"Active" Index investing vs. "Passive" Index investing

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GoldenGoose
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Re: "Active" investing vs. "Passive" investing

Post by GoldenGoose »

willthrill81 wrote: Mon Oct 12, 2020 9:56 am
GoldenGoose wrote: Mon Oct 12, 2020 9:49 amIf I want to keep up with the standard "bench-mark" return of index investing, where should I park my money?
Since you've been referring to stocks so far, I'm assuming that's the asset class you're referring to.

There are two main possibilities: the U.S. total stock market and the global total stock market. Some argue for one, and others argue for the other. My guess is that if you're stock picking, it's mainly going to be U.S. stocks, so the former probably makes more sense as a benchmark.
No I am open to whichever one that gives the one single standard "golden return" that index investing proponents use to point out as comparing to active funds managers. Is it the SP500?
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willthrill81
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Re: "Active" investing vs. "Passive" investing

Post by willthrill81 »

GoldenGoose wrote: Mon Oct 12, 2020 10:02 am
willthrill81 wrote: Mon Oct 12, 2020 9:56 am
GoldenGoose wrote: Mon Oct 12, 2020 9:49 amIf I want to keep up with the standard "bench-mark" return of index investing, where should I park my money?
Since you've been referring to stocks so far, I'm assuming that's the asset class you're referring to.

There are two main possibilities: the U.S. total stock market and the global total stock market. Some argue for one, and others argue for the other. My guess is that if you're stock picking, it's mainly going to be U.S. stocks, so the former probably makes more sense as a benchmark.
No I am open to whichever one that gives the one single standard "golden return" that index investing proponents use to point out as comparing to active funds managers. Is it the SP500?
The S&P 500 is the most commonly referred to stock index around here, to be sure.

If you could have gotten higher returns than the S&P 500 without using leverage from 2005-2019, you would have beaten 92% of active fund managers.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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GoldenGoose
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

I should also clarify, I assume you have a long time horizon to invest and not someone who is close to retiring and needs to be cautious with their money.
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willthrill81
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Re: "Active" Index investing vs. "Passive" Index investing

Post by willthrill81 »

GoldenGoose wrote: Mon Oct 12, 2020 10:08 am I should also clarify, I assume you have a long time horizon to invest and not someone who is close to retiring and needs to be cautious with their money.
That's true, but it runs into a big problem. Historically, active fund managers were much more likely to beat the market in a single year than over the long-term. In 2019, roughly 33% of active fund managers beat the market. But over the prior 15 years, only 8% did so.

It's akin to playing any game where both skill and luck are present. In the short-term, almost anything can happen, but in the long-term, skill nearly always wins out. In this instance, the apparent lack of fund managers' ability to reliably beat the market shows up quite clearly as their time trying to do so lengthens.

You can really improve your likelihood of beating the market by ramping up risk, such as through leverage. But that also increases left-tail risk (i.e. the likelihood that you will dramatically underperform the market).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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GoldenGoose
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

What I am looking for is not short term return. I am looking for that long term return everyone here on BH is looking for. What is the best investment or investments to achieve this standard return.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by willthrill81 »

GoldenGoose wrote: Mon Oct 12, 2020 10:16 am What I am looking for is not short term return. I am looking for that long term return everyone here on BH is looking for. What is the best investment or investments to achieve this standard return.
Again, if you're talking about U.S. stocks, the S&P 500 is probably your best answer.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: "Active" Index investing vs. "Passive" Index investing

Post by tibbitts »

It seems that what the OP is considering is investing the way a quant fund would: selecting stocks from a defined universe. I haven't looked for any lately but for example Vanguard now has the Strategic Equity funds, and didn't they previously have a large-cap "Quantitative Equity" fund (not Vanguard's QEG that manages multiple funds, but wasn't there a specific fund?) that got merged into something else? Originally when first introduced I seem to recall Fidelity Stock Selector was another take on the large-cap quant fund, although I haven't looked at what's happened with it in a long time.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

tibbitts wrote: Mon Oct 12, 2020 11:14 am It seems that what the OP is considering is investing the way a quant fund would: selecting stocks from a defined universe. I haven't looked for any lately but for example Vanguard now has the Strategic Equity funds, and didn't they previously have a large-cap "Quantitative Equity" fund (not Vanguard's QEG that manages multiple funds, but wasn't there a specific fund?) that got merged into something else? Originally when first introduced I seem to recall Fidelity Stock Selector was another take on the large-cap quant fund, although I haven't looked at what's happened with it in a long time.
No, I don't have any restrictions. Would VTSAX be the only one for BH-ers?
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Re: "Active" Index investing vs. "Passive" Index investing

