All my friends are outperforming index funds

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Dottie57
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Re: All my friends are outperforming index funds

Post by Dottie57 »

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?
Three months is not a good comparison. If you must compare do it over 10 years or more.

Sometimes people lie about their returns.

I would stop trying to convince others and just keep going on your own path.
rustymutt
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Re: All my friends are outperforming index funds

Post by rustymutt »

Many people do well in markets like this, where it's up 1 day and down 2. Focus instead on the long term. I doubt you'll see any proof from them on long term results. Remember we people like to tell others about how successful we are. Were all better in our heads, unless low self esteem is an issue. Day traders love this bipolar market.
Even educators need education. And some can be hard headed to the point of needing time out.
TN_Boy
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Re: All my friends are outperforming index funds

Post by TN_Boy »

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.
You must have very open friends. To know they are telling you all their trades.

And, to know if you are beating the market, you need to know what stocks have been traded, and how many $$ were in each transaction (i.e. I bought $1,000 in stock X and it doubled, i.e. 100% up. I bought $10,000 in stock Y and it went down 20%. My stock picks are doing great!).

And as others have mentioned, you have to look at the total portfolio over a period of time.

Personally I think trying to convert people to indexing is a good way to be considered annoying or wrong by friends (annoying if they are not interested and didn't ask, wrong if you suggest index solution A and it doesn't immediately outperform).
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Will do good
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Re: All my friends are outperforming index funds

Post by Will do good »

I brought APPL 1995, couple of years before Steve Jobs returned to Apple.
I suppose I have outperformed better than index funds for almost 20 years. But my APPL stock is only a small part of my portfolio because I know I wouldn't trust 1 or few stocks to carry us thru our 30+ years of retirement, that's why I'm an index investor.
batrleby
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Re: All my friends are outperforming index funds

Post by batrleby »

climber2020 wrote: 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.
...and her’s the slap on the wrist from the SEC, 5 years after the GTAT debacle:

https://www.sec.gov/litigation/admin/2019/33-10636.pdf

don’t count on government oversight to protect against material misrepresentation on a timely basis
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firebirdparts
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Re: All my friends are outperforming index funds

Post by firebirdparts »

justsomeguy2018 wrote: Tue May 05, 2020 12:53 am Is the benefit of index funding really only realized over really long periods of time?
I don't think, relatively speaking, that is true. I think getting rich by any sort of stock and bond ownership is just as slow. The benefit of broad low-cost diversification is really that you come out average, and that average is enough to make you rich. If you're average, you're not last. Average returns might be pretty low, in the future, so the impact of fees is expected to be a big deal to the average people.

There are other ways to invest rather than stock and bond ownership, and they might be faster.
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stocknoob4111
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Re: All my friends are outperforming index funds

Post by stocknoob4111 »

I have a friend who just buys TSLA when it goes substantially down and the rides the rebound back.. well so far it's worked quite well.
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Portfolio7
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Re: All my friends are outperforming index funds

Post by Portfolio7 »

Below are my results vs the S&P 500 for 26 years, using Index funds, but still a useful comparison. It is a bit streaky. Notice 5 years of beating the S&P 500 right in the middle of it, ending with a flourish at 24.3% better, which was in 2008 (sorry for lack of labels). (Also, that same year represents 8 of 10 years beating the S&P 500).

2008 was the year I finally ended my 100% stock AA and went far more heavily into bonds. Since then my AA has been around 30% FI, give or take 10%. Plus, I've had some international stock all along. Those two things explain most of what you see below, not stock picking prowess, or asset class picking prowess (or even lack of either).

The point being that starting from my first dollar invested, I'm not beating the S&P either before 2009, nor especially after... but I've had some extended periods when I did. I was a 5 year genius in 2008, just in time for 11 years of under-performance...(though a few of those years are positive against an appropriate benchmark.)

