All my friends are outperforming index funds

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justsomeguy2018
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All my friends are outperforming index funds

Post by justsomeguy2018 » Tue May 05, 2020 12:53 am

I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?

dru808
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Re: All my friends are outperforming index funds

Post by dru808 » Tue May 05, 2020 12:57 am

Let’s see how they’re doing in 2 years. It’s not impossible to beat the market, just highly unlikely over an extended period of time.


How do you know they’re beating the market? They tell you they invested money in a high flyer? If they beat the market and threw down $500 this year, I’m not impressed.
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mega317
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Re: All my friends are outperforming index funds

Post by mega317 » Tue May 05, 2020 1:03 am

I wouldn't say onlyafter long periods but certainly more likely. And that's your horizon if you're buying stocks, right? And over long periods that's where expenses start to pile up as well.

Ask your friends for the specific trades and dates. Past and present/future. Couch it like you're trying to learn.
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justsomeguy2018
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Re: All my friends are outperforming index funds

Post by justsomeguy2018 » Tue May 05, 2020 1:04 am

dru808 wrote:
Tue May 05, 2020 12:57 am
Let’s see how they’re doing in 2 years. It’s not impossible to beat the market, just highly unlikely over an extended period of time.


How do you know they’re beating the market? They tell you they invested money in a high flyer? If they beat the market and threw down $500 this year, I’m not impressed.
I know what they bought and when they bought it so I OCD keep tabs on it....was hoping to use it as a lesson to stick to index funds! Making me feel foolish.

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justsomeguy2018
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Re: All my friends are outperforming index funds

Post by justsomeguy2018 » Tue May 05, 2020 1:05 am

mega317 wrote:
Tue May 05, 2020 1:03 am
I wouldn't say onlyafter long periods but certainly more likely. And that's your horizon if you're buying stocks, right? And over long periods that's where expenses start to pile up as well.

Ask your friends for the specific trades and dates. Past and present/future. Couch it like you're trying to learn.
Already have...thats how I know their picks are beating the market.

bampf
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Re: All my friends are outperforming index funds

Post by bampf » Tue May 05, 2020 1:25 am

Compare BRK.a vs VTI over the last 12 years. Its interesting. You can play around with this and see other results as well.

Portfolio Visualizer

** edit: Corrected link

Put in the stocks that they have and just slide the dates around. Do you win or lose if you backtest it 10 years?

You can absolutely beat the market. People do it over the short term all the time. You just have to keep doing it. Over and over and over again. And when you don't you fall behind. Exhausting. The total market is good enough for me. Yes, I could have more if I only... But, well, then you gotta have done that. And it has to either keep doing it or then you have to get into something else. I am not smart enough to beat the market consistently. The oracle can't do it either (see chart above). I'm gonna play for the returns the market giveth and be happy.

rossington
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Re: All my friends are outperforming index funds

Post by rossington » Tue May 05, 2020 1:34 am

What do you think is best for you? What they are doing or what you are doing?
Last edited by rossington on Tue May 05, 2020 2:19 am, edited 1 time in total.
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Schlabba
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Re: All my friends are outperforming index funds

Post by Schlabba » Tue May 05, 2020 1:35 am

I have the same with someone I know who has been buying the nasdaq for a few years now.
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Re: All my friends are outperforming index funds

Post by BionicBillWalsh » Tue May 05, 2020 2:01 am

Most of my friends that go to Vegas tell me they won at the Casino. I know statistically that's impossible. The house always wins. Or maybe that's just when the house plays against me.

Stocks purchased 3 months ago (February 4th) would have been generally near all time highs. If they're up from that, they were lucky. The two stocks that I know without research that went up since then are Walmart (up about 6.5 dollars a share) or were very prescient and bought Gilead (up 12.85 a share) since February 4th.

I doubt either have become independently wealthy based on those trades.

I continue to invest in the three fund portfolio. I feel its my best chance to beat the house.
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Re: All my friends are outperforming index funds

Post by fwellimort » Tue May 05, 2020 2:11 am

I'm not surprised.

Young people probably bought a lot of tech stocks in this epidemic. By tech stocks, I mean companies like Microsoft and Amazon.
Those have done very well.