Post by tibbitts »

GoldenGoose wrote: Mon Oct 12, 2020 11:24 am
tibbitts wrote: Mon Oct 12, 2020 11:14 am It seems that what the OP is considering is investing the way a quant fund would: selecting stocks from a defined universe. I haven't looked for any lately but for example Vanguard now has the Strategic Equity funds, and didn't they previously have a large-cap "Quantitative Equity" fund (not Vanguard's QEG that manages multiple funds, but wasn't there a specific fund?) that got merged into something else? Originally when first introduced I seem to recall Fidelity Stock Selector was another take on the large-cap quant fund, although I haven't looked at what's happened with it in a long time.
No, I don't have any restrictions. Would VTSAX be the only one for BH-ers?
But a quant fund does exactly what you want: select stock with the highest probability of outperformance from a broader index.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by dharrythomas »

In what universe, other than this forum, is an “average” 401(k) contribution $18K per year. Median family income is about $60K, often with 2 workers. The median employee is not able to save $18K and most employees are not saving anywhere near what they could.

If you put $18K per year in broad based balanced appropriately risked index funds, think LifeStrategy Growth as somewhat more aggressive than Target Retirement, you will have invested $360K. If you get out of debt in that time and market returns look anything like the past, you’ll have far more than the median retiree. Whether that’s OK depends on how much your spending needs are.

Any deviation from the market portfolio has a good chance of underperforming the market over your investment horizon.
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GoldenGoose
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

I suspect that the collective minds in this BH community couldn't come up with the one best index fund to invest in so that you don't underperform the market. If there is such a fund, then all of BH-ers would be on such a fund, right, so we don't underperform the market in the long run? Every time when someone asks what that fund is, then there would only be 1 answer.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by KlangFool »

GoldenGoose wrote: Mon Oct 12, 2020 1:46 pm I suspect that the collective minds in this BH community couldn't come up with the one best index fund to invest in so that you don't underperform the market. If there is such a fund, then all of BH-ers would be on such a fund, right, so we don't underperform the market in the long run? Every time when someone asks what that fund is, then there would only be 1 answer.
GoldenGoose,

<<you don't underperform the market. >>


Why would you pick an index fund that does not underperform the market? That index fund would have to significantly overperform the market in order to justify the tracking error and the additional expense.

Why would you take the additional RISK and EXPENSE without a significant RETURN?


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Re: "Active" Index investing vs. "Passive" Index investing

Post by KlangFool »

OP,


We are not playing the same game. I can reach my goal with a 5% nominal return. I am not interested in getting the most return possible and taking the additional risk.

Ditto for many others in Bogleheads. They need X% of return to reach their set of goals.

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Re: "Active" Index investing vs. "Passive" Index investing

Post by willthrill81 »

GoldenGoose wrote: Mon Oct 12, 2020 1:46 pm I suspect that the collective minds in this BH community couldn't come up with the one best index fund to invest in so that you don't underperform the market. If there is such a fund, then all of BH-ers would be on such a fund, right, so we don't underperform the market in the long run? Every time when someone asks what that fund is, then there would only be 1 answer.
You have been told repeatedly that the index would be either the S&P 500 or the total stock market by cap weight. History has not shown a material long-term distance in the returns of the two, so it doesn't really matter which you select for the purpose of a benchmark.

Picking nits about what constitutes the market smacks strongly of being a red herring. The core argument is that both theory and the actual data that's been repeatedly shown in this thread show that the likelihood of you beating the market, however it's defined, by picking stocks over the long-term is very small.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: "Active" Index investing vs. "Passive" Index investing

Post by PicassoSparks »

GoldenGoose wrote: Mon Oct 12, 2020 1:46 pm I suspect that the collective minds in this BH community couldn't come up with the one best index fund to invest in so that you don't underperform the market. If there is such a fund, then all of BH-ers would be on such a fund, right, so we don't underperform the market in the long run? Every time when someone asks what that fund is, then there would only be 1 answer.
I like this twist on the discussion you are taking.

The reality is that the Bogleheads approach is not about optimizing, it's about satisficing. It's also primarily aimed at defeating behavioral risk rather than a lot of the other risks that are at play when it comes to investing. So the focus is on finding a good enough asset allocation and sticking to it, because the errors that you can make behaviorally FAR outstrip the kind of damage you can do to yourself by having a less than optimal asset allocation.

