Indexing will fail investors in next decade

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
ps56k
Posts: 793
Joined: Sat Mar 19, 2011 1:28 pm
Location: Chicago area

Indexing will fail investors in next decade

Post by ps56k » Thu Jun 07, 2018 11:33 am


User avatar
triceratop
Moderator
Posts: 5468
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Indexing will fail investors in next decade

Post by triceratop » Thu Jun 07, 2018 11:36 am

Niels Jensen, author of The End of Indexing: Six structural mega-trends that threaten passive investing (Harriman House), is chief investment officer of London-based Absolute Return Partners LLP.
okay.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

bh7785
Posts: 79
Joined: Tue Aug 09, 2016 8:57 am

Re: Indexing will fail investors in next decade

Post by bh7785 » Thu Jun 07, 2018 11:42 am

triceratop wrote:
Thu Jun 07, 2018 11:36 am
Niels Jensen, author of The End of Indexing: Six structural mega-trends that threaten passive investing (Harriman House), is chief investment officer of London-based Absolute Return Partners LLP.
okay.
Haha! :sharebeer

User avatar
Phineas J. Whoopee
Posts: 7234
Joined: Sun Dec 18, 2011 6:18 pm

Re: Indexing will fail investors in next decade

Post by Phineas J. Whoopee » Thu Jun 07, 2018 11:50 am

What do investors expect indexing will do? Only if it doesn't do that will it fail.
PJW

lukestuckenhymer
Posts: 24
Joined: Wed May 30, 2018 11:53 am

Re: Indexing will fail investors in next decade

Post by lukestuckenhymer » Thu Jun 07, 2018 11:55 am

Invest in value stocks rather than growth stocks or, even better, go long value and short growth (using ETFs). Value has underperformed growth for years but often does better in a rising interest rate environment like now (at least in the U.S.).
Of all the strange things in this article, this might be the most irresponsible.

Jack FFR1846
Posts: 7418
Joined: Tue Dec 31, 2013 7:05 am

Re: Indexing will fail investors in next decade

Post by Jack FFR1846 » Thu Jun 07, 2018 11:55 am

OMG, OMG, what am I ever going to do?

(runs in circles with hands waving above my head)

What a garbage piece that was.
Bogle: Smart Beta is stupid

GibsonL6s
Posts: 214
Joined: Tue Aug 29, 2017 12:17 pm

Re: Indexing will fail investors in next decade

Post by GibsonL6s » Thu Jun 07, 2018 12:04 pm

So instead of passively investing we should invest like hedge funds going long and short and make specific bets on subsectors of the market, chase yield, invest in a commodity and increase exposure to "illiquid investments". I don't see how any of this could go wrong :D

User avatar
nisiprius
Advisory Board
Posts: 36187
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Indexing will fail investors in next decade

Post by nisiprius » Thu Jun 07, 2018 12:04 pm

Phineas J. Whoopee wrote:
Thu Jun 07, 2018 11:50 am
What do investors expect indexing will do? Only if it doesn't do that will it fail.
PJW
Indeed. I see nothing in that article that would lead me to believe that the Vanguard index funds I invest in will fail to track their indexes, to within a few basis points, over the next decade. If an index fund has "failed" if it does not beat the index, then index funds have done nothing but fail since 1976.

The only thing the article can mean is that the market itself will "fail" investors--but that only makes sense if someone will tell me exactly that promises the market has made to me.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

bgf
Posts: 479
Joined: Fri Nov 10, 2017 9:35 am

Re: Indexing will fail investors in next decade

Post by bgf » Thu Jun 07, 2018 12:07 pm

there is so much unmitigated garbage i don't even know where to start. im pissed i gave it a click.

also, how anyone published that guy is beyond my comprehension.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

thangngo
Posts: 1138
Joined: Sun Feb 26, 2017 2:08 pm

Re: Indexing will fail investors in next decade

Post by thangngo » Thu Jun 07, 2018 12:08 pm

ps56k wrote:
Thu Jun 07, 2018 11:33 am
oh great....

https://www.msn.com/en-us/money/savinga ... ar-AAyhxD0
Yeah sure.

student
Posts: 2301
Joined: Fri Apr 03, 2015 6:58 am

Re: Indexing will fail investors in next decade

Post by student » Thu Jun 07, 2018 12:34 pm

lukestuckenhymer wrote:
Thu Jun 07, 2018 11:55 am
Invest in value stocks rather than growth stocks or, even better, go long value and short growth (using ETFs). Value has underperformed growth for years but often does better in a rising interest rate environment like now (at least in the U.S.).
Of all the strange things in this article, this might be the most irresponsible.
Even if I believe the statement from the article is correct, I will buy value index fund instead. Not really an argument against index. :shock:

User avatar
oldcomputerguy
Posts: 3127
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods

Re: Indexing will fail investors in next decade

Post by oldcomputerguy » Thu Jun 07, 2018 12:47 pm

triceratop wrote:
Thu Jun 07, 2018 11:36 am
Niels Jensen, author of The End of Indexing: Six structural mega-trends that threaten passive investing (Harriman House), is chief investment officer of London-based Absolute Return Partners LLP.
okay.
Yeah, boy, there's some impartial research. :beer
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

MJS
Posts: 122
Joined: Sat Aug 05, 2017 10:55 pm

Re: Indexing will fail investors in next decade

Post by MJS » Thu Jun 07, 2018 2:40 pm

Actually absolutely true ... if investor=investment advisor. Passive indexing will severely damage Mr. Jensen and his ilk.