Better/(Worse) vs Dividend Adjusted S&P 500 (Note: The S&P 500 is not my benchmark, but it's easily available.)
2.2%
(13.5%)
(1.1%)
(8.8%)
(6.1%)
4.7%
(0.8%)
2.9%
3.5%
(4.3%)
5.8%
4.7%
2.7%
4.2%
24.3%
(9.4%)
(5.0%)
(0.1%)
(2.0%)
(19.3%)
(8.5%)
(1.6%)
(0.9%)
(5.4%)
(2.8%)
(12.8%)
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Fallible
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Re: All my friends are outperforming index funds

Post by Fallible »

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?
This seems less about your friends' actions and more about your reaction, less about indexing and more possibly about fear of missing out, or of reaching for the optimal. You are doubting a proven long-term strategy long hailed by some of the best financial minds because of a short-term probable stroke of luck by investors you describe as "not financially savvy." Can you explain this?
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
mega317
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Re: All my friends are outperforming index funds

Post by mega317 »

I wonder why these threads, which are common and a straightforward recitation of Boglehead philosophy, get so much engagement.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
Topic Author
justsomeguy2018
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Re: All my friends are outperforming index funds

Post by justsomeguy2018 »

OP here -

A few points:

1. My friends aren't outperforming me, as I have consistently bought during the recent downturn and have gains on the rally. When I say outperforming, what I mean is I know exactly what they bought and when they bought, so I know how that investment performed vs. the market.

2. As alluded to above, my friends are not really investors (in fact I think they have been scared to buy into this market), so I am really just referencing the 1 or few buys they made at a single point in time (i.e. they are not consistently investing and not consistent investors).

3. Some expressed interest in the investments, here are they are:

(Friend 1) FB bought sometime in Jan at $207.22/share; SPTM price at time was ~$39.78

(Friend 2) Mutual fund PRHSX (Health care fund) bought sometime in Feb at $76.99; corresponding price of FZROX was $10.54 at time

(Friend 3) TAK bought at $13.87, INO bought at $8.10 - sometime in March, forget exact dates
Independent George
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Re: All my friends are outperforming index funds

Post by Independent George »

It's also not just a question of performance, but also of risk.

Within these forums, we have people who at 100% stock, others at 50/50. Over the long haul, we expect the former to outperform the latter with more volatility - and yet both have entirely acceptable portfolios based on their willingness and capacity to take risk.

Both individual stocks and sector funds do the same thing, only at much more concentrated risk levels. Some BHs invest a small portion of their portfolios in individual stocks, too, with the full understanding that they are taking a concentrated risk for a chance at outsized performance (which is why they devote only a small portion to it). There's nothing inherently wrong with scratching an itch with a sector bet or individual stock - there is a lot wrong with betting a substantial amount of your net worth on it. I'm not willing to take that risk, but others might be.
decapod10
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Re: All my friends are outperforming index funds

Post by decapod10 »

justsomeguy2018 wrote: Tue May 05, 2020 12:01 pm OP here -

A few points:

1. My friends aren't outperforming me, as I have consistently bought during the recent downturn and have gains on the rally. When I say outperforming, what I mean is I know exactly what they bought and when they bought, so I know how that investment performed vs. the market.

2. As alluded to above, my friends are not really investors (in fact I think they have been scared to buy into this market), so I am really just referencing the 1 or few buys they made at a single point in time (i.e. they are not consistently investing and not consistent investors).

3. Some expressed interest in the investments, here are they are:

(Friend 1) FB bought sometime in Jan at $207.22/share; SPTM price at time was ~$39.78

(Friend 2) Mutual fund PRHSX (Health care fund) bought sometime in Feb at $76.99; corresponding price of FZROX was $10.54 at time

(Friend 3) TAK bought at $13.87, INO bought at $8.10 - sometime in March, forget exact dates
Is your main goal trying to convince them to switch to indexing? My opinion is that I wouldn't bother trying unless they ask you for advice.

Are you considering switching to whatever they are doing? I wouldn't, of course.

Though overall, I would say a few trades like this beating the market is meaningless. If you really want to figure out what they are doing, ask how they are choosing which stocks to buy. That is the more interesting question than which stocks are they buying. My close friends trade all sorts of crazy stuff, I listen with interest but I don't try to convince them to do anything. Listening to what they are doing is far more interesting than what I am doing.
sergio
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Re: All my friends are outperforming index funds

Post by sergio »

I am not a true Boglehead, in that I hold a lot of active funds (mostly AmericanFunds, TRowePrice, and Fidelity). I use the Vanguard 2045 Target Retirement Fund as my benchmark.