Most index investors think "S&P 500" when they think "the market" even though it's not the market. It is a "good enough" approximation of the market. "The market" would be best capture by one of the all-world index funds which, even there, do not capture all of the publicly traded companies, just the vast majority of them (by market cap). Most Bogleheads do not invest in an all-world market index fund. There's a lot of reasons for that but one of the big ones is that those funds are much newer than the duration of the index fund philosophy. There other has to do with people's biases (or real tax considerations) about domestic vs international asset ownership.

The whole "S&P 500 is not the market" thing gets particularly interesting when it comes to the results of the last 10 years, because the S&P 500 had a remarkably good run. Everything pales in comparison to the S&P 500 benchmark right now, even a more total market index fund. But that's unusual and it's probably a bad idea to expect that to continue going forward.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by willthrill81 »

PicassoSparks wrote: Mon Oct 12, 2020 2:20 pm The reality is that the Bogleheads approach is not about optimizing, it's about satisficing.
Correct. That was discussed extensively a while back in this thread.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: "Active" Index investing vs. "Passive" Index investing

Post by PicassoSparks »

The other reality is that even the vast majority of passive investors will underperform the benchmark. We will lose income to the drag of taxes, expense ratios, tracking errors from our asset allocations, any behavioral hiccups along the way, the fact that our investments will be uneven according to ability and life events, and many other factors which will mean that our individual performance will not track the benchmark.

The goal is to minimize the extent to which we underperform.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by Actin »

Didn't read the entire thread. Active investing makes no sense to me. Unless your advisor has inside information, his guess is just as good as yours. Why would any sane person pay a fee for someone to either underperform the market or create an overcomplicated three fund portfolio to give the illusion of professionalism.

I suspect this is a shill thread because OP pretends VTSAX doesn't exist
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Re: "Active" Index investing vs. "Passive" Index investing

Post by willthrill81 »

PicassoSparks wrote: Mon Oct 12, 2020 2:20 pm The whole "S&P 500 is not the market" thing gets particularly interesting when it comes to the results of the last 10 years, because the S&P 500 had a remarkably good run. Everything pales in comparison to the S&P 500 benchmark right now, even a more total market index fund. But that's unusual and it's probably a bad idea to expect that to continue going forward.
Since 2010, the S&P 500 has only had a .1% higher CAGR than the TSM.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: "Active" Index investing vs. "Passive" Index investing

Post by Doctor Rhythm »

Actin wrote: Mon Oct 12, 2020 2:24 pm Didn't read the entire thread. Active investing makes no sense to me. Unless your advisor has inside information, his guess is just as good as yours. Why would any sane person pay a fee for someone to either underperform the market or create an overcomplicated three fund portfolio to give the illusion of professionalism.

I suspect this is a shill thread because OP pretends VTSAX doesn't exist
I think the thread started out quite sincerely with no ulterior motive, but the argument has now moved into minutiae and semantics (“how do you define the market?”). Totally agree with your sentiment about active management, whether done by a fund manager or yourself. There’s another comment by pkcrafter citing how few that outperform in one year continue to do so in subsequent years.
Last edited by Doctor Rhythm on Mon Oct 12, 2020 5:26 pm, edited 2 times in total.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by PicassoSparks »

willthrill81 wrote: Mon Oct 12, 2020 5:05 pm Since 2010, the S&P 500 has only had a .1% higher CAGR than the TSM.
That’s true. Because the S&P 500 is most of US TSM. But when you compare it to the Russell 2000 or the Global TSM you get a sense of just how significantly it outperformed.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
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Re: "Active" Index investing vs. "Passive" Index investing

Post by willthrill81 »

PicassoSparks wrote: Mon Oct 12, 2020 5:22 pm
willthrill81 wrote: Mon Oct 12, 2020 5:05 pm Since 2010, the S&P 500 has only had a .1% higher CAGR than the TSM.
That’s true. Because the S&P 500 is most of US TSM. But when you compare it to the Russell 2000 or the Global TSM you get a sense of just how significantly it outperformed.

https://www.portfoliovisualizer.com/bac ... ion3_3=100
Well, TSM is now and always has been dominated by large-caps. But yes, over much of the last decade, U.S. large-caps growth in particular has trounced everything else.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by 000 »

I don't see a valid reason to exclude any US-domiciled exchange-listed stock from the available stock picks.