ResearchMed
Posts: 6859
Joined: Fri Dec 26, 2008 11:25 pm

Re: Indexing will fail investors in next decade

Post by ResearchMed » Thu Jun 07, 2018 2:45 pm

nisiprius wrote:
Thu Jun 07, 2018 12:04 pm
Phineas J. Whoopee wrote:
Thu Jun 07, 2018 11:50 am
What do investors expect indexing will do? Only if it doesn't do that will it fail.
PJW
Indeed. I see nothing in that article that would lead me to believe that the Vanguard index funds I invest in will fail to track their indexes, to within a few basis points, over the next decade. If an index fund has "failed" if it does not beat the index, then index funds have done nothing but fail since 1976.

The only thing the article can mean is that the market itself will "fail" investors--but that only makes sense if someone will tell me exactly that promises the market has made to me.
Oh, you must not have gotten the memo yet :twisted:

RM
This signature is a placebo. You are in the control group.

User avatar
FIREchief
Posts: 2446
Joined: Fri Aug 19, 2016 6:40 pm

Re: Indexing will fail investors in next decade

Post by FIREchief » Thu Jun 07, 2018 3:59 pm

First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Engineer250
Posts: 1029
Joined: Wed Jun 22, 2016 1:41 pm

Re: Indexing will fail investors in next decade

Post by Engineer250 » Thu Jun 07, 2018 4:17 pm

FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
Taking investors for my new crypto currency based on water. I'll call it AquaCoin. Please PM me if interested, minimum $300,000 initial investment.
Where the tides of fortune take us, no man can know.

User avatar
monkey_business
Posts: 617
Joined: Thu Jan 21, 2010 2:21 pm

Re: Indexing will fail investors in next decade

Post by monkey_business » Thu Jun 07, 2018 4:21 pm

Engineer250 wrote:
Thu Jun 07, 2018 4:17 pm
FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
Taking investors for my new crypto currency based on water. I'll call it AquaCoin. Please PM me if interested, minimum $300,000 initial investment.
Well, color me convinced!

I have liquidated all my index fund holdings and am anxiously awaiting details on how I can use the proceeds to buy AquaCoin! :greedy

User avatar
Epsilon Delta
Posts: 7430
Joined: Thu Apr 28, 2011 7:00 pm

Re: Indexing will fail investors in next decade

Post by Epsilon Delta » Thu Jun 07, 2018 4:27 pm

FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.
Emulate Dominic Greene in Quantum of Solace.

That would be life, imitating art, imitating life.

User avatar
rob
Posts: 2956
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Re: Indexing will fail investors in next decade

Post by rob » Thu Jun 07, 2018 4:30 pm

I do think there will eventually be conflicts partially based on water but as an investment strategy... yeah :oops: As to the indexing - where does he expect stocks to hide so they are not in the broad indexes?
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

User avatar
FIREchief
Posts: 2446
Joined: Fri Aug 19, 2016 6:40 pm

Re: Indexing will fail investors in next decade

Post by FIREchief » Thu Jun 07, 2018 4:33 pm

Engineer250 wrote:
Thu Jun 07, 2018 4:17 pm
FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
Taking investors for my new crypto currency based on water. I'll call it AquaCoin. Please PM me if interested, minimum $300,000 initial investment.
So will your Aquacoin actually have water reserves to back it up? If so, I think that means it has more inherent value than Bitcoin! Sweet!! 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

User avatar
David Jay
Posts: 5277
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Indexing will fail investors in next decade

Post by David Jay » Thu Jun 07, 2018 4:45 pm

FIREchief wrote:
Thu Jun 07, 2018 4:33 pm
Engineer250 wrote:
Thu Jun 07, 2018 4:17 pm
FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
Taking investors for my new crypto currency based on water. I'll call it AquaCoin. Please PM me if interested, minimum $300,000 initial investment.
So will your Aquacoin actually have water reserves to back it up? If so, I think that means it has more inherent value than Bitcoin! Sweet!! 8-)
No, he doesn’t hold physical reserves, he leverages with water futures.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

User avatar
jeffyscott
Posts: 7089
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Indexing will fail investors in next decade

Post by jeffyscott » Thu Jun 07, 2018 4:54 pm

He advises to invest in water and in illiquidity...go with ice and cover both.
press on, regardless - John C. Bogle

User avatar
triceratop
Moderator
Posts: 5468
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Indexing will fail investors in next decade

Post by triceratop » Thu Jun 07, 2018 5:08 pm

FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
Actually that's what the protagonist of The Big Short is supposedly into next.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

User avatar
FIREchief
Posts: 2446
Joined: Fri Aug 19, 2016 6:40 pm

Re: Indexing will fail investors in next decade

Post by FIREchief » Thu Jun 07, 2018 5:38 pm

jeffyscott wrote:
Thu Jun 07, 2018 4:54 pm
He advises to invest in water and in illiquidity...go with ice and cover both.
Yeah, I was already figuring to go the iceberg route. Just need a whopping big tug boat to shove icebergs into my secret spot in the arctic to store until water prices peak.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

heyyou
Posts: 3065
Joined: Tue Feb 20, 2007 4:58 pm

Re: Indexing will fail investors in next decade

Post by heyyou » Thu Jun 07, 2018 6:06 pm

As clickbait, that is a very successful article due to its cleverly worded hook of a title. Far too often, fear mongering is used as a tool by those who need your attention to advance their agendas. Some are delusional enough to believe their own hype.