Also, it's not "impossible" to beat index funds. Index funds just bring average returns. Nothing more. Nothing less. With low costs.
There's been a research paper in the past that stated about a sixth of retail investors after tax/fees tend to beat the market for those who hold a stock for an average of 3 to 7 years.
Do it pre-tax (no federal/state/local tax) and without trade fees, and I wouldn't be surprised if that number gets closer to somewhere to one in four for longer term holding retail investors.
That means, for about every 4 longer term holding retail investor, there's probably about 1 outperforming the market before taxes/fees. There's a lot of people in the world. 1 in 4~6 is quite a good chunk of people.

Anyways, I wouldn't think too much.
If your friends are doing this in a taxable account, they should probably keep taxes in mind.

Look. Even I have outperformed the market by a noticeable chunk. But that's more cause I got lucky. A lot of people bet on tech companies (like QQQ/Amazon/Microsoft) and those have done well this epidemic. Who knows the future.
Beating the market in shorter time frames are quite do-able (the probability is much higher even if it's still against the investor). It's when you extend it for a long time (e.g. retirement investment) the probability of single stock investors getting ahead is very low. But not impossible. Just very low as the time frame widens.

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Re: All my friends are outperforming index funds

Post by averagedude » Tue May 05, 2020 4:50 am

Are you investing to beat your friends, or are you investing to accomplish your personal goals? Keep your eye on the prize! I would think that investing in index funds in a boring way is the safest and surest route to reach your destination.

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Re: All my friends are outperforming index funds

Post by onourway » Tue May 05, 2020 5:02 am

One, you say you “know what they bought” and you’ve been keeping tabs on their performance. It’s highly unlikely you know everything a single one of your friends has bought or sold - let alone a group of them. You know what they’ve told you. People don’t talk about picks gone bad - or at least not all of them.

Two, three months is an absolutely insignificant period of time over which to compare any investing strategies. It’s literally just noise. Talk to me after at least 5 or 10 years, preferably 10 or 20. The number of people picking stocks still outperforming after those time periods are very few.

Three. Index investing is quite specifically not a “get rich quick” scheme. It’s not intended to have you score big. Index investing is about building wealth reliably over long periods of time - you maximize your chances of having “enough” while minimizing your chances of ending up broke. Most stock pickers end up broke, not rich. Which ones do you think you are more likely to hear about?

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Re: All my friends are outperforming index funds

Post by GoldenFinch » Tue May 05, 2020 5:40 am

You own the same stocks they do inside your index fund. Your friends are just concentrating their risk into a handful of stocks. Now they have to manage the risk of those stocks as the stock prices go up and down, deciding if they should sell or not. Keep watching what they do (both your friends and the individual stocks) over the next few years before you give up on index funds.

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Re: All my friends are outperforming index funds

Post by nisiprius » Tue May 05, 2020 5:45 am

1) It may be that they are taking more risk than you are taking.

2) Reports, especially from friends, are unreliable. Most likely they are reporting selectively. Quite possibly they are remembering selectively and honestly believe they are outperforming index funds when they actually aren't. Quite possibly they are lying; I can't prove that Ray in high school was lying when he told an unbelievable story about a romantic encounter, but I didn't believe it then and I don't believe it now.

During the great bull market of the 1990s, the "Beardstown Ladies" was an investment club that became famous for beating the market. They published three (!) books about how they did it. Their story fit in beautifully with the thinking of the time, which was that ordinary people could beat the market by using common sense and their consumer knowledge of good companies and good products. In the 1990s it was true enough that almost anyone could make money, but it gradually became clear that the group had made a gross blunder in their calculations, including the money they put in as if it were part of their investment earnings. They weren't beating the market at all, and there was a minor scandal, retractions, and even lawsuits against the publisher.

Very seriously, people who are not doing well in their investments usually do not talk about it. So you are only like to hear from the people who are succeeding, and they are only likely to talk about their successes.

a) I had a casual acquaintance--actually she directed a chorus I sang in--mentioned that they'd spend the weekend at a casino in Atlantic City, and that "she'd won." I didn't cross-examine her, but I did stay on the subject a while and we chatted for a while. It transpired that she had won on Saturday. Also, she had lost on Sunday. Also, she had lost more on Sunday than she had won on Saturday. However, her losses on Sunday didn't really count, because she has a system, and on Sunday "I outsmarted myself, because I didn't stick to my system." (I didn't cross-examine or her anything so I don't have any understanding of why she didn't play her system on Sunday).