There is probably more alpha possible in stocks not in the S&P 500.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by Scooter57 »

It's worth pointing out that though the odds are against you succeeding by picking stocks, some people DO manage it. I knew one who turned $60k into $10 M. Luck had a great deal to do with it, but some people, like the one I knew have more than their share of luck, life long.

Are you lucky with money, being accidentally at the right place at the right time? Do you win at games of chance?

If you are, study up on investing, not just on this forum but on others where you will be exposed to people who follow all the mamy different approaches out there. Take the time to understand how people evaluate stocks, and when you have some understanding, test your ideas with very small investments for several years. Going big when you don't really know what you are doing very rarely ends well.

But don't expect ANY investment strategy to make you wealthy in just 20 years. You are more likely to create wralth with a small business involving skills and an industry you already understand, or by retraining for a career that pays better and has job openings.Right now I am told they are begging for people to apprentice as electricians in some cities. There are free programs training skilled machinists in my region. Jobs in the trades don't seem to appeal to younger people, but mastering a trade can lead to very good incomes, especially if you can manage people.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

I guess when people see "active" in investing, they automatically assume its the random stock picking, frequent buy and sell approach. This is not what I advocate. I take a look at the SP500 stocks and see that there are companies in there that I would never want to own (cyclical, industry or lack of any knowledge). So why do i want to buy the entire index? I rather go through that list and select companies that I am familiar with to own. Once I bought them, I would hold them for the long term, until the situation changes. So this is what I proposed, buying companies from an index that you are comfortable with and hold for the long term. Not randomly picking, not momentum chasing, not daily trading.

The argument I have seen alot is how those studies pointing out the fact that active fund managers fail to beat the index over the long run. I acknowledge the fact that those people are smarter than I am and have more accesses than I do. However, I am not sure if that is a fair comparison for the following reasons.

1. Size - they are like a freighter while I am a speedboat due to the size of portfolio managed. They cant efficiently manage a huge portfolio like I do with my much smaller portfolio.
2. Pressure - they manage other people's money so their performance results are closely scrutinized and reported. Their income depends on their published performance. Thus they are under more pressure to tweak and trade to at least stay even or to beat the indices. I dont have any of those pressures. Yes I want to perform too but at the end of the day I answer to myself so I make decision in my own self interest.
3. Fees - the dreaded fees. I charge ridiculously high fees to myself too but I plow that money back into my holdings.
4. Taxes - with their desires to tweak comes tax liability for the funds owners. I am for long term buy and hold so yes less taxes.

I am not trying to pressure anyone into following what I proposed. I just want to lay down the theory, have a good discussion, agree to disagree, and continue our merry investing way. With that said, it had been an interesting, thought provoking conversation for me at least.
Kelrex
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Re: "Active" Index investing vs. "Passive" Index investing

Post by Kelrex »

Your theory was clear from the beginning.
I sustain my same questions that I had from the beginning.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by cinghiale »

GoldenGoose wrote,

I guess when people see "active" in investing, they automatically assume its the random stock picking, frequent buy and sell approach. This is not what I advocate. I take a look at the SP500 stocks and see that there are companies in there that I would never want to own (cyclical, industry or lack of any knowledge). So why do i want to buy the entire index? I rather go through that list and select companies that I am familiar with to own. Once I bought them, I would hold them for the long term, until the situation changes. So this is what I proposed, buying companies from an index that you are comfortable with and hold for the long term. Not randomly picking, not momentum chasing, not daily trading.
You guess wrong. I can’t remember ever seeing active investing equated with random stock picking on this board. Nor with frequent buying and selling.

So, in essence, you want the approval and affirmation of this forum to forego a system that has, over time, beat 80% of all actively run stock funds and hedge funds for a stock picking system based on your own personal familiarity and comfort with a particular company. Am I missing anything?
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell
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Re: "Active" Index investing vs. "Passive" Index investing

Post by KlangFool »

GoldenGoose wrote: Tue Oct 13, 2020 5:21 am
I rather go through that list and select companies that I am familiar with to own. Once I bought them, I would hold them for the long term, until the situation changes.

GoldenGoose,

Unless you believe you are smarter than Warren Buffett, why do you need to repeat the effort? Just buy BRK.A or BRK.B and hire Warren Buffett to invest for you. Some of us do that.


Please explain to us why and how you think that you are better than Warren Buffett?