What year was the "Death of Equities" magazine cover? That was the same technique as the linked article.
Attributed to George Santayana, "Those who fail to study history, are doomed to repeat it."

Consider my forecast: More mutual funds and their too-clever-by-half managers will fail in the next decade, than funds that just follow indices.

User avatar
Rick Ferri
Posts: 8483
Joined: Mon Feb 26, 2007 11:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Indexing will fail investors in next decade

Post by Rick Ferri » Thu Jun 07, 2018 6:30 pm

Ten years ago, Robb Arnott from Research Affiliates claimed the S&P 500 was a great index for the previous 50 years, and that “fundamental indexing” will take its place over the next 50 years. That hasn’t happened either.
The Education of an Index Investor: flounders in darkness, finds enlightenment, overcomplicates strategy, embraces simplicity.

Engineer250
Posts: 1029
Joined: Wed Jun 22, 2016 1:41 pm

Re: Indexing will fail investors in next decade

Post by Engineer250 » Thu Jun 07, 2018 6:54 pm

FIREchief wrote:
Thu Jun 07, 2018 4:33 pm
Engineer250 wrote:
Thu Jun 07, 2018 4:17 pm
FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
Taking investors for my new crypto currency based on water. I'll call it AquaCoin. Please PM me if interested, minimum $300,000 initial investment.
So will your Aquacoin actually have water reserves to back it up? If so, I think that means it has more inherent value than Bitcoin! Sweet!! 8-)
I don't know. Doesn't that make it more of an ETF than a crypto currency? I'm not smart enough to know which option gets me rich quicker. I mean *insert investment manager mumbo jumbo here*.
Where the tides of fortune take us, no man can know.

User avatar
ps56k
Posts: 793
Joined: Sat Mar 19, 2011 1:28 pm
Location: Chicago area

Re: Indexing will fail investors in next decade

Post by ps56k » Thu Jun 07, 2018 10:17 pm

Sorry folks -
the article and link was passed along to me from a friend that is usually pretty much a mentor....
but maybe not so much in this specific case....

BTW - on the "water" front -
years ago, I looked at a couple of the ETFs that had holdings in the water world of production, transport, etc....
Not the bottled water stuff - but more like, how to supply water to those parts of the world struggling - like Cape Town or California -

AlohaJoe
Posts: 3557
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Indexing will fail investors in next decade

Post by AlohaJoe » Thu Jun 07, 2018 10:43 pm

heyyou wrote:
Thu Jun 07, 2018 6:06 pm
What year was the "Death of Equities" magazine cover? That was the same technique as the linked article.
I don't think the two are comparable. And I'd argue the much maligned BusinessWeek article was actually right in most ways. The magazine cover actually said: "The Death of Equities: How Inflation is Destroying the Stock Market". The article had two main points: inflation was destroying stocks and investors were beginning to look outside of the traditional assets of listed stocks & high-grade bonds when deciding where to put their money.

All quotes are from the original 1979 article
The one rule whose demise did the stock market in could be summed up thus: By buying stocks, investors could beat inflation. Stocks were a reasonable hedge when inflation was low. But they proved helpless against the awesome inflation of the past decade. “People no longer think of stocks as an inflation hedge, and based on experience, that’s a reasonable conclusion for them to have reached,”
A big part of what the article was really about was a recent (at the time) Department of Labor ruling that allowed institutional funds to invest in things besides listed stocks and high-grade bonds. For the first time they were able to invest in private equity, timber, hedge funds, small companies, shopping malls, commodity futures, and so on. And since then, isn't that exactly how Swensen has made his fame & fortune?

What the article said was
Until now, the flight of institutional money from the financial markets has been merely a trickle. But if could turn into a torrent if this year’s 60% increase in oil prices touches off a deep recession while pushing inflation sky-high. As it is, the nation’s financial markets and its capital flows have been grossly distorted by 13 years of inflation. Before inflation took hold in the late 1960s, the total return on stocks had averaged 9% a year for more than 40 years, while AAA bonds—infinitely safer—rarely paid more than 4%. Today the situation has reversed, with bonds yielding up to 11% and stocks averaging a return of less than 3% throughout the decade.

As a result, even institutions that have so far remained in the financial markets are pouring money into shortterm investments and such “alternate equity” investments as mortgage-backed paper, foreign securities, venture capital, leases, guaranteed insurance contracts, indexed bonds, stock options, and futures.
And that trend of moving away from market investing has only continued to today with everything from P2P lending, crowd-sourced real estate, and all manner of other tomfoolery.