b) A co-worker fell for a pyramid scheme in the 1980s. It was called "Rainbow's End" and I've unsuccessfully searched for news stories about it. He emphasized over and over again that it must be legitimate because they insisted on getting your Social Security number. He had been led to believe, basically, that pyramid schemes are perfectly sound and really work. That the only reason the government makes them illegal is because they can't collect income tax on them. But, he said, this one was completely different, completely legal, and completely legitimate because they had arranged so that you would pay income tax. I would have loved to know much more about all this. After a few weeks of talking it up enthusiastically--I imagine there was a multilevel recruiting deal involved, but our conversations never got that far--he just stopped talking about it. Finally a raised the topic gingerly, and he just said "I don't want to talk about it." I might have said something like "...but did you lose?" and he repeated very firmly "I don't want to talk about it. Please stop asking."
Last edited by nisiprius on Tue May 05, 2020 11:03 am, edited 2 times in total.
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Re: All my friends are outperforming index funds

Post by Doctopetala » Tue May 05, 2020 5:57 am

It's easy to cherry pick time frames like that. And there will always be some who beat the index by luck or skill or a combination thereof. But over the long term, you'll be better off than the vast majority of investors - including, I project, your friends. Stay the course.

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JoeRetire
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Re: All my friends are outperforming index funds

Post by JoeRetire » Tue May 05, 2020 6:03 am

Three months of lucky guesses?
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Re: All my friends are outperforming index funds

Post by goblue100 » Tue May 05, 2020 6:04 am

Can you post one of the portfolios that is beating you? We won't know who it belongs to, so I don't think you would be violating anyone's privacy.
I assume you are in a 3 fund portfolio, or something similiar?
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Re: All my friends are outperforming index funds

Post by cinghiale » Tue May 05, 2020 6:04 am

Three months of investment performance in any circumstance is just noise. Anything can outperform anything else in such a short time span. As other posters have mentioned, poll your friends again in two years. Five would be better still.

These last three months have been extraordinary times. Spiked volatility, wild price swings, gobs of fear and greed. It is highly unlikely that someone’s performance since February can or will be repeated. One would make a grave mistake in generalizing what has happened thus far in 2020 and developing some kind of investment/ stock picking strategy based on one’s successes during that time.
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Re: All my friends are outperforming index funds

Post by Ferdinand2014 » Tue May 05, 2020 6:08 am

They are lucky, calculating returns incorrectly or lying to you.
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Re: All my friends are outperforming index funds

Post by goblue100 » Tue May 05, 2020 6:31 am

Ferdinand2014 wrote:
Tue May 05, 2020 6:08 am
They are lucky, calculating returns incorrectly or lying to you.
If you are in 90/10 portfolio I bet I would have out performed you with my 60/40 portfolio over the last 3 months. You have to adjust for risk.
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mptfan
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Re: All my friends are outperforming index funds

Post by mptfan » Tue May 05, 2020 6:34 am

onourway wrote:
Tue May 05, 2020 5:02 am
One, you say you “know what they bought” and you’ve been keeping tabs on their performance. It’s highly unlikely you know everything a single one of your friends has bought or sold - let alone a group of them. You know what they’ve told you. People don’t talk about picks gone bad - or at least not all of them.
Exactly. You do not know what you think you know.

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Re: All my friends are outperforming index funds

Post by Ferdinand2014 » Tue May 05, 2020 6:37 am

goblue100 wrote:
Tue May 05, 2020 6:31 am
Ferdinand2014 wrote:
Tue May 05, 2020 6:08 am
They are lucky, calculating returns incorrectly or lying to you.
If you are in 90/10 portfolio I bet I would have out performed you with my 60/40 portfolio over the last 3 months. You have to adjust for risk.
I don’t define volatility as risk. I believe a 60/40 portfolio is higher risk as defined by beating inflation for example. Especially if my equities are bought over many years at reasonable multiples relative to interest rates. I’m actually about 95/5. :D . However, I do understand what you are trying to say. Yes, I am sure you have outperformed in the last 3 months. I have also bought a lot of bargain equities.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: All my friends are outperforming index funds

Post by Jags4186 » Tue May 05, 2020 6:52 am

OP, I feel your struggle as I too have friends who love to screen grab their fidelity page’s performance tracker and send to me.