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Re: "Active" Index investing vs. "Passive" Index investing

Post by tibbitts »

Scooter57 wrote: Mon Oct 12, 2020 7:27 pm If you are, study up on investing, not just on this forum but on others where you will be exposed to people who follow all the mamy different approaches out there.
And understand that you will be competing with countless other people who are thinking and doing the same thing. The OP would have to believe he has an advantage over other people attempting the same strategy.
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GoldenGoose
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

cinghiale wrote: Tue Oct 13, 2020 8:33 am
GoldenGoose wrote,

I guess when people see "active" in investing, they automatically assume its the random stock picking, frequent buy and sell approach. This is not what I advocate. I take a look at the SP500 stocks and see that there are companies in there that I would never want to own (cyclical, industry or lack of any knowledge). So why do i want to buy the entire index? I rather go through that list and select companies that I am familiar with to own. Once I bought them, I would hold them for the long term, until the situation changes. So this is what I proposed, buying companies from an index that you are comfortable with and hold for the long term. Not randomly picking, not momentum chasing, not daily trading.
You guess wrong. I can’t remember ever seeing active investing equated with random stock picking on this board. Nor with frequent buying and selling.

So, in essence, you want the approval and affirmation of this forum to forego a system that has, over time, beat 80% of all actively run stock funds and hedge funds for a stock picking system based on your own personal familiarity and comfort with a particular company. Am I missing anything?
Yes, you missed my entire point. I cant repeat myself anymore.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

KlangFool wrote: Tue Oct 13, 2020 8:43 am
GoldenGoose wrote: Tue Oct 13, 2020 5:21 am
I rather go through that list and select companies that I am familiar with to own. Once I bought them, I would hold them for the long term, until the situation changes.

GoldenGoose,

Unless you believe you are smarter than Warren Buffett, why do you need to repeat the effort? Just buy BRK.A or BRK.B and hire Warren Buffett to invest for you. Some of us do that.


Please explain to us why and how you think that you are better than Warren Buffett?


KlangFool
I never claimed to be smarter or better than anyone. I might be the dumbest person on this board. I do follow his advice though. Buy and hold for the long term.
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GoldenGoose
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

tibbitts wrote: Tue Oct 13, 2020 8:56 am
Scooter57 wrote: Mon Oct 12, 2020 7:27 pm If you are, study up on investing, not just on this forum but on others where you will be exposed to people who follow all the mamy different approaches out there.
And understand that you will be competing with countless other people who are thinking and doing the same thing. The OP would have to believe he has an advantage over other people attempting the same strategy.
You are also compete with countless other people too, thinking the same or not. We all do. I am holding the same stocks that are in your funds. I like to buy low and sell to you highb unless you are in a different stock universe.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by KlangFool »

GoldenGoose wrote: Tue Oct 13, 2020 10:43 am
KlangFool wrote: Tue Oct 13, 2020 8:43 am
GoldenGoose wrote: Tue Oct 13, 2020 5:21 am
I rather go through that list and select companies that I am familiar with to own. Once I bought them, I would hold them for the long term, until the situation changes.

GoldenGoose,

Unless you believe you are smarter than Warren Buffett, why do you need to repeat the effort? Just buy BRK.A or BRK.B and hire Warren Buffett to invest for you. Some of us do that.


Please explain to us why and how you think that you are better than Warren Buffett?


KlangFool
I never claimed to be smarter or better than anyone. I might be the dumbest person on this board. I do follow his advice though. Buy and hold for the long term.
GoldenGoose,

You did not answer my question. Why you did not buy BRK.A or BRK.B? Just hire Warren Buffett to invest for you. Some of us do that.

If you are not smarter than Warren Buffett, just hire Warren Buffett to invest for you. Hire the best. It is a logical and rational answer. Why follow his advice? Just hire him.


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Re: "Active" Index investing vs. "Passive" Index investing

Post by KlangFool »

OP,

40% of my portfolio is in the Wellington Fund. I pay a 0.17% expense ratio annually for the Wellington management to actively manage 40% of my portfolio. It is not worth my effort to actively manage my investment.

KlangFool
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

KlangFool wrote: Tue Oct 13, 2020 10:48 am
GoldenGoose wrote: Tue Oct 13, 2020 10:43 am
KlangFool wrote: Tue Oct 13, 2020 8:43 am
GoldenGoose wrote: Tue Oct 13, 2020 5:21 am
I rather go through that list and select companies that I am familiar with to own. Once I bought them, I would hold them for the long term, until the situation changes.

GoldenGoose,

Unless you believe you are smarter than Warren Buffett, why do you need to repeat the effort? Just buy BRK.A or BRK.B and hire Warren Buffett to invest for you. Some of us do that.


Please explain to us why and how you think that you are better than Warren Buffett?


