If You Only Invest in an Index, You’ll Never Beat It

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RubyTuesday
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by RubyTuesday » Wed Dec 25, 2019 4:39 pm

Kenkat wrote:
Tue Dec 24, 2019 10:46 pm
If you were guaranteed to bat .300 every year for a 20 year career in major league baseball, you’d never win the batting title. But you’d for sure end up in the baseball hall of fame.
And be very wealthy.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by MotoTrojan » Wed Dec 25, 2019 4:56 pm

dru808 wrote:
Wed Dec 25, 2019 3:45 pm
MotoTrojan wrote:
Wed Dec 25, 2019 3:24 pm
dru808 wrote:
Wed Dec 25, 2019 2:17 pm
MotoTrojan wrote:
Tue Dec 24, 2019 7:52 pm
I invest in index funds that I hope will beat their respective total market index funds.
I’m starting to to go 50/50 this route.
What funds?
A lil qqq and some small cap something, don’t remember the tickers at the moment.

I’m considering hedgefundies fund as well.

What are you in?
Small-value both domestically and internationally (no dedicated international large cap) and setting up a modest value tilt in US via fundamental indices. FNDC, AVDV, VIOV/SLYV, VSIAX, and FNDX would be my non 3-fund holdings.

Recently got out of a hedgefundie variant too, for a solid gain.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by 1789 » Wed Dec 25, 2019 6:14 pm

garlandwhizzer wrote:
Wed Dec 25, 2019 2:19 pm
Peter Lynch did have quite a nice run with Magellan Fund from its inception in 1964 through his retirement in 1990. The fund continued to do well until about 2004 but since then has significantly underperformed the S&P 500 index. Part of that loss of outperformance was due to asset bloat in Magellan but part of it also was a dramatic shift in market dynamics. I also had a great run of picking individual stocks during a big part of that early time frame 1987 - 1999. Market action and price discovery back then were driven largely by individual investors who did little or no research and simply bought stock when they had excess money to invest. There were plenty of market pricing errors that were exploitable at that time for those who studied the stock market and took stock picking seriously. There were very few active management mutual funds in existence at that time and little in the way of quality stock research. There were no index equity funds at all prior to Bogle's introduction of the first investable one in 1976. It was, in short, a totally different and much less efficient market from today's market when about 90% of market action is driven by highly intelligent, highly educated, full time professionals desperately seeking alpha and gobbling it up quickly when it appears. Since 2004 an overwhelming majority of active management LC mutual funds have failed to beat the S&P 500 index. It is true that if you choose an S&P 500 index fund you'll never outperform the index. What is also true is that if you choose an active management fund that invests in the same LC space, the odds are overwhelming that in the long run you'll underperform the index. Long term risk adjusted outperformance relative to comparable indexes is a massive challenge these days, a lot bigger hurdle than when Mr. Lynch ran Magellan. Picking in advance the very few long term active management winners from the vast legions of active losers is somewhere between exceptionally difficult and impossible IMO.

Garland Whizzer
Almost impossible to beat, i agree. The competition between active managers making markets super efficient and makes it super hard to find a bargain price, unlike what was the case 25-30 years ago.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by columbia » Wed Dec 25, 2019 6:19 pm

In related news, water is a liquid.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by TheNightsToCome » Wed Dec 25, 2019 6:33 pm

Phineas J. Whoopee wrote:
Tue Dec 24, 2019 8:16 pm
Of course. That's trivially true.

The thing is, most of the active traders and investment managers will, on a net return basis, fall behind the indexers. See The Arithmetic of Active Management from 1991. Some will come out ahead, but how does one know who they will be ex ante?

Half a truth is a whole lie.

Most men who survive heart bypass surgery in later life end up with gray hair.

Well yes, but most men who don't have heart bypass surgery in later life also end up with gray hair.

Half a truth is a whole lie.

If you never try to flap your arms and fly to the moon you'll never get to the moon by flapping your arms.

Really, these croupier assertions are silly.

PJW
There is good evidence that active managers beat their indexes. It's their clients who trail the index.

Small investors have an important advantage over active managers, i.e., small portfolios. If you have the appropriate training (formal or informal) and you make it your full-time job, then there is a good chance that you could beat the market.

Not everyone has the talent. Most don't have the training/knowledge. Very few have the time. Even fewer have the interest. However, beating the index is not an impossible goal.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by nisiprius » Wed Dec 25, 2019 7:31 pm

An example of the salesperson's syllogism, and a way of inducing people to believe a lie without saying anything that isn't true.

1) If you only invest in the S&P 500 index, you'll never beat it.
2) Actively managed funds do not track the S&P 500 index.
Ergo, if you invest in an actively managed fund, you will beat the index.