1. The AmericanFunds TD fund has done incredibly well YTD. The TRowe TD fund has performed a little better but the difference is trivial compared to Vanguards 2045 fund.

2. Some my my active funds have performed incredibly well. My largest non-TD active fund is PRNHX (TRowe New Horizons) and it's actually up 0.2% YTD. A few have been under-performing, namely the TRowe Mid Cap Growth/Value fund, I hold more PRNHX than the midcap funds combined.

As of the end of April my return was -8.6% while the Vanguard 2045 TD fund was down -12.4%.
fwellimort
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Re: All my friends are outperforming index funds

Post by fwellimort »

By some dumb luck I bought AMD in July 31 of 2019.
I have vastly outperformed the market simply due to the luck of that 1 stock.
(I for the past year owned only 2 stocks: Berkshire and AMD)


But did I buy AMD after knowing the fundamentals and all? No. The truth is, I just got lucky.
Look. 1 in 4~5 is going to outperform the index. Indexing will just bring average returns of the market. Nothing else.
There will be people who do better. There will be people who do worse.

By indexing, you at least guarantee market returns. And you only have 1 go in your investment career. You screw up and underperform the market (say the unlucky 2 in 5), there's no going back.
If you are fine with that odds, go single stocks. While 1 in 5 outperform, they don't outperform the market by much %. In fact, I'm assuming with the risk you take with single stocks you want much larger returns: and I wouldn't be surprised the odds of that is closer to 1 in 20.

Compared to lottery tickets, the odds are actually fascinatingly high with single stocks.
The question is, is the risk worth it.
Look at Warren Buffett. Guy might have made bank if he bought airlines this epidemic. However, he keeps tabs with the risk/reward.
That's what a wise investor should do. Consider the risks and reward and judge, 'is what I am doing matching my risk tolerance'.

If you regret not going single stocks, no ones stopping you. Put some money in single stocks and see how you do yourself.
Also, all my friends too are outperforming index funds. However, all my friends are mostly in tech stocks and tech stocks have done well this epidemic or bought travel companies like CCL at the near bottom in March. But I do know for every one of those friends, there are plenty of others who underperformed.

There's multiple ways to financial success in life. Some do it through single stocks. Some do it through options. Some do it through leveraging. Some do it through real estate. Some do it by getting promoted at work. etc. etc.
Indexing is not the only path to wealth. Do keep that in mind. However, for the vast majority of investors, indexing is arguably the most viable path in terms of risks/reward.
Don't think too hard. Your friend outperforming is a good thing. It's always good to hear your peers do well. And looking back, if I were an active investor, it seems I would have vastly outperformed the market. But that's hindsight. Hindsight is 20/20. The future... I have no idea.
BrooklynInvest
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Re: All my friends are outperforming index funds

Post by BrooklynInvest »

When I was a little kid I remember my grandad would put money on the horse races.

I remember being amazed that he won all the time 'cause every Saturday when I saw him he'd tell me what races he won and regale me with tales of the long shots that came in.

See the problem?
zorgs10
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Re: All my friends are outperforming index funds

Post by zorgs10 »

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?
(emphasis added)

This is a good opportunity to re-examine your true motivation for investing and how you'd measure/evaluate the success of your investing. These are not easy questions.
Marjimmy
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Re: All my friends are outperforming index funds

Post by Marjimmy »

averagedude wrote: 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.
+1. "Comparison is the killer of joy"
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arcticpineapplecorp.
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Re: All my friends are outperforming index funds

Post by arcticpineapplecorp. »

BrooklynInvest wrote: Tue May 05, 2020 1:12 pm When I was a little kid I remember my grandad would put money on the horse races.

I remember being amazed that he won all the time 'cause every Saturday when I saw him he'd tell me what races he won and regale me with tales of the long shots that came in.

See the problem?
you'll put the race track out of business with those kinds of winnings.

to the OP, ask your friends what their exit strategy is. I doubt they have one.

If they do and it's less than 1 year, they're incurring higher short term capital gains taxes.