It is very possible to beat the market over small stretches of time. A small stretch of time could be 5-10 years. If you invest heavily into a hot sector you can all of a sudden have lots of winners. I have a friend who has bought a ton ($100,000s not $100s) of Tesla, Roku, AMD — those types of companies. They are up 100%+ over the past 2 or so years. He didn’t buy them yesterday and has been talking them up for years.

It’s a bitter pill to swallow but I just continue to hold out for the next tech crash.

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Re: All my friends are outperforming index funds

Post by Anon9001 » Tue May 05, 2020 6:58 am

It is not impossible to out-perform index funds. China A shares is a example where active funds left index funds in the trash. The thing is that is a market dominated in trading by retail investors. It should be not a suprise that a dumb index would get out-performed in that scenario. In your friend case where they are doing no research on securities that they invest and are probably investing in liquid developed market I would assume it is 99% luck.

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Re: All my friends are outperforming index funds

Post by arcticpineapplecorp. » Tue May 05, 2020 7:03 am

justsomeguy2018 wrote:
Tue May 05, 2020 1:05 am
mega317 wrote:
Tue May 05, 2020 1:03 am
I wouldn't say onlyafter long periods but certainly more likely. And that's your horizon if you're buying stocks, right? And over long periods that's where expenses start to pile up as well.

Ask your friends for the specific trades and dates. Past and present/future. Couch it like you're trying to learn.
Already have...thats how I know their picks are beating the market.
are beating or have beaten?

see the difference?

with the first statement you made, you are assuming they will continue beating the market. With the second statement that I made, we only know they (may have) beaten the market.

we don't know what will happen in the future. if they did beat the market over the past few months, will they over the next 30 years? that's the question neither you, nor they can answer until 30 years from now.

If they are so good at beating the market, they should be running their own hedge fund by now, right?

If not, why not?

remember there are two (at least) types of markets, down and up. Just because your friends may have beaten the market in a down year, does that automatically mean they'll beat it in an up year? Last year the market was up 30%. Were your friends bragging about beating the market last year?
Last edited by arcticpineapplecorp. on Tue May 05, 2020 7:19 am, edited 1 time in total.
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climber2020
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Re: All my friends are outperforming index funds

Post by climber2020 » Tue May 05, 2020 7:12 am

Do a google search for “gt advanced investing thread”.

The original thread was on a site called contrarianinvestor.com that does not exist anymore; unfortunate because it was an all time classic read.

Even more important than making money investing is minimizing your risk of losing everything.

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Re: All my friends are outperforming index funds

Post by ValuationsMatter » Tue May 05, 2020 7:23 am

As fees are on a race to the bottom, there are going to be more and more people who beat the market after fees. It's still going to represent less than half, and probably well less.

Index funds and Buy and Hold investing tend to do their worst in a down Market. This is fairly obvious, because the market timers will tend to invest less of the time. When your friends have decided that they're the next Warren Buffett, they're going to continue to play games as the market rises. Most won't be focused on the fundamentals, but what their gut is telling them. Most won't keep track of relative returns against the total stock market, and most aren't going to tell you about the little moves that they make all the time.

Having said all that, I think this is the grossest part of Investments. The comments in here about waiting for the next tech crash so somebody's friend does worse than them is a clear sign of confused priorities in life. If you feel that way because your friends feel that way about you, you are doing something wrong and need to find better people to hang out with. My strategies do differ from my friends, but I truly genuinely wish them the best and feel happy when they're successful. I love the conversations and the debate. They make me better and more considerate in my approach in all things.

Part of buy-and-hold and index investing is the humble acknowledgement that you will never be the best Market performer in a group. And you will also be far from the worst. That condition will be true but regardless of all of the wins they brag about while most hide their losses. If you want the best chance of being a highest performer in your group, you must make high-variance decisions. But do you want to beat them at high risk to your goals, or do you want to be more confident that you're going to achieve an excellent outcome for yourself?
Last edited by ValuationsMatter on Tue May 05, 2020 7:45 am, edited 1 time in total.

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Re: All my friends are outperforming index funds

Post by bugleheadd » Tue May 05, 2020 7:29 am

justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?
Do you think your friends also tell you about any losses or the cherry pick the winners to tell you about. And what is their track record over their entire investing lifetime so far?