According to the 2019 SPIVA report, over the fifteen-year period ending at year-end 2018, less than 10% of actively managed large-cap funds beat the S&P 500 index.
Last edited by nisiprius on Fri Dec 27, 2019 10:26 pm, edited 1 time in total.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by 3funder » Wed Dec 25, 2019 8:05 pm

Clever_Username wrote:
Tue Dec 24, 2019 7:46 pm
It's true, but I also won't under-perform it by a meaningful amount.

My need to take the increased risk is low and the payoff (in terms that matter to me) if I am successful is even lower.
+1

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nisiprius
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by nisiprius » Wed Dec 25, 2019 9:05 pm

nisiprius wrote:
Wed Dec 25, 2019 7:31 pm
According to the 2019 SPIVA report, over the fifteen-year period ending at year-end 2018, less than 10% of actively managed large-cap funds beat the S&P 500 index.
And thus, if it is desperately important to you to have a chance of beating the index, invest in an index fund for fifteen years, then take 5% of your portfolio to the casino and bet it all on red at the roulette wheel. That gives you a 47% chance of beating the index, whereas investing in an active fund would only have given you a 10% chance.
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Phineas J. Whoopee
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Phineas J. Whoopee » Thu Dec 26, 2019 1:26 pm

TheNightsToCome wrote:
Wed Dec 25, 2019 6:33 pm
Phineas J. Whoopee wrote:
Tue Dec 24, 2019 8:16 pm
Of course. That's trivially true.

The thing is, most of the active traders and investment managers will, on a net return basis, fall behind the indexers. See The Arithmetic of Active Management from 1991. Some will come out ahead, but how does one know who they will be ex ante?

Half a truth is a whole lie.

Most men who survive heart bypass surgery in later life end up with gray hair.

Well yes, but most men who don't have heart bypass surgery in later life also end up with gray hair.

Half a truth is a whole lie.

If you never try to flap your arms and fly to the moon you'll never get to the moon by flapping your arms.

Really, these croupier assertions are silly.

PJW
There is good evidence that active managers beat their indexes. It's their clients who trail the index.

Small investors have an important advantage over active managers, i.e., small portfolios. If you have the appropriate training (formal or informal) and you make it your full-time job, then there is a good chance that you could beat the market.

Not everyone has the talent. Most don't have the training/knowledge. Very few have the time. Even fewer have the interest. However, beating the index is not an impossible goal.
I'm happy to read you agree with my words you quoted.

PJW

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by rossington » Fri Dec 27, 2019 5:02 am

nisiprius wrote:
Wed Dec 25, 2019 7:31 pm
An example of the salesperson's syllogism, and a way of people believe a lie without saying anything that isn't true.

1) If you only invest in the S&P 500 index, you'll never beat it.
2) Actively managed funds do not track the S&P 500 index.
Ergo, if you invest in an actively managed fund, you will beat the index.

According to the 2019 SPIVA report, over the fifteen-year period ending at year-end 2018, less than 10% of actively managed large-cap funds beat the S&P 500 index.
Rhetorically:
Given there are actively managed funds and individual stocks that will outperform indexes....
So, can one assume "more risk / more reward" if able to select those particular investments?
Why not try?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by bertilak » Fri Dec 27, 2019 10:00 am

rossington wrote:
Fri Dec 27, 2019 5:02 am
nisiprius wrote:
Wed Dec 25, 2019 7:31 pm
An example of the salesperson's syllogism, and a way of people believe a lie without saying anything that isn't true.

1) If you only invest in the S&P 500 index, you'll never beat it.
2) Actively managed funds do not track the S&P 500 index.
Ergo, if you invest in an actively managed fund, you will beat the index.

According to the 2019 SPIVA report, over the fifteen-year period ending at year-end 2018, less than 10% of actively managed large-cap funds beat the S&P 500 index.
Rhetorically:
Given there are actively managed funds and individual stocks that will outperform indexes....
So, can one assume "more risk / more reward" if able to select those particular investments?
Why not try?
Not sure I follow you but this may be pertinent:

There is a difference between compensated risk and uncompensated risk. See Russian Roulette.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by rossington » Fri Dec 27, 2019 1:50 pm

bertilak wrote:
Fri Dec 27, 2019 10:00 am
rossington wrote:
Fri Dec 27, 2019 5:02 am
nisiprius wrote:
Wed Dec 25, 2019 7:31 pm
An example of the salesperson's syllogism, and a way of people believe a lie without saying anything that isn't true.

1) If you only invest in the S&P 500 index, you'll never beat it.
2) Actively managed funds do not track the S&P 500 index.
Ergo, if you invest in an actively managed fund, you will beat the index.