And the article was actually less dire than the title made it sound. It repeatedly pointed out that equities were dead now but could be brought back to life
Indeed, putting life back into the U.S. equity market will be a long and difficult process. Says David Silver, president of the Investment Company Institute: “It would take a sustained bull market for a couple of years to attract broadbased investor interest and restore confidence.”
or
To bring equities back to life now, secular inflation would have to be wrung out of the economy, and then accounting policies would have to be made more realistic and tax laws rewritten. But these steps may not be enough. “It will take two or three years of confidence building, of testing, before the market can seriously act like it did in the 1950s and early ’60s,” says William J. Fellner, a professor of Economics Advisers.
And that ended up being exactly what happened. Tax laws were rewritten, secular inflation was wrung out and it still took 2-3 years of confidence building. The market bottom was in August 1982, nearly three years after the article came out. (The way people talk today, you'd think the market rebounded the week after the article was published.)

AlohaJoe
Posts: 3557
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Indexing will fail investors in next decade

Post by AlohaJoe » Thu Jun 07, 2018 10:46 pm

ps56k wrote:
Thu Jun 07, 2018 11:33 am
oh great....

https://www.msn.com/en-us/money/savinga ... ar-AAyhxD0
For those who don't want to read the link. The six reasons given are:
  • The end of the debt super-cycle
  • Retirement of the baby boomers
  • Declining spending power of the middle class
  • The rise of the East
  • The death of fossil fuels
  • Mean reversion of wealth-to-GDP
Together, these six trends have the potential to create conditions resembling a perfect storm, which will result in low economic growth for years — possibly decades — and mediocre returns on stocks and other risk assets.

WanderingDoc
Posts: 944
Joined: Sat Aug 05, 2017 8:21 pm

Re: Indexing will fail investors in next decade

Post by WanderingDoc » Thu Jun 07, 2018 11:34 pm

You don't have at least a slight, really back of your mind, possibly, maybe, worry? Not every party last forever. Things change.
triceratop wrote:
Thu Jun 07, 2018 11:36 am
Niels Jensen, author of The End of Indexing: Six structural mega-trends that threaten passive investing (Harriman House), is chief investment officer of London-based Absolute Return Partners LLP.
okay.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

letsgobobby
Posts: 11411
Joined: Fri Sep 18, 2009 1:10 am

Re: Indexing will fail investors in next decade

Post by letsgobobby » Fri Jun 08, 2018 12:00 am

WanderingDoc wrote:
Thu Jun 07, 2018 11:34 pm
You don't have at least a slight, really back of your mind, possibly, maybe, worry? Not every party last forever. Things change.
Things like real estate?

WanderingDoc
Posts: 944
Joined: Sat Aug 05, 2017 8:21 pm

Re: Indexing will fail investors in next decade

Post by WanderingDoc » Fri Jun 08, 2018 12:26 am

I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it. Paper has no value, currency can be manipulated, printed, and created out of thin air in all sorts of ways. Many of my colleagues saw increased rents and lower vacancies during the 2007-2009 economic meltdown. I have been patiently waiting for the next correction.

Many folks are planning and preparing for 3% real 60/40 equity returns over the next decade or two like no big deal. It shocks me that that can even be considered acceptable. A deal with less than a 25-30% real return I wouldn't even look at, but YMMV
letsgobobby wrote:
Fri Jun 08, 2018 12:00 am
WanderingDoc wrote:
Thu Jun 07, 2018 11:34 pm
You don't have at least a slight, really back of your mind, possibly, maybe, worry? Not every party last forever. Things change.
Things like real estate?
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

AlohaJoe
Posts: 3557
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Indexing will fail investors in next decade

Post by AlohaJoe » Fri Jun 08, 2018 12:31 am

WanderingDoc wrote:
Fri Jun 08, 2018 12:26 am
I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it.
Vietnam just made a ton more of it this year. So did every other country in Asia. Not sure what you mean by "not making any more of it". The wikipedia article on "land reclamation" is a good introduction to the subject. Land isn't a finite commodity. I mean, it is fine to say that the supply is expanding slowly but there's no reason to exaggerate with tired bromides.

letsgobobby
Posts: 11411
Joined: Fri Sep 18, 2009 1:10 am

Re: Indexing will fail investors in next decade

Post by letsgobobby » Fri Jun 08, 2018 1:45 am

WanderingDoc wrote:
Fri Jun 08, 2018 12:26 am
I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it. Paper has no value, currency can be manipulated, printed, and created out of thin air in all sorts of ways. Many of my colleagues saw increased rents and lower vacancies during the 2007-2009 economic meltdown. I have been patiently waiting for the next correction.

Many folks are planning and preparing for 3% real 60/40 equity returns over the next decade or two like no big deal. It shocks me that that can even be considered acceptable. A deal with less than a 25-30% real return I wouldn't even look at, but YMMV
letsgobobby wrote:
Fri Jun 08, 2018 12:00 am
WanderingDoc wrote:
Thu Jun 07, 2018 11:34 pm
You don't have at least a slight, really back of your mind, possibly, maybe, worry? Not every party last forever. Things change.
Things like real estate?
I thought not every party last forever? Only yours?