KlangFool
I never claimed to be smarter or better than anyone. I might be the dumbest person on this board. I do follow his advice though. Buy and hold for the long term.
GoldenGoose,

You did not answer my question. Why you did not buy BRK.A or BRK.B? Just hire Warren Buffett to invest for you. Some of us do that.

If you are not smarter than Warren Buffett, just hire Warren Buffett to invest for you. Hire the best. It is a logical and rational answer. Why follow his advice? Just hire him.


KlangFool
Why I didnt buy? It is because I am not familiar with it and not interested. As simple as that. Now if you let me know the 30X 50X gain stocks you bought, I will be interested.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by KlangFool »

GoldenGoose wrote: Tue Oct 13, 2020 10:56 am

Why I didnt buy? It is because I am not familiar with it and not interested. As simple as that. Now if you let me know the 30X 50X gain stocks you bought, I will be interested.

GoldenGoose,

1) In summary, you do not believe in Warren Buffett enough to invest with him. So, why waste your time with his advice?


2) My 30X to 50X stocks are for entertainment only. It is never meant to make real money for me.

3) My main portfolio can reach my goal with a 5% nominal return.


KlangFool
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Re: "Active" Index investing vs. "Passive" Index investing

Post by willthrill81 »

GoldenGoose wrote: Tue Oct 13, 2020 10:47 am
tibbitts wrote: Tue Oct 13, 2020 8:56 am
Scooter57 wrote: Mon Oct 12, 2020 7:27 pm If you are, study up on investing, not just on this forum but on others where you will be exposed to people who follow all the mamy different approaches out there.
And understand that you will be competing with countless other people who are thinking and doing the same thing. The OP would have to believe he has an advantage over other people attempting the same strategy.
You are also compete with countless other people too, thinking the same or not. We all do. I am holding the same stocks that are in your funds. I like to buy low and sell to you highb unless you are in a different stock universe.
Those buying an index are merely seeking to match the performance of the index less the expense ratio of the fund, and they will, by definition, achieve that. They are not really competing against anyone.

The 'buy low, sell high' admonition, while pervasive and sounding good, is extremely difficult to regularly achieve. You don't know when you buy an individual stock that the price will go up. It may actually go down. If it were simple, then active traders should easily outperform, but they rarely do.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

KlangFool wrote: Tue Oct 13, 2020 11:06 am
GoldenGoose wrote: Tue Oct 13, 2020 10:56 am

Why I didnt buy? It is because I am not familiar with it and not interested. As simple as that. Now if you let me know the 30X 50X gain stocks you bought, I will be interested.

GoldenGoose,

1) In summary, you do not believe in Warren Buffett enough to invest with him. So, why waste your time with his advice?


2) My 30X to 50X stocks are for entertainment only. It is never meant to make real money for me.

3) My main portfolio can reach my goal with a 5% nominal return.


KlangFool
I dont have a tendency to blindly follow people. If thats your trait, thats fine but dont expect others to think the same.

Klangfool, I used to think that you are a swell guy/gal with the advices you have been given others. Let's stop here while you are still ahead, eh? :)
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Re: "Active" Index investing vs. "Passive" Index investing

Post by PicassoSparks »

GoldenGoose wrote: Tue Oct 13, 2020 5:21 am So this is what I proposed, buying companies from an index that you are comfortable with and hold for the long term. Not randomly picking, not momentum chasing, not daily trading.
Your idea cuts to the heart of how efficient the market is. If the market is efficient, then there should be very few opportunities to do this. The more efficient the market is, the better it is at pricing in knowledge and expectations, so all that we can expect in prices changing is unexpected new information, which makes the movement of stocks essentially random (with a positive expected return which is our compensation for taking on the random movement of the markets).

We know that the results of the stock market are heavily skewed. The vast majority of companies underperform T-Bills, a plurality of companies go out of business quite frequently, and something like 4% of the stocks account for all of the growth of the market.

We also know that most of the skills brought to bear on the market don't matter. It takes a lot of skill to evaluate companies, read 10k, keep up with the news and so on but very little of that matters because, again, most of the future movement of the stock market comes from presently UNKNOWN/UNKNOWABLE information.

There is inherently randomness to your approach. First the randomness of what index you choose. Second is the randomness of which domains you have the capacity to evaluate and whether those domains are currently hiding the next big winners. Third is the randomness of whether the future big winners are even in existence when you decide how to allocate your assets.