According to the 2019 SPIVA report, over the fifteen-year period ending at year-end 2018, less than 10% of actively managed large-cap funds beat the S&P 500 index.
Rhetorically:
Given there are actively managed funds and individual stocks that will outperform indexes....
So, can one assume "more risk / more reward" if able to select those particular investments?
Why not try?
Not sure I follow you but this may be pertinent:

There is a difference between compensated risk and uncompensated risk. See Russian Roulette.
I know the obvious answer to my question...as you stated.
But there are those that will take on the risk for greater return even if the chances are slim (10% or less according to Nisi's data.). I don't have anything against them trying.
(The Santa hat is great by the way).
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by abuss368 » Fri Dec 27, 2019 1:56 pm

I don't want to beat it! Just earn our fair share of whatever the stock and bond markets provide (or take away).

Keep costs low and maintain an asset allocation.

Live below means.

Life is good.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by abuss368 » Fri Dec 27, 2019 1:56 pm

I recall Taylor once saying this is all "financial porn". I thought that was a good observation.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by woof755 » Fri Dec 27, 2019 2:33 pm

Fortune wrote:
Tue Dec 24, 2019 7:44 pm
Barron's has an interesting article in their 12/20/2019 edition: Master Stockpicker Peter Lynch: If You Only Invest in an Index, You’ll Never Beat It
https://www.barrons.com/articles/master ... gnInButton

“Invest in what you know.” Those five simple words from Peter Lynch helped launch a nation of stockpickers.

If we need to get better returns, what is the formula. Merry Christmas. Thanks
If you don’t buy a lottery ticket you will never win it. Also, you will never win it.
Index funds outperform 70% of their actively managed counterparts every year, and the 30% that beat them are different every year. I call that a win.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Call_Me_Op » Sat Dec 28, 2019 8:19 am

Fortune wrote:
Tue Dec 24, 2019 7:44 pm
Barron's has an interesting article in their 12/20/2019 edition: Master Stockpicker Peter Lynch: If You Only Invest in an Index, You’ll Never Beat It
https://www.barrons.com/articles/master ... gnInButton

“Invest in what you know.” Those five simple words from Peter Lynch helped launch a nation of stockpickers.

If we need to get better returns, what is the formula. Merry Christmas. Thanks
Let's finish the sentence: "If you invest in an index, you'll never beat it, BUT YOU ARE LIKELY TO BEAT THE VAST MAJORITY OF OTHER INVESTORS."
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Nate79 » Sat Dec 28, 2019 8:40 am

Lots of Bogleheads are trying to beat the indexes. They hold active funds, they invest in the 3x index strategy, they do small cap value tilts, etc. All of these strategies are to try and beat (in some way) the performance of the S&P500 or TSM index.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by JoMoney » Sat Dec 28, 2019 8:58 am

Nate79 wrote:
Sat Dec 28, 2019 8:40 am
Lots of Bogleheads are trying to beat the indexes. They hold active funds, they invest in the 3x index strategy, they do small cap value tilts, etc. All of these strategies are to try and beat (in some way) the performance of the S&P500 or TSM index.
I get there are lots of people chasing higher returns, but even if their tilts work to that end, are they really "beating" anything if they're taking on more risk?
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by firebirdparts » Sat Dec 28, 2019 9:04 am

JoMoney wrote:
Sat Dec 28, 2019 8:58 am
Nate79 wrote:
Sat Dec 28, 2019 8:40 am
Lots of Bogleheads are trying to beat the indexes. They hold active funds, they invest in the 3x index strategy, they do small cap value tilts, etc. All of these strategies are to try and beat (in some way) the performance of the S&P500 or TSM index.
I get there are lots of people chasing higher returns, but even if their tilts work to that end, are they really "beating" anything if they're taking on more risk?
If we're talking about the past, yes. If we're talking about the future, maybe.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by CurlyDave » Sat Dec 28, 2019 11:07 am

JoMoney wrote:
Sat Dec 28, 2019 8:58 am
Nate79 wrote:
Sat Dec 28, 2019 8:40 am
Lots of Bogleheads are trying to beat the indexes. They hold active funds, they invest in the 3x index strategy, they do small cap value tilts, etc. All of these strategies are to try and beat (in some way) the performance of the S&P500 or TSM index.
I get there are lots of people chasing higher returns, but even if their tilts work to that end, are they really "beating" anything if they're taking on more risk?
1. The dollars I have made in QQQ over the last decade spend just the same as the dollars made in SPY.

2. How do we define "risk"? The academic work on risk-adjust this and risk-adjusted that usually takes "risk" as being equal, or at least proportional to volatility, and is seldom questioned. But what if this isn't the proper definition of "risk" in our context?