Ask them if they have an IPS. If they ask, "What's that?" just smile and say knowlingly, "Oh, nothing really, just something every investor should have."
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
GreatLaker
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Re: All my friends are outperforming index funds

Post by GreatLaker »

I don't spend a lot of time trying to convince people how to invest. I do what I do for good reason. They do what they do for whatever reason. Investing is a good example of how it's easier to take advantage of someone that it is to convince them they are being taken advantage of. Lots of people love to brag about their investments or investment advisor, but many of them don't seem to know how to measure investment returns. Index investing overall gets average results, less a small sliver of costs. Active investing on average also gets average results, less much larger cost if using an advisor and/or actively managed funds. So at any time, almost half the dollars invested will get better results than my indexed portfolio.

If someone is looking for investing advice I give or send them a copy of The Arithmetic of Active Management by William Sharpe and If You Can: How Millennials Can Get Rich Slowly by Bill Bernstein. If they follow those ideas great, I may have made a huge difference in their financial security. If not, c'est la vie, you can lead an investor to knowledge but you can't make them think.

I also like to drop tidbits of wisdom like "the broker you have the broker you get" and "investing is the only thing where you get what you don't pay for", and "I'm a retired senior on a fixed income, I cannot afford what a financial advisor would charge". A very small number of people will get those sayings, the rest just look at me like I am crazy, and they stop talking about investing.
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ThereAreNoGurus
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Re: All my friends are outperforming index funds

Post by ThereAreNoGurus »

arcticpineapplecorp. wrote: Tue May 05, 2020 9:04 am 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.
Heh... funny/sad all-too-common story. Thx for sharing.
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Nate79
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Re: All my friends are outperforming index funds

Post by Nate79 »

So they made a few trades. So what. Even buying something that seemed pretty obvious may do well (not sure in long run). Overall I suggest an attitude of who cares what your friends do. Worry about yourself.
rbaldini
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Re: All my friends are outperforming index funds

Post by rbaldini »

justsomeguy2018 wrote: Tue May 05, 2020 12:53 am Is the benefit of index funding really only realized over really long periods of time?
It's not that the benefit is only realized long term. It's that the benefit is really only *detectable* in the long term.

Imagine: you and 10 friends get together and play a game where you flip quarters. You get one point for each heads. Let's say you rig the system: your quarter actually has a 55% chance of coming up heads (you messed with it slightly), but the rest of them only have a 50% chance. You have an advantage at the get-go, but it's small relative to the amount of pure luck involved. In fact, the amount of chance involved is so high that you probably won't be in first place after 10 flips. Or even 100 flips. It's not until perhaps 1000 coin flips, or so, that your advantage is likely to be apparent.

In other words: your friends are probably beating you because of dumb luck. Don't worry about it.
BogleAlltheWay
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Re: All my friends are outperforming index funds

Post by BogleAlltheWay »

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?

1. 3 months is short period of time
2. They are likely taking much more risk.
3. You will only hear from the people who are outperforming the market
4. You have to trust that those people are being truthful and did not misculate
dru808
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Re: All my friends are outperforming index funds

Post by dru808 »

Outperforming for 3 months with $500 is not impressive. If they were putting down all of their retirement and contributions and they do this for 20 years, I’d be impressed.

One other thing, are they telling you after the fact? Are they telling you they bought Tesla but haven’t told you about their American Airlines holdings?
65% US equity | 25% ex US equity | 10% US long bond index
quantAndHold
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Re: All my friends are outperforming index funds

Post by quantAndHold »

Everyone beats the market now and then, for a few trades. Long term, not so much. Your friends will tell you about their winners, and conveniently forget to tell you about their losers. Congratulate them and carry on with your plan.
Yes, I’m really that pedantic.
1130Super
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Re: All my friends are outperforming index funds

Post by 1130Super »

It’s not hard to beat the market (VT) all you have had to do is pick the S&P 500. My biggest pet peeve is people thinking the S&P 500 is the market.

On a side note it’s a lot easier to beat the market by going all in on one sector than buying any number of individual stocks. I have a huge tilt toward Big tech via QQQ, and it has worked very well for the last 5 years for me.
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Re: All my friends are outperforming index funds

Post by random_walker_77 »

climber2020 wrote: 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.
Interesting, and thank you. While the site no longer exists, that search term does lead to a fool.com article that has a dead link to the thread. And that dead link is most interesting because the wayback machine did cache this site and so it can still be read over there:

https://web.archive.org/web/20160317235 ... 9/page-500
TIAX
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Re: All my friends are outperforming index funds

Post by TIAX »

ValuationsMatter wrote: Tue May 05, 2020 7:23 am
Index funds and Buy and Hold investing tend to do their worst in a down Market. This is fairly obvious,
Do you have any evidence to support that statement?
l1am
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Re: All my friends are outperforming index funds

Post by l1am »

3 months is nothing but noise/variance. You need to do some reading on variance and expected value.