It is possible that the market is less efficient than we think. Buffett has suggested that there is plenty of opportunity at smaller scales, where there isn't enough attention being deployed on companies. So perhaps as an individual investor you have a chance to find those efficiencies that aren't worth picking up for institutional-scale investors.

Because there is so much dispersion in the results, it will take a very long time for you to evaluate if you are right. The question is about whether it's worth it to you to pay those opportunity costs. It's time you could be spending on model trains, or seducing sexual partners, or raising kids or whatever else it is you like to do with your time.
Last edited by PicassoSparks on Tue Oct 13, 2020 11:29 am, edited 1 time in total.
KlangFool
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Re: "Active" Index investing vs. "Passive" Index investing

Post by KlangFool »

GoldenGoose wrote: Tue Oct 13, 2020 11:21 am
KlangFool wrote: Tue Oct 13, 2020 11:06 am
GoldenGoose wrote: Tue Oct 13, 2020 10:56 am

Why I didnt buy? It is because I am not familiar with it and not interested. As simple as that. Now if you let me know the 30X 50X gain stocks you bought, I will be interested.

GoldenGoose,

1) In summary, you do not believe in Warren Buffett enough to invest with him. So, why waste your time with his advice?


2) My 30X to 50X stocks are for entertainment only. It is never meant to make real money for me.

3) My main portfolio can reach my goal with a 5% nominal return.


KlangFool
I dont have a tendency to blindly follow people. If thats your trait, thats fine but dont expect others to think the same.

Klangfool, I used to think that you are a swell guy/gal with the advices you have been given others. Let's stop here while you are still ahead, eh? :)

GoldenGoose,

If you want to gamble, look at SLV. ETF for Silver. And/or gold miner. Some folks believe that the precious metal is severely undervalued.

Some folks believe that the historically correct gold to silver ratio should be 10. If you believe that, silver could go up to 10X over the next few years.

https://goldprice.org/gold-silver-ratio.html

KlangFool
rascott
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Re: "Active" Index investing vs. "Passive" Index investing

Post by rascott »

GoldenGoose wrote: Tue Oct 13, 2020 5:21 am I guess when people see "active" in investing, they automatically assume its the random stock picking, frequent buy and sell approach. This is not what I advocate. I take a look at the SP500 stocks and see that there are companies in there that I would never want to own (cyclical, industry or lack of any knowledge). So why do i want to buy the entire index? I rather go through that list and select companies that I am familiar with to own. Once I bought them, I would hold them for the long term, until the situation changes. So this is what I proposed, buying companies from an index that you are comfortable with and hold for the long term. Not randomly picking, not momentum chasing, not daily trading.

The argument I have seen alot is how those studies pointing out the fact that active fund managers fail to beat the index over the long run. I acknowledge the fact that those people are smarter than I am and have more accesses than I do. However, I am not sure if that is a fair comparison for the following reasons.

1. Size - they are like a freighter while I am a speedboat due to the size of portfolio managed. They cant efficiently manage a huge portfolio like I do with my much smaller portfolio.
2. Pressure - they manage other people's money so their performance results are closely scrutinized and reported. Their income depends on their published performance. Thus they are under more pressure to tweak and trade to at least stay even or to beat the indices. I dont have any of those pressures. Yes I want to perform too but at the end of the day I answer to myself so I make decision in my own self interest.
3. Fees - the dreaded fees. I charge ridiculously high fees to myself too but I plow that money back into my holdings.
4. Taxes - with their desires to tweak comes tax liability for the funds owners. I am for long term buy and hold so yes less taxes.

I am not trying to pressure anyone into following what I proposed. I just want to lay down the theory, have a good discussion, agree to disagree, and continue our merry investing way. With that said, it had been an interesting, thought provoking conversation for me at least.

This is unmitigated nonsense. You've been given the data and information, yet you are still convinced that you are a better investor than 90% of mutual fund managers.

Good luck. There's really nothing more to debate.
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GoldenGoose
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

rascott wrote: Tue Oct 13, 2020 11:45 am
This is unmitigated nonsense. You've been given the data and information, yet you are still convinced that you are a better investor than 90% of mutual fund managers.

Good luck. There's really nothing more to debate.
Sheeesh, the pompous nature of some people who cant tolerate different opinions.
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GoldenGoose
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Re: "Active" Index investing vs. "Passive" Index investing

Post by GoldenGoose »

KlangFool wrote: Tue Oct 13, 2020 11:28 am
GoldenGoose wrote: Tue Oct 13, 2020 11:21 am
KlangFool wrote: Tue Oct 13, 2020 11:06 am
GoldenGoose wrote: Tue Oct 13, 2020 10:56 am

Why I didnt buy? It is because I am not familiar with it and not interested. As simple as that. Now if you let me know the 30X 50X gain stocks you bought, I will be interested.