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Re: All my friends are outperforming index funds

Post by Jags4186 » Tue May 05, 2020 7:32 am

ValuationsMatter wrote:
Tue May 05, 2020 7:23 am
As fees are on a race to the bottom, there are going to be more and more people who beat the market after fees. It's still going to represent less than, and probably well less.

Index funds and Buy and Hold investing tend to do their worst in a down Market. This is fairly obvious, because the market timers will tend to invest less of the time. When your friends have decided that they're the next Warren Buffett, they're going to continue to play games as the market rises. Most won't be focused on the fundamentals, but what their gut is telling them. Most won't keep track of relative returns against the total stock market, and most aren't going to tell you about the little moves that they make all the time.

Having said all that, I think this is the grossest part of Investments. The comments in here about waiting for the next tech crash so somebody's friend does worse than them is a clear sign of confused priorities in life. If you feel that way because your friends feel that way about you, you are doing something wrong and need to find better people to hang out with. My strategies do differ from my friends, but I truly genuinely wish them the best and feel happy when they're successful. I love the conversations and the debate. They make me better and more considerate in my approach in all things.

Part of buy-and-hold and index investing is the humble acknowledgement that you will never be the best Market performer in a group. And you will also be far from the worst. That condition will be true but regardless of all of the wins they brag about while most hide their losses. If you want the best chance of being a highest performer in your group, you must make high-variance decisions. But do you want to beat them at high risk to your goals, or do you want to be more confident that you're going to achieve an excellent outcome for yourself?
Thank you for the personal swipe, however, I only hold out for the tech crash in jest. If tech were to crash my investments, too, would be in the gutter since the tech is the largest market segment in the United States.

I feel I have great priorities in my life. One of them isn’t judging an entire person’s personal and financial life based on one throwaway sentence on an anonymous message board. But hey, what do I know, I’m sure you have the best priorities and the most salt of the earth friends.

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Re: All my friends are outperforming index funds

Post by whereskyle » Tue May 05, 2020 7:51 am

justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?
Buying FAANG and all that is hot is a really easy thing to do to gain success over a two-month period. The real issue is carrying the burden of deciding when and whether to exit those positions without getting burned. Your friends have succeeded at the easy part. They probably won't tell you how the hard part goes.
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Re: All my friends are outperforming index funds

Post by IndexCore » Tue May 05, 2020 7:58 am

justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
... But what little investing they have done the past 3 months has outperformed the market ...
Investing at the start of April could outperform the market, too - just by the timing of going from cash to equities. That's probably part of the story in your friend's case - the lucky timing. That will be hard to repeat.

But SPIVA, who tracks S&P performance, shows index funds beating fewer active funds during the last crisis. If you look at their "SPIVA scorecard year end 2008", just 54% of active funds were outperformed by their benchmarks. Look at their scorecard for mid-2019, and it's 90%.
https://us.spindices.com/documents/spiv ... d-2008.pdf
https://www.ifa.com/articles/spiva_-yea ... scorecard/

The current crisis isn't over, so it's a bit early to measure the success of indexing vs other approaches. A money market fund beat the stock market so far - does that suggest going 100% cash is the right answer? A crisis will last an unknown length of time, and take an unknown length of time to recover. Most of the time, it's faster than people expect. Rather than measure index funds in the midst of this crisis, I'd suggest measuring them after the crash and recovery are complete, however long that takes.

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Re: All my friends are outperforming index funds

Post by MAI » Tue May 05, 2020 8:02 am

Tax efficiency is especially important for working people with earned income since any investment income generated by trading is piled on top of that and taxed at a higher rate than it would be if they only had investment income. What matters is after-tax returns. Index funds are tax-efficient. Working people are often too busy with their jobs (as they should be) to work out how much tax drag is associated with their trading, so your friends probably have no idea what it is.

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Re: All my friends are outperforming index funds

Post by Stinky » Tue May 05, 2020 8:06 am

cinghiale wrote:
Tue May 05, 2020 6:04 am
Three months of investment performance in any circumstance is just noise. Anything can outperform anything else in such a short time span. As other posters have mentioned, poll your friends again in two years. Five would be better still.
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Re: All my friends are outperforming index funds

Post by JoMoney » Tue May 05, 2020 8:13 am

During periods of market downturns, better performance will be had by those betting against stocks, followed by those who aren't invested, followed by those who were very risk conscious with there allocations.