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by JoMoney » Sat Dec 28, 2019 11:31 am

CurlyDave wrote:
Sat Dec 28, 2019 11:07 am
JoMoney wrote:
Sat Dec 28, 2019 8:58 am
Nate79 wrote:
Sat Dec 28, 2019 8:40 am
Lots of Bogleheads are trying to beat the indexes. They hold active funds, they invest in the 3x index strategy, they do small cap value tilts, etc. All of these strategies are to try and beat (in some way) the performance of the S&P500 or TSM index.
I get there are lots of people chasing higher returns, but even if their tilts work to that end, are they really "beating" anything if they're taking on more risk?
1. The dollars I have made in QQQ over the last decade spend just the same as the dollars made in SPY.

2. How do we define "risk"? The academic work on risk-adjust this and risk-adjusted that usually takes "risk" as being equal, or at least proportional to volatility, and is seldom questioned. But what if this isn't the proper definition of "risk" in our context?
Yes, it's problematic.
I think the assumption is that markets are efficient, or at least that markets work towards efficiency to arbitrage out advantages as they come and go. The question I would have about your investment in QQQ is if you knew it had some sort of advantage over all the stocks not QQQ, and you attribute the performance you achieved to a process you could repeat, or if it was just a 'story' that sounded good and luck happened to favor it this past decade? It would not have worked so well the decade prior (1999-2009). Do you believe QQQ is persistently less risky relative to its returns?
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by CurlyDave » Sat Dec 28, 2019 3:43 pm

JoMoney wrote:
Sat Dec 28, 2019 11:31 am

I think the assumption is that markets are efficient, or at least that markets work towards efficiency to arbitrage out advantages as they come and go. The question I would have about your investment in QQQ is if you knew it had some sort of advantage over all the stocks not QQQ, and you attribute the performance you achieved to a process you could repeat, or if it was just a 'story' that sounded good and luck happened to favor it this past decade? It would not have worked so well the decade prior (1999-2009). Do you believe QQQ is persistently less risky relative to its returns?
I think even the possibility of market efficiency is a relatively new thing. We tend to forget the ways things worked not that long ago.

Internet stock trading only started in the mid 1990s, and wasn't "normal" until around the 2005 time frame. Broadband internet to the home started around 2000 and in 2010 was only in 65% of US homes. So lets say relatively common by 2005. Prior to internet trading, stocks were bought and sold by calling a stockbroker on a landline telephone and placing an order which might execute that day if it was a market order. Shares are primarily sold in "round lots", multiples of 100 shares, and smaller quantities were handled by special "odd lot" brokers who charged extra commissions for this service. And, prices were in fractional dollars, 32-1/8 for example.

My strong belief is that prior to broadband knowledge dissemination was slow enough that the average investor just did not have enough information to keep the market efficient.

So, realistically, the financial markets that we know and love today only came into being in about 2005. Everything before that is interesting history, but less relevant than post-internet data.

You can tell me that I am showing a lot of recency bias, but I have been investing in stocks since the mid 1950s, and I have seen the differences first hand. And I was an early adopter, using a dial up modem and a Datek account in the late 1990s.

Now for your specific questions abut QQQ. I don't know, in the way that God knows, that QQQ has an inherent advantage, but it was very well established when QQQ was first introduced that NASDAQ was home to smaller, faster growing companies than the NYSE, and it had become a trend for these companies to stay on NASDAQ even after they had grown to a point where they could be listed on the NYSE. So lets say I had a theory that the 100 largest NASDAG companies, the QQQ cohort, would be faster growing than the average companies in the S&P 500. We have sifted through all the NASDAQ companies and selected only the best. And it is a dynamic sifting process with established rules, unlike the Dow which is not very transparent.

The second thing I believe is that there is an optimum size for the number of companies in an index fund. I don't necessarily know what that size is, but based on actual results I think it is closer to 100 than to 500.

The real problem is that almost right after it was started QQQ got hit by the dot com bomb. As much as the losses were real, the actual results were an anomaly. QQQ started to outperform SPY in ~2006. It took me personally 3 years to get up the courage to tilt hard into it, but it has outperformed ever since.

So, I have a theory with two parts, and the measurable results in the modern stock market that seem to confirm that theory.

As far as the future goes, I am hedging my bets. What does that mean? I am still heavily in QQQ, but if SPY starts to do better, I am willing to switch at any time. I don't have to get the timing exactly right, these index funds change relative performance very slowly. All I have to do is not be more than a couple of years late. And the switch is not going to be all at once if it happens, it will be 1/3, 1/3, 1/3.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Taylor Larimore » Sat Dec 28, 2019 4:48 pm

Ruby Tuesday:

Bill Miller is the ONLY mutual fund manager (LMVTX) that has beaten the index over a 15 year period.