GoldenGoose,

1) In summary, you do not believe in Warren Buffett enough to invest with him. So, why waste your time with his advice?


2) My 30X to 50X stocks are for entertainment only. It is never meant to make real money for me.

3) My main portfolio can reach my goal with a 5% nominal return.


KlangFool
I dont have a tendency to blindly follow people. If thats your trait, thats fine but dont expect others to think the same.

Klangfool, I used to think that you are a swell guy/gal with the advices you have been given others. Let's stop here while you are still ahead, eh? :)

GoldenGoose,

If you want to gamble, look at SLV. ETF for Silver. And/or gold miner. Some folks believe that the precious metal is severely undervalued.

Some folks believe that the historically correct gold to silver ratio should be 10. If you believe that, silver could go up to 10X over the next few years.

https://goldprice.org/gold-silver-ratio.html

KlangFool
So if its not index funds then it is gambling. That's the general BH mentality.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by willthrill81 »

GoldenGoose wrote: Tue Oct 13, 2020 12:15 pm
rascott wrote: Tue Oct 13, 2020 11:45 am
This is unmitigated nonsense. You've been given the data and information, yet you are still convinced that you are a better investor than 90% of mutual fund managers.

Good luck. There's really nothing more to debate.
Sheeesh, the pompous nature of some people who cant tolerate different opinions.
"Everyone is entitled to his own opinion, but not his own facts."
-Daniel Patrick Moynihan
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
rascott
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Re: "Active" Index investing vs. "Passive" Index investing

Post by rascott »

GoldenGoose wrote: Tue Oct 13, 2020 12:15 pm
rascott wrote: Tue Oct 13, 2020 11:45 am
This is unmitigated nonsense. You've been given the data and information, yet you are still convinced that you are a better investor than 90% of mutual fund managers.

Good luck. There's really nothing more to debate.
Sheeesh, the pompous nature of some people who cant tolerate different opinions.
Different opinions aren't the same thing as ignoring facts.

Nothing pompous about it, in the least. There are plenty of interesting debates on these forums that stretch over many pages and months/ years with differing opinions.

Best of luck with your investing.
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Re: "Active" Index investing vs. "Passive" Index investing

Post by KlangFool »

GoldenGoose wrote: Tue Oct 13, 2020 12:17 pm
KlangFool wrote: Tue Oct 13, 2020 11:28 am
GoldenGoose wrote: Tue Oct 13, 2020 11:21 am
KlangFool wrote: Tue Oct 13, 2020 11:06 am
GoldenGoose wrote: Tue Oct 13, 2020 10:56 am

Why I didnt buy? It is because I am not familiar with it and not interested. As simple as that. Now if you let me know the 30X 50X gain stocks you bought, I will be interested.

GoldenGoose,

1) In summary, you do not believe in Warren Buffett enough to invest with him. So, why waste your time with his advice?


2) My 30X to 50X stocks are for entertainment only. It is never meant to make real money for me.

3) My main portfolio can reach my goal with a 5% nominal return.


KlangFool
I dont have a tendency to blindly follow people. If thats your trait, thats fine but dont expect others to think the same.

Klangfool, I used to think that you are a swell guy/gal with the advices you have been given others. Let's stop here while you are still ahead, eh? :)

GoldenGoose,

If you want to gamble, look at SLV. ETF for Silver. And/or gold miner. Some folks believe that the precious metal is severely undervalued.

Some folks believe that the historically correct gold to silver ratio should be 10. If you believe that, silver could go up to 10X over the next few years.

https://goldprice.org/gold-silver-ratio.html

KlangFool
So if its not index funds then it is gambling. That's the general BH mentality.
I can only speak for myself and no one else. As to how and why you can speak for the general BH mentality, I have no idea.


KlangFool
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Re: "Active" Index investing vs. "Passive" Index investing

Post by cinghiale »

One non sequitur after another.

Inability of OP to interact with or reflect upon the critiques offered.

Attempts to bring the discussion back on topic ends up looking like chasing a rabbit around a field.

We’re being gamed, folks. :oops:
"We don't see things as they are; we see them as we are." Anais Nin | | "Sometimes the first duty of intelligent men is the restatement of the obvious." George Orwell
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Re: "Active" Index investing vs. "Passive" Index investing

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