott:index Investors Buy High, Sell Low

Post by dumbmoney » Thu May 24, 2018 6:01 am

nisiprius wrote:
Tue May 22, 2018 8:30 pm
dumbmoney wrote:
Fri May 18, 2018 9:35 pm
AlohaJoe wrote:
Fri May 18, 2018 9:23 pm
dumbmoney wrote:
Fri May 18, 2018 9:00 pm
To me the ideal passive stock market fund would be one that never, ever trades. That's even better than an index fund that trades smartly. The only downside is a gradual loss of diversification, which is meaningless over a human lifetime.
Why is that ideal?
Lowest cost.
You mean like the Voya Corporate Leaders Trust, LEXCX, the only fund I know of that does that... which has an expense ratio of 0.59%? "In theory, there is no difference between theory and practice, but in practice, there is."

(And, incidentally, LEXCX has experienced style drift from large value to large blend during a "human lifetime," which is not very important, but not totally "meaningless.")
It started out with 30 stocks and after 83 years of doing nothing, the number has dwindled to 20. More worrying, the top stock is 25% of the fund. So it's underdiversified for sure, but again - it started with just 30 stocks!
nisiprius wrote:
Tue May 22, 2018 8:30 pm
In the case of a total market index fund, transaction costs are not zero but are very low because stocks only need to be bought or sold at times when their market capitalization is very low.
Nah, large cap stocks get added sometimes.
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