willthrill81 wrote: ↑
Mon Mar 18, 2019 8:33 pm
2015 wrote: ↑
Mon Mar 18, 2019 7:30 pm
siamond wrote: ↑
Mon Mar 18, 2019 3:07 pm
willthrill81 wrote: ↑
Mon Mar 18, 2019 10:17 am
To be honest, I don't believe that I've ever met or seen a single investor who truly believes the "past performance" idea. It's just a question of how far people take it. If it weren't for past performance, how on earth would we even begin to determine an AA, for instance?
This 'past performance' bit has been taken completely out of context and generalized way too hastily. I don't have the pointer handy, but somebody posted a link last year explaining the genesis of this official warning. The point was to warn individual investors to not trust the usual 1-year, 3-years, 5-years, 10-years stats of active funds as predictive of the near future. Active
, short-term past
, short-term future
. In such specific context, this makes complete sense, no question.
Generalizing it to 'nobody knows nothing', passive funds and any arbitrary timeframe is plainly non-sensical. One has to look at past data with care and healthy skepticism (and pick proper metrics, e.g. NOT the Morningstar ones!), but there is a lot to learn from history. As the saying goes, "you ignore the lessons of the past at your own peril".
I've seen nothing that demonstrates consistent
success with any
form of active investing over time
for the average, no-nothing
investor. (that's just about everybody). Of course you have to use some
kind of past behavior if you're gonna step into the investing casino (e.g., the stock market goes up over time), but to look at "past data" and extrapolate anything using "proper metrics" smacks of oh here we go again with overconfident active Boglehead speak. Yea, there's a whole lot to learn from history, like the only certainty is there is no certainty, how foolish investors can be and how readily they can fool themselves with their pattern making. This happens repeatedly throughout history, and is probably the only constant when it comes to investing. My prediction is the next kick-in-the-crotch to investors will be something they could never have thought of.
It's all narrative to me as it all exists in a complex adaptive system and in such systems risk mitigation is superior to wondering if the gods mad because it's thundering. I ain't bettin' the house on anything like that.
I reiterate the question I posed to Taylor: if we take the "past performance is not indicative of future performance" argument at face value, how do we determine an appropriate asset allocation?
Personally, I didn't use past performance. I don't believe there are any guarantees related to the market. My personal prediction is the next market kick-in-the-crotch will be something that "wasn't supposed to happen" that will knock the hot air out of even the most experienced economists, "experts", academics, "most respected", etc. Why? Because this is how reality
has always worked. It really is true. Nobody knows nothin', particularly when it comes to the nature of what reality in any complex system can and will do.
I decided my 50/50 AA based a number of factors:
1) The totality of the system my life has operated in and is operating in at this time. This includes my past, present, and preferred future;
2) Knowledge of my historical
psychological and emotional reaction to risk and disruptive situations of all kinds;
3) My choice to use liability matching and a risky portfolio; and
4) My acknowledgement that in the act of even stepping just inside the doors
of the casino and sitting down at the 3 Fund Portfolio Table (let alone going deeper into the casino with its cigar smoked back rooms of tilting, valuations, factoring and forever fumbling), I am still gambling.
I believe success can be ours when we focus on building competencies within ourselves beyond investing, personal finance, and microeconomics. Far more valuable than precision in investing is mastering risk analysis and mitigation, creating the ability to be agile, to pivot, to transform, to build effective decision making capabilities, as well as the ability to create options, resilience, persistence, self-mastery, self-discipline and self-control.