User avatar
triceratop
Moderator
Posts: 5468
Joined: Tue Aug 04, 2015 8:20 pm
Location: la la land

Re: Indexing will fail investors in next decade

Post by triceratop » Fri Jun 08, 2018 2:36 am

letsgobobby wrote:
Fri Jun 08, 2018 1:45 am
WanderingDoc wrote:
Fri Jun 08, 2018 12:26 am
I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it. Paper has no value, currency can be manipulated, printed, and created out of thin air in all sorts of ways. Many of my colleagues saw increased rents and lower vacancies during the 2007-2009 economic meltdown. I have been patiently waiting for the next correction.

Many folks are planning and preparing for 3% real 60/40 equity returns over the next decade or two like no big deal. It shocks me that that can even be considered acceptable. A deal with less than a 25-30% real return I wouldn't even look at, but YMMV
letsgobobby wrote:
Fri Jun 08, 2018 12:00 am
WanderingDoc wrote:
Thu Jun 07, 2018 11:34 pm
You don't have at least a slight, really back of your mind, possibly, maybe, worry? Not every party last forever. Things change.
Things like real estate?
I thought not every party last forever? Only yours?
The 25-30% real returns are so good only he can harvest them over the next decade or two.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

minimalistmarc
Posts: 250
Joined: Fri Jul 24, 2015 4:38 pm

Re: Indexing will fail investors in next decade

Post by minimalistmarc » Fri Jun 08, 2018 3:00 am

A decade of poor returns would be a minor setback

User avatar
jeffyscott
Posts: 7089
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Indexing will fail investors in next decade

Post by jeffyscott » Fri Jun 08, 2018 6:33 am

WanderingDoc wrote:
Thu Jun 07, 2018 11:34 pm
You don't have at least a slight, really back of your mind, possibly, maybe, worry? Not every party last forever. Things change.
triceratop wrote:
Thu Jun 07, 2018 11:36 am
Niels Jensen, author of The End of Indexing: Six structural mega-trends that threaten passive investing (Harriman House), is chief investment officer of London-based Absolute Return Partners LLP.
okay.
Actually the front of my mind will not be surprised by low stock returns. Prices are high, particularly in the US. I'd also not be surprised if growth does worse than value (and thus cap weighted index funds have poor returns). I have mostly not invested in strict cap weighted total market type index funds, but am prepared to accept mediocre returns on our 20% US stock allocation, anyway. I do hope that the 20% foreign allocation does a little better and that the 60% in various varieties of fixed income does better than the 3% or so expected return of the total bond market index.

I also do not disagree that water resources are pretty important to most people and scarce in some areas. I think that I am probably not the only one who recognizes that, so why should I think that this fact is not already priced in to the market?

Similarly the listed trends are already known, so why assume they are not already priced in. I was aware of all these issues to some extent...well, except I have no idea what a debt super-cycle is. But for example, baby boomers retiring seems like it should not be a surprise, so why should I assume it's not already priced in?
press on, regardless - John C. Bogle

JohnDindex
Posts: 53
Joined: Wed Feb 07, 2018 10:59 am

Re: Indexing will fail investors in next decade

Post by JohnDindex » Fri Jun 08, 2018 6:51 am

WanderingDoc wrote:
Fri Jun 08, 2018 12:26 am
I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it. Paper has no value, currency can be manipulated, printed, and created out of thin air in all sorts of ways. Many of my colleagues saw increased rents and lower vacancies during the 2007-2009 economic meltdown. I have been patiently waiting for the next correction.

Many folks are planning and preparing for 3% real 60/40 equity returns over the next decade or two like no big deal. It shocks me that that can even be considered acceptable. A deal with less than a 25-30% real return I wouldn't even look at, but YMMV
letsgobobby wrote:
Fri Jun 08, 2018 12:00 am
WanderingDoc wrote:
Thu Jun 07, 2018 11:34 pm
You don't have at least a slight, really back of your mind, possibly, maybe, worry? Not every party last forever. Things change.
Things like real estate?
What is paper? Stocks? So are you saying that a deed on a property is not paper, because you can physically go touch the property? Is that different than walking into a Mcdonalds and touching the tiny sliver of it that you own when you are a shareholder?

WanderingDoc
Posts: 944
Joined: Sat Aug 05, 2017 8:21 pm

Re: Indexing will fail investors in next decade

Post by WanderingDoc » Fri Jun 08, 2018 10:14 am

So, the land that UAE created, really helped lower those property values right? 8-) Rock bottom prices! The fact that some countries go through the trouble of making a tiny bit of land sort of solidifies my point.
AlohaJoe wrote:
Fri Jun 08, 2018 12:31 am
WanderingDoc wrote:
Fri Jun 08, 2018 12:26 am
I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it.
Vietnam just made a ton more of it this year. So did every other country in Asia. Not sure what you mean by "not making any more of it". The wikipedia article on "land reclamation" is a good introduction to the subject. Land isn't a finite commodity. I mean, it is fine to say that the supply is expanding slowly but there's no reason to exaggerate with tired bromides.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

wolf359
Posts: 1307
Joined: Sun Mar 15, 2015 8:47 am

Re: Indexing will fail investors in next decade

Post by wolf359 » Fri Jun 08, 2018 11:31 am

bgf wrote:
Thu Jun 07, 2018 12:07 pm
there is so much unmitigated garbage i don't even know where to start. im pissed i gave it a click.

also, how anyone published that guy is beyond my comprehension.
It's published as an opinion piece by the head of a hedge fund.