Last year (2018) LMVTX ranked in the BOTTOM 4% of all funds in its category. Vanguard Total Stock Market Index Fund (VTSAX) has NEVER ranked below average.

Best wishes.
Taylor
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Stef » Sat Dec 28, 2019 5:21 pm

Ray Dalio beat the market for 32 years.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by bampf » Sat Dec 28, 2019 5:33 pm

Fortune wrote:
Tue Dec 24, 2019 7:44 pm
Barron's has an interesting article in their 12/20/2019 edition: Master Stockpicker Peter Lynch: If You Only Invest in an Index, You’ll Never Beat It
FTFY. And as others have pointed out, yes, that is true. But it presupposes that one can, with some degree of certainty, beat the market. It is true that had I dumped every $ in to FAANG I would be much better off. I will wipe away my tears of regret and grief with the ~35% return I made this year.

I don't need to beat the market. I would love to always beat the market, but I don't know how to do that and neither does anyone else.

--Bampf
Last edited by bampf on Sun Dec 29, 2019 12:32 am, edited 1 time in total.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Taylor Larimore » Sat Dec 28, 2019 5:39 pm

Stef wrote:
Sat Dec 28, 2019 5:21 pm
Ray Dalio beat the market for 32 years.
Stef:

Please give us a link to your source.

Thank you and Happy Holiday.
Taylor
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by abuss368 » Sat Dec 28, 2019 6:10 pm

Taylor Larimore wrote:
Sat Dec 28, 2019 4:48 pm
Ruby Tuesday:

Bill Miller is the ONLY mutual fund manager (LMVTX) that has beaten the index over a 15 year period.

Last year (2018) LMVTX ranked in the BOTTOM 4% of all funds in its category. Vanguard Total Stock Market Index Fund (VTSAX) has NEVER ranked below average.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Selecting funds that will significantly exceed market returns, a search in which hope springs eternal and in which past performance has proven of virtually no predictive value, is a loser’s game.”
Bill Miller of Legg Mason in Inner Harbor Baltimore blazed a path at one time!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by abuss368 » Sun Dec 29, 2019 9:07 pm

Stef wrote:
Sat Dec 28, 2019 5:21 pm
Ray Dalio beat the market for 32 years.
I never heard of this! Do you have a source or article to share?
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by bhsince87 » Sun Dec 29, 2019 9:16 pm

So what?

You don't have to "beat the market" to win at investing.

Slow and steady and accepting what the market gives is enough.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by oldzey » Sun Dec 29, 2019 11:44 pm

livesoft wrote:
Tue Dec 24, 2019 7:54 pm
Buy, Hold, and Rebalance. Tax loss harvest. Invest tax efficiently.

If you pay less taxes on your investments, then you have more money to ply back into your investments.
+1
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Stef » Mon Dec 30, 2019 1:50 am

abuss368 wrote:
Sun Dec 29, 2019 9:07 pm
I never heard of this! Do you have a source or article to share?
Check out his Pure Alpha hedge fund:

Image

Would you prefer the blue or red line when retired?

Also there is the Medallion fund from Renaissance Technologies. It had an avg. annual return of 39% from 1988-2018. They turned 1$ into 20'000$ in 30 years, while SP500 went up to 20$.

I'm not saying that you can beat the market. But it seems that there are people who can do it, even over 2-3 decades. Either on a risk-adjusted basis or in absolute numbers. But you can count those on 1 hand.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by abuss368 » Mon Dec 30, 2019 12:11 pm

Stef wrote:
Mon Dec 30, 2019 1:50 am
abuss368 wrote:
Sun Dec 29, 2019 9:07 pm
I never heard of this! Do you have a source or article to share?
Check out his Pure Alpha hedge fund:

Image

Would you prefer the blue or red line when retired?

Also there is the Medallion fund from Renaissance Technologies. It had an avg. annual return of 39% from 1988-2018. They turned 1$ into 20'000$ in 30 years, while SP500 went up to 20$.

I'm not saying that you can beat the market. But it seems that there are people who can do it, even over 2-3 decades. Either on a risk-adjusted basis or in absolute numbers. But you can count those on 1 hand.
No doubt. The challenge is being able to identify those manager's in advance.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by firebirdparts » Mon Dec 30, 2019 12:20 pm

abuss368 wrote:
Mon Dec 30, 2019 12:11 pm
Stef wrote:
Mon Dec 30, 2019 1:50 am
abuss368 wrote:
Sun Dec 29, 2019 9:07 pm
I never heard of this! Do you have a source or article to share?
Check out his Pure Alpha hedge fund:

Image

Would you prefer the blue or red line when retired?

Also there is the Medallion fund from Renaissance Technologies. It had an avg. annual return of 39% from 1988-2018. They turned 1$ into 20'000$ in 30 years, while SP500 went up to 20$.