A -EV play can win in the short term but ultimately converges to true expected value over enough samples.

Write a computer program to randomly pick 3 stocks, to pit against VTI in a 3 month backtest. Run it and you’ll see VTI losing often.
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Re: All my friends are outperforming index funds

Post by Beehave »

averagedude wrote: 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.
+1 Exactly

When you invest in individual stocks you run many risks that indexing mitigates.

More specifically, when you research and invest in individual stocks, you know much less (a) than the professionals know and (b) than you think you know. But you tend to become (c) emotionally fixated on your smarts in buying that stock at that time. You're making a gamble that may pay off, but (a), (b), and (c) are conspiring against you.

My advice is to plug along with the indexes, take just a bit of play money if you want to fool around with individual stocks, and if you are not retired focus on maintaining your day job skills. Best wishes.
ValuationsMatter
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Re: All my friends are outperforming index funds

Post by ValuationsMatter »

TIAX wrote: Wed May 06, 2020 12:08 am
ValuationsMatter wrote: Tue May 05, 2020 7:23 am
Index funds and Buy and Hold investing tend to do their worst in a down Market. This is fairly obvious,
Do you have any evidence to support that statement?
Just the rational argument that, all else equal, if you spend anything less than 100% of your time in the market like a buy-and-hold investor while it's going down, then it's a mathematical certainty that you will do better. Market timers spend less than 100% of their time in the market (both down and up markets). Thus, they will do better when markets are down.
Last edited by ValuationsMatter on Wed May 06, 2020 7:03 am, edited 1 time in total.
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dziuniek
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Re: All my friends are outperforming index funds

Post by dziuniek »

One poster mentioned risk above and I agree.

If you think about it in risk-adjusted terms...

How risky is TSLA stock compares to US Total Stock Market?

Also, it's quite ok to maybe play with $10k on TSLA, but an entirely different issue if you're putting 50% of your 2-3 million retirement portfolio on the line. That would seem silly. Who actually does that?
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Re: All my friends are outperforming index funds

Post by Call_Me_Op »

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?
You're not serious, are you? The (broad US stock) market has lost 14% in the past 3 months. Investing in cash under the mattress would have beat stock index funds by a large margin. Do you think cash under the mattress is a good long-term investing strategy?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Jack FFR1846
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Re: All my friends are outperforming index funds

Post by Jack FFR1846 »

What about taxes? If they're day trading, they pay ordinary income tax on gains and won't get to claim losses. So perhaps their brokerage account shows a gain, but next April, they'll get a ginormous tax bill that they had not counted on.
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Haeysh
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Re: All my friends are outperforming index funds

Post by Haeysh »

Hope your friend also times his selling correctly. It’s all just noise until you cash out 🙂 I trust the index will be in a better spot 30 years from now then any specific stock.
TIAX
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Re: All my friends are outperforming index funds

Post by TIAX »

ValuationsMatter wrote: Wed May 06, 2020 6:41 am
TIAX wrote: Wed May 06, 2020 12:08 am
ValuationsMatter wrote: Tue May 05, 2020 7:23 am
Index funds and Buy and Hold investing tend to do their worst in a down Market. This is fairly obvious,
Do you have any evidence to support that statement?
Just the rational argument that, all else equal, if you spend anything less than 100% of your time in the market like a buy-and-hold investor while it's going down, then it's a mathematical certainty that you will do better. Market timers spend less than 100% of their time in the market (both down and up markets). Thus, they will do better when markets are down.
And why would you assume that these investors not only market time the 3 fund portfolio but also go in and out of individual securities? Why is that it that there is no evidence that active mutual funds outperform the market in a bear market? Don't they "market time" by deciding to go in and out of securities? Your "argument" isn't evidence.
ValuationsMatter
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Re: All my friends are outperforming index funds

Post by ValuationsMatter »