It's not research. It's simply more fear, uncertainty, and doubt being spewed forth to try to reverse the trend away from active and towards passive management. His beliefs may in fact be sincere.

Just because you may disagree with a position doesn't mean that it is complete garbage. There's value in evaluating his arguments, and seeing if they have any merit. The article can be summarized as saying that there are a lot of big changes and trends that will impact the markets in the next ten years. He is correct. He may or not be correct in terms of if those changes and trends will be positive or negative for the markets.

His argument:
- People are investing in order to make money, and measure their success/failure by whether or not they made money.
- Index funds will provide market returns. That is what they do.
- He is predicting that because of all these trends he listed, the markets will be down in the next 10 years.
- Therefore, the people who rely on index funds to increase their net worth over the next 10 years may not meet their return objectives (thus "failing" to meet their objectives.)
- As a solution to this, he suggest a number of alternative investments and investing strategies that are effectively active management or utilize hedge funds.

The counter-argument:
- He noted that the last 30 years were a positive term for index funds. However, that period included the "lost decade" of 2000-2010, which had similar dismal returns to what he is projecting for the next 10 years. During that time, index funds beat active management and hedge fund strategies.
- The fact that bad market periods occur has nothing to do with whether or not active or hedge fund strategies will beat passive strategies over the same time period. Actually, over any given time period, some active managers and some hedge funds will soundly beat a passive strategy. The trick is that you have to invest in them PRIOR to their out-performance, not after, and there is no way to select the outperformers in advance. You only know the outperformance occurred after the time period finishes. Therefore, it is more prudent to stick with a passive strategy.
- Many of the specific strategies that he describes are effect companies that are publicly traded. For example, if the Japan declines and the US rises, or if the Asian economies boom and the European economies decline, the results are still captured by index funds. An accurate call by an active trader will definitely produce profits, but again, it is difficult to know who was right BEFORE the time period passes. If the active trader you bet on is wrong, then an active trading strategy may fail even worse than the passive strategy.
- I disagree with his premise about the death of fossil fuels. If demand for fossil fuels drops from the developed economies, their price will drop as well. All the energy-hungry developing economies will then automatically buy more of them, keeping the demand and price up. This will continue until all fossil fuels are exhausted. Regardless, that particular argument has nothing to do with whether or not passive or active is better. A passive strategy will capture the collective returns of all the publicly traded players in the market, including the eventual winners. An active strategy might be right, or might be wrong.
- His recommendation to invest in water companies is again an example of his bias. He is picking an industry or sector he believes will do well in the future. A broad index already includes water companies. If he is right, we already own it, and will reap the returns. If he overweights in water investments and is wrong, he will significantly underperform the indices.

So, I agree with his general premise that the next decade or two may be rough, but I believe the best approach is to adjust my stock/bond mix, increase my savings rate to address potential poor returns, and stick with passive strategies.

Pigeye Brewster
Posts: 184
Joined: Thu Oct 05, 2017 7:33 pm

Re: Indexing will fail investors in next decade

Post by Pigeye Brewster » Fri Jun 08, 2018 1:32 pm

wolf359 wrote:
Fri Jun 08, 2018 11:31 am
bgf wrote:
Thu Jun 07, 2018 12:07 pm
there is so much unmitigated garbage i don't even know where to start. im pissed i gave it a click.

also, how anyone published that guy is beyond my comprehension.
It's published as an opinion piece by the head of a hedge fund.

It's not research. It's simply more fear, uncertainty, and doubt being spewed forth to try to reverse the trend away from active and towards passive management. His beliefs may in fact be sincere.

Just because you may disagree with a position doesn't mean that it is complete garbage. There's value in evaluating his arguments, and seeing if they have any merit. The article can be summarized as saying that there are a lot of big changes and trends that will impact the markets in the next ten years. He is correct. He may or not be correct in terms of if those changes and trends will be positive or negative for the markets.

His argument:
- People are investing in order to make money, and measure their success/failure by whether or not they made money.
- Index funds will provide market returns. That is what they do.
- He is predicting that because of all these trends he listed, the markets will be down in the next 10 years.
- Therefore, the people who rely on index funds to increase their net worth over the next 10 years may not meet their return objectives (thus "failing" to meet their objectives.)
- As a solution to this, he suggest a number of alternative investments and investing strategies that are effectively active management or utilize hedge funds.