I'm not saying that you can beat the market. But it seems that there are people who can do it, even over 2-3 decades. Either on a risk-adjusted basis or in absolute numbers. But you can count those on 1 hand.
No doubt. The challenge is being able to identify those manager's in advance.
For me, it would be even harder to stay the course while you're getting slaughtered for years. His periods of underperformance are dramatic and brutally long. I guess though, they should be, if you're going to call it a hedge fund.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by abuss368 » Mon Dec 30, 2019 12:22 pm

firebirdparts wrote:
Mon Dec 30, 2019 12:20 pm
abuss368 wrote:
Mon Dec 30, 2019 12:11 pm
Stef wrote:
Mon Dec 30, 2019 1:50 am
abuss368 wrote:
Sun Dec 29, 2019 9:07 pm
I never heard of this! Do you have a source or article to share?
Check out his Pure Alpha hedge fund:

Image

Would you prefer the blue or red line when retired?

Also there is the Medallion fund from Renaissance Technologies. It had an avg. annual return of 39% from 1988-2018. They turned 1$ into 20'000$ in 30 years, while SP500 went up to 20$.

I'm not saying that you can beat the market. But it seems that there are people who can do it, even over 2-3 decades. Either on a risk-adjusted basis or in absolute numbers. But you can count those on 1 hand.
No doubt. The challenge is being able to identify those manager's in advance.
For me, it would be even harder to stay the course while you're getting slaughtered for years. His periods of underperformance are dramatic and brutally long. I guess though, they should be, if you're going to call it a hedge fund.
Most investors would not stay the course. As Jack Bogle always says "Instead of trying to find the needle in the haystack, buy the haystack."
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by 1789 » Mon Dec 30, 2019 12:28 pm

abuss368 wrote:
Mon Dec 30, 2019 12:11 pm
Stef wrote:
Mon Dec 30, 2019 1:50 am
abuss368 wrote:
Sun Dec 29, 2019 9:07 pm
I never heard of this! Do you have a source or article to share?
Check out his Pure Alpha hedge fund:

Image

Would you prefer the blue or red line when retired?

Also there is the Medallion fund from Renaissance Technologies. It had an avg. annual return of 39% from 1988-2018. They turned 1$ into 20'000$ in 30 years, while SP500 went up to 20$.

I'm not saying that you can beat the market. But it seems that there are people who can do it, even over 2-3 decades. Either on a risk-adjusted basis or in absolute numbers. But you can count those on 1 hand.
No doubt. The challenge is being able to identify those manager's in advance.
Lets say we are in year 1997 and holding this fund. I bet majority of investors would change to SP500 after that terrific rise and quit this fund. It is very hard to stick to a fund long term if the fund is already started to get beaten by market index.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Stef » Mon Dec 30, 2019 12:34 pm

What about the investor who started with Ray Dalios fund in 2000? He never see 2 massive crashes in a row, he just saw a steady rising portfolio without any correction. And a massive outperformance by 2008/2009.
1789 wrote:
Mon Dec 30, 2019 12:28 pm
Lets say we are in year 1997 and holding this fund. I bet majority of investors would change to SP500 after that terrific rise and quit this fund. It is very hard to stick to a fund long term if the fund is already started to get beaten by market index.
Yeah a terrific example of performance chasing. Your investor would have probably changed in 2000. Probably still waiting today to breakeven.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by 1789 » Mon Dec 30, 2019 12:43 pm

Stef wrote:
Mon Dec 30, 2019 12:34 pm
What about the investor who started with Ray Dalios fund in 2000? He never see 2 massive crashes in a row, he just saw a steady rising portfolio without any correction. And a massive outperformance by 2008/2009.
1789 wrote:
Mon Dec 30, 2019 12:28 pm
Lets say we are in year 1997 and holding this fund. I bet majority of investors would change to SP500 after that terrific rise and quit this fund. It is very hard to stick to a fund long term if the fund is already started to get beaten by market index.
Yeah a terrific example of performance chasing. Your investor would have probably changed in 2000. Probably still waiting today to breakeven.
Agreed very good point for starting at 2000 with Ray Dalio fund. That investor is still living the dream and until the nightmare comes back :?
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by bampf » Mon Dec 30, 2019 12:52 pm

Stef wrote:
Mon Dec 30, 2019 1:50 am
abuss368 wrote:
Sun Dec 29, 2019 9:07 pm
I never heard of this! Do you have a source or article to share?
Check out his Pure Alpha hedge fund:

Image

Would you prefer the blue or red line when retired?
Maybe I don't understand the chart, but, they look like they end in exactly the same place? So, by definition I would want the simpler of the two, the S&P fund. Right?