TIAX wrote: Wed May 06, 2020 9:03 am
ValuationsMatter wrote: Wed May 06, 2020 6:41 am
TIAX wrote: Wed May 06, 2020 12:08 am
ValuationsMatter wrote: Tue May 05, 2020 7:23 am
Index funds and Buy and Hold investing tend to do their worst in a down Market. This is fairly obvious,
Do you have any evidence to support that statement?
Just the rational argument that, all else equal, if you spend anything less than 100% of your time in the market like a buy-and-hold investor while it's going down, then it's a mathematical certainty that you will do better. Market timers spend less than 100% of their time in the market (both down and up markets). Thus, they will do better when markets are down.
And why would you assume that these investors not only market time the 3 fund portfolio but also go in and out of individual securities? Why is that it that there is no evidence that active mutual funds outperform the market in a bear market? Don't they "market time" by deciding to go in and out of securities? Your "argument" isn't evidence.
I don't see any evidence from you to the contrary. So, your counterargument, which only amounts to a litany of questions, isn't evidence either.

Why don't you come out with your point, instead of playing 20 questions? Absence of evidence isn't evidence of absence. Further, absence in this discussion doesn't imply absence from existence. It only implies that I don't want to spend my time doing your work for you. You don't like my argument, make your own. You want an evidence based argument? How about instead you provide your own, or go fly a kite. I don't care if you agree with my rationale. It doesn't have to make sense to you. To me, it's trivial.

It's still a straight forward logical argument. You seem to suggest it's flawed. In flawed logical arguments, either a premise is incorrect or the conclusion doesn't follow from the premises. So, what exactly is your counter argument? That I must write a thesis with references that you will still continue to reject? That's weak... try again.
Last edited by ValuationsMatter on Wed May 06, 2020 10:58 am, edited 2 times in total.
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justsomeguy2018
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Re: All my friends are outperforming index funds

Post by justsomeguy2018 »

Call_Me_Op wrote: Wed May 06, 2020 6:50 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?
You're not serious, are you? The (broad US stock) market has lost 14% in the past 3 months. Investing in cash under the mattress would have beat stock index funds by a large margin. Do you think cash under the mattress is a good long-term investing strategy?
The broad US stock market is composed of individual stocks (some of which were bought by my friends) that are outperforming the overall broad US market.... likewise the broad US market is also outperforming vs some areas (airline stocks e.g.)
TN_Boy
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Re: All my friends are outperforming index funds

Post by TN_Boy »

ValuationsMatter wrote: Wed May 06, 2020 6:41 am
TIAX wrote: Wed May 06, 2020 12:08 am
ValuationsMatter wrote: Tue May 05, 2020 7:23 am
Index funds and Buy and Hold investing tend to do their worst in a down Market. This is fairly obvious,
Do you have any evidence to support that statement?
Just the rational argument that, all else equal, if you spend anything less than 100% of your time in the market like a buy-and-hold investor while it's going down, then it's a mathematical certainty that you will do better. Market timers spend less than 100% of their time in the market (both down and up markets). Thus, they will do better when markets are down.
Depends on how good their timing is and what time-frame you look at.

A timer that got out of a rising market (yes they certainly exist) thereby missing a big run-up and then buys partway through the next downturn because of a conviction that things are about to turn around could easily be lagging basic buy and hold for a perfectly reasonable and relatively short lookback period.
Helo80
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Re: All my friends are outperforming index funds

Post by Helo80 »

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?

Index funds are not for everyone as some people in the pile of everyones think that they can beat or time the market in the long-term.

You have to decide for yourself whether or not you think that you can beat the market long-term. Since your friends are sharing their buy/sell orders with you, maybe you can have them text you when they buy/sell since your friends are beating the market? Their buys/sells are going to be unaffected by you.
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tvubpwcisla
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Re: All my friends are outperforming index funds

Post by tvubpwcisla »

I like having a combination of index funds and individual stocks. Hopefully I am getting the best of both worlds!

:sharebeer

:moneybag
Stay invested my friends.
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SmileyFace
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Re: All my friends are outperforming index funds

Post by SmileyFace »

All of my friends beat the market too - at least that's what they claim if it comes up in conversation (with some selective stock picks).