The counter-argument:
- He noted that the last 30 years were a positive term for index funds. However, that period included the "lost decade" of 2000-2010, which had similar dismal returns to what he is projecting for the next 10 years. During that time, index funds beat active management and hedge fund strategies.
- The fact that bad market periods occur has nothing to do with whether or not active or hedge fund strategies will beat passive strategies over the same time period. Actually, over any given time period, some active managers and some hedge funds will soundly beat a passive strategy. The trick is that you have to invest in them PRIOR to their out-performance, not after, and there is no way to select the outperformers in advance. You only know the outperformance occurred after the time period finishes. Therefore, it is more prudent to stick with a passive strategy.
- Many of the specific strategies that he describes are effect companies that are publicly traded. For example, if the Japan declines and the US rises, or if the Asian economies boom and the European economies decline, the results are still captured by index funds. An accurate call by an active trader will definitely produce profits, but again, it is difficult to know who was right BEFORE the time period passes. If the active trader you bet on is wrong, then an active trading strategy may fail even worse than the passive strategy.
- I disagree with his premise about the death of fossil fuels. If demand for fossil fuels drops from the developed economies, their price will drop as well. All the energy-hungry developing economies will then automatically buy more of them, keeping the demand and price up. This will continue until all fossil fuels are exhausted. Regardless, that particular argument has nothing to do with whether or not passive or active is better. A passive strategy will capture the collective returns of all the publicly traded players in the market, including the eventual winners. An active strategy might be right, or might be wrong.
- His recommendation to invest in water companies is again an example of his bias. He is picking an industry or sector he believes will do well in the future. A broad index already includes water companies. If he is right, we already own it, and will reap the returns. If he overweights in water investments and is wrong, he will significantly underperform the indices.

So, I agree with his general premise that the next decade or two may be rough, but I believe the best approach is to adjust my stock/bond mix, increase my savings rate to address potential poor returns, and stick with passive strategies.
Excellent post.

JiggyWillis
Posts: 14
Joined: Sun Jan 14, 2018 1:17 am

Re: Indexing will fail investors in next decade

Post by JiggyWillis » Sun Jun 10, 2018 9:05 pm

wolf359 wrote:
Fri Jun 08, 2018 11:31 am
bgf wrote:
Thu Jun 07, 2018 12:07 pm
there is so much unmitigated garbage i don't even know where to start. im pissed i gave it a click.

also, how anyone published that guy is beyond my comprehension.
It's published as an opinion piece by the head of a hedge fund.

It's not research. It's simply more fear, uncertainty, and doubt being spewed forth to try to reverse the trend away from active and towards passive management. His beliefs may in fact be sincere.

Just because you may disagree with a position doesn't mean that it is complete garbage. There's value in evaluating his arguments, and seeing if they have any merit. The article can be summarized as saying that there are a lot of big changes and trends that will impact the markets in the next ten years. He is correct. He may or not be correct in terms of if those changes and trends will be positive or negative for the markets.

His argument:
- People are investing in order to make money, and measure their success/failure by whether or not they made money.
- Index funds will provide market returns. That is what they do.
- He is predicting that because of all these trends he listed, the markets will be down in the next 10 years.
- Therefore, the people who rely on index funds to increase their net worth over the next 10 years may not meet their return objectives (thus "failing" to meet their objectives.)
- As a solution to this, he suggest a number of alternative investments and investing strategies that are effectively active management or utilize hedge funds.

The counter-argument:
- He noted that the last 30 years were a positive term for index funds. However, that period included the "lost decade" of 2000-2010, which had similar dismal returns to what he is projecting for the next 10 years. During that time, index funds beat active management and hedge fund strategies.
- The fact that bad market periods occur has nothing to do with whether or not active or hedge fund strategies will beat passive strategies over the same time period. Actually, over any given time period, some active managers and some hedge funds will soundly beat a passive strategy. The trick is that you have to invest in them PRIOR to their out-performance, not after, and there is no way to select the outperformers in advance. You only know the outperformance occurred after the time period finishes. Therefore, it is more prudent to stick with a passive strategy.
- Many of the specific strategies that he describes are effect companies that are publicly traded. For example, if the Japan declines and the US rises, or if the Asian economies boom and the European economies decline, the results are still captured by index funds. An accurate call by an active trader will definitely produce profits, but again, it is difficult to know who was right BEFORE the time period passes. If the active trader you bet on is wrong, then an active trading strategy may fail even worse than the passive strategy.
- I disagree with his premise about the death of fossil fuels. If demand for fossil fuels drops from the developed economies, their price will drop as well. All the energy-hungry developing economies will then automatically buy more of them, keeping the demand and price up. This will continue until all fossil fuels are exhausted. Regardless, that particular argument has nothing to do with whether or not passive or active is better. A passive strategy will capture the collective returns of all the publicly traded players in the market, including the eventual winners. An active strategy might be right, or might be wrong.
- His recommendation to invest in water companies is again an example of his bias. He is picking an industry or sector he believes will do well in the future. A broad index already includes water companies. If he is right, we already own it, and will reap the returns. If he overweights in water investments and is wrong, he will significantly underperform the indices.

So, I agree with his general premise that the next decade or two may be rough, but I believe the best approach is to adjust my stock/bond mix, increase my savings rate to address potential poor returns, and stick with passive strategies.
When I read this article on MarketWatch earlier this week, I figured the Bogleheads were giving it short shrift. Wolf359's evaluation is far more persuasuve than the piece itself.