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by HomerJ » Mon Dec 30, 2019 12:58 pm

Stef wrote:
Mon Dec 30, 2019 12:34 pm
What about the investor who started with Ray Dalios fund in 2000? He never see 2 massive crashes in a row, he just saw a steady rising portfolio without any correction. And a massive outperformance by 2008/2009.
Why would any investor start with Ray Dalio in 2000? For the past 10 years his fund had done terrible.

That's not how the real world works.

What actually happens is that people invest with a manager AFTER his or her big run-up and the miss out on most of the gains.

Look, some managers can beat the market. Skill or luck, it doesn't matter... Some do.

But we don't know which managers will do it, and afterwards, it's usually too late...

You say Ray Dalio "beat the market for 32 years". That chart shows him losing to the market or matching the market from 1991-2008. For 17 years, he trailed or matched.

Then he did well in 2008-2009. Had one great call... What happens in the real world is investors see his numbers in 2009-2010, and say "Man, I need some of that fund".

But from 2010-2019, it looks like that Pure Alpha fund did worse than the S&P 500.

So all his outperformance comes from just 2-3 years out of the 32. The vast majority of average investors would never have invested in him before he was doing well, and all of those who invested with him after those 2-3 good years did okay, but certainly didn't beat the market.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Stef » Mon Dec 30, 2019 1:01 pm

Beat the market risk-adjusted, not absolute.

Pure Alpha isn't 100% stocks, I think it's 60% stocks.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by columbia » Mon Dec 30, 2019 1:04 pm

HomerJ wrote:
Mon Dec 30, 2019 12:58 pm
Stef wrote:
Mon Dec 30, 2019 12:34 pm
What about the investor who started with Ray Dalios fund in 2000? He never see 2 massive crashes in a row, he just saw a steady rising portfolio without any correction. And a massive outperformance by 2008/2009.
Why would any investor start with Ray Dalio in 2000? For the past 10 years his fund had done terrible.

That's not how the real world works.

What actually happens is that people invest with a manager AFTER his or her big run-up and the miss out on most of the gains.

Look, some managers can beat the market. Skill or luck, it doesn't matter... Some do.

But we don't know which managers will do it, and afterwards, it's usually too late...

You say Ray Dalio "beat the market for 32 years". That chart shows him losing to the market or matching the market from 1991-2008. For 17 years, he trailed or matched.

Then he did well in 2008-2009. Had one great call... What happens in the real world is investors see his numbers in 2009-2010, and say "Man, I need some of that fund".

But from 2010-2019, it looks like that Pure Alpha fund did worse than the S&P 500.

So all his outperformance comes from just 2-3 years out of the 32. The vast majority of average investors would never have invested in him before he was doing well, and all of those who invested with him after those 2-3 good years did okay, but certainly didn't beat the market.
It sounds like an extreme version of trying to capture a small cap value premium.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Mel Lindauer » Mon Dec 30, 2019 1:23 pm

Haven't read the entire thread, so if it's already been said, I apologize. The posts I did read seem to be overlooking one simple truth.

Investing isn't about beating an index. Rather, it's about reaching your goals.
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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Triple digit golfer » Mon Dec 30, 2019 1:40 pm

First off, it shouldn't be about beating anybody. It isn't a competition. In fact, there isn't even an opponent. It should be about earning one's fair share of profits in corporate America or the corporate world. The only way to guarantee this is broad market index funds. Be the turtle, not the hare. Slow and steady.

In sticking with the prior baseball analogy, if you never lead the league in batting average, you can still come out with a higher career average than anybody else. A better analogy even, be the .280, 15 home run hitter who has a 20-year career instead of the guy that hits 50 home runs and fizzles out after a couple years. Being average over a long period of time is much better than being the best once (unless you get a giant contract after that 50 home run season :) )

It seems counterintuitive, but being average in investing may give you a C each year, but a career full of C's ends up an A+ at the end.

I am all out of corny analogies now.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by oldzey » Mon Dec 30, 2019 1:50 pm

Mel Lindauer wrote:
Mon Dec 30, 2019 1:23 pm
Haven't read the entire thread, so if it's already been said, I apologize. The posts I did read seem to be overlooking one simple truth.

Investing isn't about beating an index. Rather, it's about reaching your goals.
+1 - my #1 goal is not to starve in retirement (after unwisely waiting until age 45 to start seriously investing) .

Index funds plus stable value funds invested wisely seem to be the most rational route to me (and not trying to find the next Apple).

Btw, congrats on reaching 30,000 posts, Mel! :beer

Best,
oldzey

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Mel Lindauer » Mon Dec 30, 2019 1:56 pm

oldzey wrote:
Mon Dec 30, 2019 1:50 pm
Mel Lindauer wrote:
Mon Dec 30, 2019 1:23 pm
Haven't read the entire thread, so if it's already been said, I apologize. The posts I did read seem to be overlooking one simple truth.