So far this year, my zero interest bank account has "beat the market".
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Re: All my friends are outperforming index funds

Post by carolinaman » Tue May 05, 2020 8:33 am

Investing is more like a marathon than a sprint. 3 months performance proves nothing. If you believe in the low cost index investment approach, commit to it and do not worry about what others say they are doing.

I take peoples' investment performance claims with a grain of salt. There are few things less reliable than peoples' investment return claims. Some do not know how to calculate their returns, some boast about their winners but forget to include their losers, others are lying and if some are doing better, so what. You have a proven approach that works long term. Stay the course.

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Re: All my friends are outperforming index funds

Post by DesertDiva » Tue May 05, 2020 8:44 am

Congratulate them and wish them well in their future endeavors.

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ThereAreNoGurus
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Re: All my friends are outperforming index funds

Post by ThereAreNoGurus » Tue May 05, 2020 8:53 am

justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?
3 months? LOL

10 years? LOL
A while back, Morningstar crowned the Fairholme Fund manager, the Manager of the Decade.
In 2010, Fairholme [Fund] had a 10 year average annual return of 13.2%, well above Morningstar's category average of 0.01%. But for the last five years, Fairholme averaged just under 3%, lagging the S&P 500 by more than 10% a year. So far in 2018, Fairholme is down over 10%, more than 8% behind the S&P 500. This is not just a bad quarter, it has been a bad half decade. The underperformance is enough to ask how can the impressive track record of Fairholme's first 10 years have steered investors so wrong?
https://www.forbes.com/sites/kenkam/201 ... 17e47464f6

The longer the time-period the lesser the odds an actively managed account is going to beat its benchmark index.
Trade the news and you will lose.

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Re: All my friends are outperforming index funds

Post by Patzer » Tue May 05, 2020 8:56 am

justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?
It's impossible for all of people to beat the market.
Without fees, if everyone was of equal skill, half of the people would beat the market and half would not beat the market.
With fees, that probably skews more towards 20% beating the market and 80% getting beat by the market in the short term, and the longer the time horizon the less people beat the market after fees.

Indexing is not a promise to beat the market. Indexing is a promise to match the market's return, which will beat most people's returns.

From 1999-2010 I was an active investor, but only beat the market by about 1%/year, all of that out performance coming from a single sell decision in 2008. Had that crisis not come along I would have been behind. Additional, I spent a great deal of time and energy trying to do that, which would have been worth far more valuable if applied to my career than the 1% in extra returns I got.

From 2010-Present I have been a passive investor, with 3 exceptions, of which I was only right in 2 cases.
In 2016, I moved some of my US allocation to international to shield against risk from our new president, and that cost me about 2% in missed returns by the time I moved the allocation back. I let my political views skew my decisions.
In 2018, I adjusted my allocation on the dip, and that netted me about 1.5% in additional returns. Seemed like the situation was avoidable and it was avoided. Maybe skill, maybe luck.
In 2020, I sold partially out of the markets due to COVID-19 and have been buying back indexes and individual stocks since. These moves netted me 11.3% in additional returns. To set the timing of entry and exit into various positions I have made, I have spend 2-3 hours every night and almost all of my time on the weekends researching COVID-19 and the markets for the last 3 months.

So, yes, people can beat the markets, but it's rare for it to happen consistently.
The only way to beat the markets other than luck is to have an informational advantage, which usually comes with a great cost of time. I had one in 2020 at a great cost in time. I did not have one in 2016 or 2018 and in retrospect I should not have done either of them.

The problem is, even very logical people can be emotional at times, and that is how we make mistakes and lose money.
Your post seems to come from a place of FOMO (Fear of missing out). We all feel it when we see people double their money on bitcoin, YOLOing on OTM TSLA calls, etc., but for every 1 person that gets to brag about how much money they made in those situations, there are 4-5 that lost a ton of money and are keeping quiet about it.