It reminds me of driving abilities - do you think you are an above-average driver? Of course you do!
Ninety percent of drivers think they are better than the average driver. :sharebeer
Helo80
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Re: All my friends are outperforming index funds

Post by Helo80 »

DaftInvestor wrote: Wed May 06, 2020 9:59 am All of my friends beat the market too - at least that's what they claim if it comes up in conversation (with some selective stock picks).

It reminds me of driving abilities - do you think you are an above-average driver? Of course you do!
Ninety percent of drivers think they are better than the average driver. :sharebeer

I think that the comedic editorialist Dave Berry cited a study that said 80% of drivers think that they're above average. Which, I guess could be scientifically/mathematically true since people often conflate average and median. :sharebeer
flyingaway
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Re: All my friends are outperforming index funds

Post by flyingaway »

I was thinking about selling some stock funds when they announced the effectiveness of remdesivir drug (last Thursday?), but then I told myself why bother.
I could have made a 6 figure profit if I was bold enough and sold all my stocks and (somehow) bought (similar) them back on Monday.
I do not regret, because I already have enough. Let it ride smoothly and enough the life.
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midareff
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Re: All my friends are outperforming index funds

Post by midareff »

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?
and strangely enough I never met a horse racing aficionado that had a loosing time at the tracks, or a sports better that had a loosing record, or a Casino fan that lost money either.. funny about all of that.
tibbitts
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Re: All my friends are outperforming index funds

Post by tibbitts »

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?
The fact that you are asking the question, and worse yet now wondering if you're "going about it wrong", indicates that you don't understand enough about investing to be attempting to convince your friends of anything investment-related.
ValuationsMatter
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Re: All my friends are outperforming index funds

Post by ValuationsMatter »

TN_Boy wrote: Wed May 06, 2020 9:55 am
ValuationsMatter wrote: Wed May 06, 2020 6:41 am
TIAX wrote: Wed May 06, 2020 12:08 am
ValuationsMatter wrote: Tue May 05, 2020 7:23 am
Index funds and Buy and Hold investing tend to do their worst in a down Market. This is fairly obvious,
Do you have any evidence to support that statement?
Just the rational argument that, all else equal, if you spend anything less than 100% of your time in the market like a buy-and-hold investor while it's going down, then it's a mathematical certainty that you will do better. Market timers spend less than 100% of their time in the market (both down and up markets). Thus, they will do better when markets are down.
Depends on how good their timing is and what time-frame you look at.

A timer that got out of a rising market (yes they certainly exist) thereby missing a big run-up and then buys partway through the next downturn because of a conviction that things are about to turn around could easily be lagging basic buy and hold for a perfectly reasonable and relatively short lookback period.
Agreed, and I similarly stated the following, just a sentence or 2 after my apparently contentious comment:
they're going to continue to play games as the market rises.
The contention is over what specifically happens during a declining market. My position is that less exposure (time specifically, but magnitude as well) guarantees less loss. It's just a fact.

What I never implied, that's seemingly misconstrued here, is that timers will beat B&H'ers through the previous or subsequent up markets or overall. Quite the contrary, in fact.
Last edited by ValuationsMatter on Wed May 06, 2020 10:14 am, edited 1 time in total.
2b2
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Re: All my friends are outperforming index funds

Post by 2b2 »

OP,

The second and third sentences of your original post contain all the information you need.
Luck, pure and simple. Good luck trying to replicate their luck.
:(

2b2
dboeger1
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Re: All my friends are outperforming index funds

Post by dboeger1 »

Have they accounted for all of their costs? For example, a lot of active traders either lock in gains by selling winners early, thereby incurring short-term gains fully taxable at one's marginal income tax rate, or they hold on to winners for over a year, taking on outsized idiosyncratic company risk for an extended period of time. Then you have to take into account dividends. In other words, just comparing price graphs doesn't tell you the full story, but it's as deep as a lot of beginning traders look without understanding everything that goes into making index funds extremely efficient. I really wouldn't be impressed by your friends' stock-picking abilities until they could outperform a total market index for at least a whole year after accounting for all costs, dividends, time out of market, etc. And even then, I wouldn't even dream of following them unless they consistently beat the market for 10+ years. Far more qualified money managers have outperformed the market for longer than that only to be trounced by total market indexes in the following decades. Read Bogle's "Little Book of Common Sense Investing" for all the convincing you'll ever need that your friends are not the next Warren Buffett.
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