Investing isn't about beating an index. Rather, it's about reaching your goals.
+1 - my #1 goal is not to starve in retirement (after unwisely waiting until age 45 to start seriously investing) .

Index funds plus stable value funds invested wisely seem to be the most rational route to me (and not trying to find the next Apple).

Btw, congrats on reaching 30,000 posts, Mel! :beer

Best,
oldzey

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Thanks. Wasn't aware that I had hit that milestone. Glad it was on a post that I feel is important.
Best Regards - Mel | | Semper Fi

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Chadnudj » Mon Dec 30, 2019 2:17 pm

Actually, assuming general long term trends in the market hold (i.e. over the very long term markets go up, with volatility between now and the unspecified time in the "long term" existing), you CAN beat the Index by only investing in the Index Fund.....thanks to Dollar Cost Averaging.

Take an extremely simple example (and maybe I'm oversimplifying it):

- You invest $100 a month for a year in an Index fund, the performance of which almost identically matches its underlying index.
- January-March: Index Fund is flat at $10 a share; you buy a total of 30 shares (10 shares per month X 3).
- April-June: Index Fund is down to $5 a share; you buy a total of 60 shares (20 shares per month X 3)
- July-September: Index fund is back up to $10 a share; you buy a total of 30 shares (10 shares per month X 3).
- October-December: Index fund is up to $15 a share; you buy a total of 20 shares (6.67 shares per month X 3).

For that year, the Index is up 50% (from $10 on January 1 to $15 on December 31).

You, however, are up 75% -- you invested $1200 and bought 140 total shares, which are now worth $2100. You "beat" the index significantly (even if you were to factor in some low expense fees).

Again -- this is way oversimplified, but still generally true. If you turned July-September into being at $20 a share instead (and thus you bought 15 shares during that period at a higher price), you'd finish the 12 months with 125 shares and a value of $1875 -- still ahead of the 50% performance of the index.

Dollar-cost averaging (or, more accurately, investing as much as you can as soon as you can) works to our advantage, and can even allow us to "beat" an index by buying an index fund based on that index.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Quirkz » Mon Dec 30, 2019 4:17 pm

Classic case of holding a hammer and seeing everything as nails. Few people outside of fund manager type see "beating the market" as an important metric. For them it is, because that's how they justify their jobs and their fees.

For the average investor, the important thing is making a good return on investments, not falling behind, and not making disastrous mistakes.

Evidence abounds that trying to beat the market is a really good way to either fall behind or make disastrous mistakes. Thus, do not try to beat the market, be one with it instead.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by DaftInvestor » Mon Dec 30, 2019 4:24 pm

Fortune wrote:
Tue Dec 24, 2019 7:44 pm
Barron's has an interesting article in their 12/20/2019 edition: Master Stockpicker Peter Lynch: If You Only Invest in an Index, You’ll Never Beat It
https://www.barrons.com/articles/master ... gnInButton

“Invest in what you know.” Those five simple words from Peter Lynch helped launch a nation of stockpickers.

If we need to get better returns, what is the formula. Merry Christmas. Thanks
I used to be a big fan of Peter Lynch - Magellan Fund was a choice in my 401K decades ago when he ran it and I did very well in it (as Peter got very lucky running that fund). In the 90's I then read his book and decided to "Invest in what I know" and started individual stock picking - which worked great for a while - until it didn't. I knew tech very well back in the 90's since I was working in the Tech Industry - well - we know how that turned out. So many of us burned ourselves in the "Invest in what you know" story. So being in Magellan got me interested in Peter Lynch and the success of Magellan had me read his book which had me start individual stock picking. I lost a lot of money thanks to that book :)
The biggest problem with "Invest in what you know" is that you end up tying your employment and investments together - losing your job and having your investments drop down at the same time provides a nice double-whammy. It doesn't matter how well you know an individual stock (segment, etc.) - non-rational (and unforeseen) things happen to individual stocks.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by hoops777 » Mon Dec 30, 2019 4:35 pm

The psychology of having to win,to beat something is so ingrained in competitive people.Relaaaaaaax.It is ok if you are not number one.Really. :(
K.I.S.S........so easy to say so difficult to do.

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Re: If You Only Invest in an Index, You’ll Never Beat It

Post by Fortune » Mon Dec 30, 2019 7:23 pm

hoops777 wrote:
Mon Dec 30, 2019 4:35 pm
The psychology of having to win,to beat something is so ingrained in competitive people.Relaaaaaaax.It is ok if you are not number one.Really. :(
Agreed. Its not beating something that is important. Making a reasonable gain is.
(Note: My vote is on your signature note!)

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