My last thought... In 2008 I thought the US dollar was too weak versus the EURO and wanted to trade that.
I was completely right as the Euro has gone from being worth 1.55 dollars to 1.27 dollars within a few months, but being right and making money aren't the same thing.
Instead of taking some safe and slow way to bet on that... I used FOREX exchanges to bet on it 50:1, and lost 25% of my money (fortunately a small amount) in 30 minutes. I learned my lesson and closed my position and my account. My friends knew I was bearish about the Euro (I talked about it regularly), and might have even assumed I made money on that, but that was not the case.
Last edited by Patzer on Tue May 05, 2020 8:58 am, edited 1 time in total.

m@ver1ck
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Re: All my friends are outperforming index funds

Post by m@ver1ck » Tue May 05, 2020 8:57 am

They haven’t beat the market until they actually sell for a profit. Question is whether they will sell for a profit or for a loss when the panic sell when the stock drops.

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Re: All my friends are outperforming index funds

Post by arcticpineapplecorp. » Tue May 05, 2020 9:04 am

ThereAreNoGurus wrote:
Tue May 05, 2020 8:53 am
justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?
3 months? LOL

10 years? LOL
A while back, Morningstar crowned the Fairholme Fund manager, the Manager of the Decade.
In 2010, Fairholme [Fund] had a 10 year average annual return of 13.2%, well above Morningstar's category average of 0.01%. But for the last five years, Fairholme averaged just under 3%, lagging the S&P 500 by more than 10% a year. So far in 2018, Fairholme is down over 10%, more than 8% behind the S&P 500. This is not just a bad quarter, it has been a bad half decade. The underperformance is enough to ask how can the impressive track record of Fairholme's first 10 years have steered investors so wrong?
https://www.forbes.com/sites/kenkam/201 ... 17e47464f6

The longer the time-period the lesser the odds an actively managed account is going to beat its benchmark index.
this is a good post. many years ago I was offering advice/information to a friend about her investments. This fairholme fund was in her 401k and it was one of her favs. I asked her how she came upon that and she said her brother recommended it.

i of course recommended simplicity (she had like 14 funds, lots of overlap, fees, etc) and index funds, and she chose a different path. I followed the fairholme fund and saw it hasn't done great since I met with this friend. I'm sure she doesn't know it has been a laggard because she doesn't track these things closely. When she left her job and was going to roll her 401k into a variable annuity at her bank and called me to ask what i thought, i again recommended index funds instead, explained the costs of the annuity she was being sold, etc. What did she do? Bought the annuity. Some people just can't be helped.
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: All my friends are outperforming index funds

Post by Vanguard Fan 1367 » Tue May 05, 2020 9:08 am

Between 1994 and 2014 I didn't try indexing. My crowning glory was Occidental Petroleum which took 10k to 100k. I did ok with a mix of stocks, mutual funds, bonds, savings accounts and real estate.

Thankfully I came across John Bogle's books and went to indexing. That has really been magical from 2014 till Feb. 2020. I suspect if I take Saint Jack's advice and stay the course that I will come out ok

Three months of friends doing well isn't a great reason to toss indexing into the trash can. I recommend Bogle's books to help put the 3 months into perspective.

Edit: I know that all my friends aren't outperforming index funds. My friends seem to like advisors with 1% plus AUM fees, and high expense mutual funds with loads. Unfortunately they aren't too excited about listening to me about indexing.
Last edited by Vanguard Fan 1367 on Tue May 05, 2020 9:17 am, edited 1 time in total.
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Re: All my friends are outperforming index funds

Post by Ricchan » Tue May 05, 2020 9:11 am

It seems a lot of stock picks based on simple ideas such as, "people are staying home, so they're going to end up watching a lot more Netflix and buying a lot more from Amazon," and "healthcare demand is going to increase, so healthcare ETFs like VHT and IHI are going to go up" have actually ended up working out for people over the past several months. I wouldn't be surprised if the OP's friends' picks were along these lines.

Normally the Boglehead response to these ideas are that these factors are already priced in. Apparently they were not this time, or at least it took much longer for the sophisticated financial market makers to price them in than the average person. But as others have said, 3 months is a short time, and the fact that outlier results due to (pretty) unique events exist does not mean a general trend or rule should be dismissed and ignored.

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Re: All my friends are outperforming index funds

Post by Sic Vis Pacem » Tue May 05, 2020 9:27 am

How much?

I have friends that will throw $500 here or $1,000 there (at the casino, or on stocks) and then tell war stories when they hit. "And it went up fivefold!"

Cool. You made a few grand.

But unless you're willing to put a real chunk of money in the pot, it's not going to make any real difference to your portfolio. And if you are putting real money in the pot, then you may be compensated for the risk. But you need to understand--in your bones--that you are being compensated for the risk.