User avatar
Phineas J. Whoopee
Posts: 7234
Joined: Sun Dec 18, 2011 6:18 pm

Re: Indexing will fail investors in next decade

Post by Phineas J. Whoopee » Sun Jun 10, 2018 9:12 pm

WanderingDoc wrote:
Fri Jun 08, 2018 12:26 am
I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it. Paper has no value, currency can be manipulated, printed, and created out of thin air in all sorts of ways. ...
Presumably you're aware that what we think of as real estate ownership is entirely based on writing on bits of paper, backed up by people whose job is to inflict violence on those who interpret the writing differently.

PJW
Last edited by Phineas J. Whoopee on Sun Jun 10, 2018 9:48 pm, edited 1 time in total.

Geologist
Posts: 1183
Joined: Fri Jan 02, 2009 7:35 pm

Re: Indexing will fail investors in next decade

Post by Geologist » Sun Jun 10, 2018 9:20 pm

WanderingDoc wrote:
Fri Jun 08, 2018 10:14 am
So, the land that UAE created, really helped lower those property values right? 8-) Rock bottom prices! The fact that some countries go through the trouble of making a tiny bit of land sort of solidifies my point.
AlohaJoe wrote:
Fri Jun 08, 2018 12:31 am
WanderingDoc wrote:
Fri Jun 08, 2018 12:26 am
I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it.
Vietnam just made a ton more of it this year. So did every other country in Asia. Not sure what you mean by "not making any more of it". The wikipedia article on "land reclamation" is a good introduction to the subject. Land isn't a finite commodity. I mean, it is fine to say that the supply is expanding slowly but there's no reason to exaggerate with tired bromides.
I don't know why you say "some countries." It is pretty much every country if the land is valuable. It certainly includes the United States. You should look at historical maps of US coastal cities when they were first settled and the way they are now. There are many acres of land that didn't exist then (Back Bay, Boston is just one famous example with the aqueous origin captured in the name; see also New York; Charleston, SC; Annapolis, MD; San Francisco...).

AlphaLess
Posts: 346
Joined: Fri Sep 29, 2017 11:38 pm

Re: Indexing will fail investors in next decade

Post by AlphaLess » Sun Jun 10, 2018 9:44 pm

Engineer250 wrote:
Thu Jun 07, 2018 4:17 pm
FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
Taking investors for my new crypto currency based on water. I'll call it AquaCoin. Please PM me if interested, minimum $300,000 initial investment.
Oh, man, that's cheap.
If you don't have a coin idea with a minimum of of $300MM, I am passing.
:moneybag :moneybag :moneybag :moneybag

WanderingDoc
Posts: 944
Joined: Sat Aug 05, 2017 8:21 pm

Re: Indexing will fail investors in next decade

Post by WanderingDoc » Sun Jun 10, 2018 9:55 pm

Phineas J. Whoopee wrote:
Sun Jun 10, 2018 9:12 pm
WanderingDoc wrote:
Fri Jun 08, 2018 12:26 am
I like my odds with real estate by a mile since land is a finite commodity and they aren't making any more of it. Paper has no value, currency can be manipulated, printed, and created out of thin air in all sorts of ways. ...
Presumably you're aware that what we think of as real estate ownership is entirely based on writing on bits of paper, backed up by people whose job is to inflict violence on those who interpret the writing differently.

PJW
Umm.. literally everything that has a government attached to it (which is close to everything period) is enforced and enforceable by violence. This is nothing new. Its a sad truth we all have to live with unless you want to go entirely off the grid.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

User avatar
jeffyscott
Posts: 7089
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: Indexing will fail investors in next decade

Post by jeffyscott » Mon Jun 11, 2018 5:49 am

WanderingDoc wrote:
Sun Jun 10, 2018 9:55 pm
Umm.. literally everything that has a government attached to it (which is close to everything period) is enforced and enforceable by violence. This is nothing new. Its a sad truth we all have to live with unless you want to go entirely off the grid.
I think some of us are trying to understand your logic, which seems to be something like: "Paper has no value, currency can be manipulated, printed, and created out of thin air in all sorts of ways"...therefore, real estate is better than stocks and bonds. :confused
press on, regardless - John C. Bogle

Dottie57
Posts: 3939
Joined: Thu May 19, 2016 5:43 pm

Re: Indexing will fail investors in next decade

Post by Dottie57 » Mon Jun 11, 2018 6:03 am

FIREchief wrote:
Thu Jun 07, 2018 3:59 pm
First time I've ever seen somebody recommend investing in water. Not sure how I would do that. Do I need my own water tower or can I pay a reservoir to store some for me.

Who knows; it's not like that stuff just falls from the sky for free.
Dr Mark Burry - at the end of movie “The Big Short” was said to be investing in water.

wrongfunds
Posts: 1728
Joined: Tue Dec 21, 2010 3:55 pm

Re: Indexing will fail investors in next decade

Post by wrongfunds » Mon Jun 11, 2018 10:23 am

Not only land can be created out of water, the existing land can be build *up*. The last time I tilted up my head, there was no limit as to how high the things on the land can go! If you can't grow in X or Y axis, there is always Z axis for RE to spread out.

Post Reply