I don't need those kinds of returns for my plan to succeed, and thus I do not take that risk.

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Re: All my friends are outperforming index funds

Post by 260chrisb » Tue May 05, 2020 9:30 am

justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?
So stop trying to convince them, congratulate them on their accomplishments, move on and stay with what you decide is best for your situation. These are the times that the "I beat this", "this outperformed that", "individual stocks are best", and "indexing is wrong or flawed" folks come out of the woodwork. Seems to me I would avoid any advice from anyone who is not really financially savvy, rarely invests at all, or who know almost nothing about investing as you state. My long term investing goal is to build wealth via investment instruments that I understand and believe will have good long term results. Regardless of what any of them outperform. Don't we all want the best performing everything in life? Sure! Are we going to always have it? No! I'm thinking you're doing the right thing and need to ignore your friends.

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Re: All my friends are outperforming index funds

Post by H-Town » Tue May 05, 2020 9:34 am

justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?
Yeah, no way you gonna lose this pissing contest. Buy bitcoin and a few penny stocks. Throw in options as well. You gonna win or going broke trying.

It's all fun until you run out of money.

Glad that I don't have friends like yours.

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Re: All my friends are outperforming index funds

Post by stimulacra » Tue May 05, 2020 9:36 am

I've outperformed index funds consistently if I only keep track of my winners…

It seems exhausting and waste of time, energy and head space to keep tabs on your friends' portfolio performance. I would let it go.

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Re: All my friends are outperforming index funds

Post by Independent George » Tue May 05, 2020 9:53 am

justsomeguy2018 wrote:
Tue May 05, 2020 12:53 am
I keep trying to convince my friends about the value of low-cost index investing. For the most part they are not really financially savvy and rarely even invest at all. But what little investing they have done the past 3 months has outperformed the market. This from people who know almost nothing about investing or financial statements. Sometimes makes me wonder if I am going about it wrong.

Is the benefit of index funding really only realized over really long periods of time?
Do you remember the 90s? I was in college, and knew people who were tripling their money in a matter of months trading on the NASDAQ.

It's exactly the same as keeping up with the Jones' on consumption. Stop worrying about what other people are 'making', and consider only your own future.

NxNW
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Re: All my friends are outperforming index funds

Post by NxNW » Tue May 05, 2020 10:00 am

I’ve outperformed the market these last 3 months, too. But thanks to my asset allocation the market (S&P 500) outperformed me for a bit...

kimura king
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Re: All my friends are outperforming index funds

Post by kimura king » Tue May 05, 2020 10:01 am

Are your friends investing in individual stocks, mutual funds or what? Do you know the ticker symbols? What are you invested in?

OP when I saw the thread title I was expecting ticker symbols, graphs, and numbers, and some details but this thread doesn't bring much forward, particularly over a 3 month period. Also as mentioned, people like to embellish about investing a lot, similar to old golf or fishing stories, how much you could bench press in college, etc. If they like to take on more risks and are winning, then I would be happy for them.

You do index funds to minimize risk, and eliminate fees. You may sacrifice some performance, but hey, FZROX was up 31% last year. Not too shabby and I didn't give up ANYTHING going with FZROX.

My work 401k is with American Funds. They have a lot of funds with a 5.75% front load and a 0.65% expense ratio. So I am forced to invest some with American Funds. The growth fund of America (AGTHX) is their flagship product and has a 5.75% front load and 0.65% expense ratio. FZROX has no front load and a 0.00% expense ratio. Both average 10% over the last 10 years. The only advantage I can see from AGTHX is that it is "only" down YTD 15.1%, whereas FZROX is down 21.08%. In my case, it helps make up for the fees.

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Re: All my friends are outperforming index funds

Post by dziuniek » Tue May 05, 2020 10:03 am

goblue100 wrote:
Tue May 05, 2020 6:31 am
Ferdinand2014 wrote:
Tue May 05, 2020 6:08 am
They are lucky, calculating returns incorrectly or lying to you.
If you are in 90/10 portfolio I bet I would have out performed you with my 60/40 portfolio over the last 3 months. You have to adjust for risk.
+1.

I am beating SP500 by 10% YTD. I am certainly not beating SP500 over the last 10 years... (due to bonds/cash in port)

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