A Dying Banker's Last Financial Instructions

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A Dying Banker's Last Financial Instructions

Post by Munir »

An interesting and touching article in today's NY Times about a dying banker who in his last days has seen the futility of active management a la Wall Street style and has written a short book about it with the help of a DFA advisor. See below for excerpts from the article.

http://www.nytimes.com/2010/11/27/your- ... anted=1&hp

"When Mr. Murray, a former bond salesman for Goldman Sachs who rose to the managing director level at both Lehman Brothers and Credit Suisse First Boston, decided to cease all treatment five months ago for his glioblastoma, a type of brain cancer, his first impulse was not to mourn what he couldn’t do anymore or to buy an island or to move to Paris. Instead, he hunkered down in his tiny home office here and channeled whatever remaining energy he could muster into a slim paperback. It’s called “The Investment Answer,” and he wrote it with his friend and financial adviser Daniel Goldie to explain investing in a handful of simple steps."

"Why a book? And why this subject? Nine years ago, after retiring from 25 years of pushing bonds on pension and mutual fund managers who were trying to beat the market averages over long periods of time, Mr. Murray had an epiphany about the futility of his former customers’ pursuits."

"He eventually went to work as a consultant for Dimensional Fund Advisors, a mutual fund company that rails against active money management. So when his death sentence arrived, Mr. Murray knew he had to work quickly and resolved to get the word out to as many everyday investors as he could."

“This is one of the true benefits of having a brain tumor,” Mr. Murray said, laughing. “Everyone wants to hear what you have to say.”

"He and Mr. Goldie have managed to beat the clock, finishing and printing the book themselves while Mr. Murray is still alive. It is plenty useful for anyone who isn’t already investing in a collection of index or similar funds and dutifully rebalancing every so often."

"But the mere fact that Mr. Murray felt compelled to write it is itself a remarkable story of an almost willful ignorance of the futility of active money management — and how he finally stumbled upon a better way of investing. Mr. Murray now stands as one the highest-ranking Wall Street veterans to take back much of what he and his colleagues worked for during their careers."

"The fact that Mr. Murray knew little up until that point about basic asset allocation among stocks and bonds and other investments or the failings of active portfolio management is shocking, until you consider the self-regard that his master-of-the-universe colleagues taught him. “It’s American to think that if you’re smart or work hard, then you can beat the markets,” he said."
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Post by Adrian Nenu »

Then, further subdivide between foreign and domestic. Keep in mind that putting anything less than about half of your stock money in foreign securities is a bet in and of itself, given that American stocks’ share of the overall global equities market keeps falling.
Good advice.

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A poignant story

Post by Taylor Larimore »

Hi Munir:

It is remarkable that someone so high-up in Wall Street never understood indexing and stay-the-course.

It reminds me of when I started out in the life insurance industry. I was constantly reminded and taught by the company (Mutual Benefit of New Jersey) that permanent life insurance was the best way to invest--and I believed it. :roll:

Thank you Professor Malkiel and Jack Bogle for being the first to open my brain to the truth.
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Post by Munir »

I just looked the book up on Amazon, and it has received 20 five star reviews and 1 one star review !
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Post by Munir »

Adrian Nenu wrote:
Then, further subdivide between foreign and domestic. Keep in mind that putting anything less than about half of your stock money in foreign securities is a bet in and of itself, given that American stocks’ share of the overall global equities market keeps falling.
Good advice.

Adrian
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Hi Adrian,

Is that a quote from the book?
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Post by Tiekoon »

Sounds like Gordon Murray came around to Jack Bogle’s view of investing in his last years.

Thanks for the posting. From the reviews, “The Investment Answer” looks like a worthwhile read. Think I’ll buy a few copies for Christmas stocking stuffers.
I will be sure to use Bogleheads Amazon donation link……… :-)

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Post by tfb »

It was offered as a free PDF download back in August but I haven't had the chance to read it. I didn't know the dying banker story at all. Now I will go read it.
Harry Sit, taking a break from the forums.
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Post by Adrian Nenu »

Hi Adrian,

Is that a quote from the book?
It's a quote from the article.

Too bad Mr. Murray did not (or refused to) realize this earlier in his career.

Adrian
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Re: A poignant story

Post by yobria »

Taylor Larimore wrote:It reminds me of when I started out in the life insurance industry. I was constantly reminded and taught by the company (Mutual Benefit of New Jersey) that permanent life insurance was the best way to invest--and I believed it. :roll:
Hi Taylor, that reminds me of the discussion I had yesterday over turkey with a very nice woman who sold annuities for a living. She was a believer in index funds, as long as they were wrapped in insurance products :) . I knew better than to try to convice her otherwise.

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Post by Parthenon »

tfb wrote:It was offered as a free PDF download back in August but I haven't had the chance to read it. I didn't know the dying banker story at all. Now I will go read it.
It's still free at or at least a short synopsis: http://www.theinvestmentanswerbook.com/ ... Answer.pdf

Ed
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Post by KyleAAA »

That's really sad that he spent his last days writing a book about investing.
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Post by JMacDonald »

KyleAAA wrote:That's really sad that he spent his last days writing a book about investing.
Hi,
I don't agree that it is sad. This book put meaning into his life as it comes to an end. This reminds me of one of the greatest movies I have ever seen: Ikiru http://www.amazon.com/Ikiru-Criterion-C ... 651&sr=8-1
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Post by nvboglehead »

KyleAAA wrote:That's really sad that he spent his last days writing a book about investing.
It is wonderful that three financial advisors that I know - Steve Evanson, Rick Ferri and Bill Schultheis - were working in the traditional stock brokerage industry and "saw the light". They are now making a living doing the right thing by asset allocating with low-cost, passively managed funds. It is great to be living one's truths.

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Last days

Post by Taylor Larimore »

Hi Kyle:
That's really sad that he spent his last days writing a book about investing.
I have a different perspective which is hinted at in the article:
For several years, he had thought about somehow codifying his newfound investment principles, and Mr. Goldie had a hunch that writing the book would be a life-affirming task for Mr. Murray.

“I had balance in my life, and there was no bucket list,” Mr. Murray said. “The first thing you do is think about your wife and kids, but Randi would have killed me having me around 24/7. I had to do something.”
At age 86, with cancer, I also receive satisfaction helping others achieve financial success the Boglehead way.
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Post by Beagler »

You're an exceptional man, Taylor.
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Post by Cut-Throat »

KyleAAA wrote:That's really sad that he spent his last days writing a book about investing.
It was about serving.
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Post by edge »

KyleAAA wrote:That's really sad that he spent his last days writing a book about investing.
Really? Seems natural to repent after a lifetime of peddling garbage.
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Post by KyleAAA »

edge wrote:
KyleAAA wrote:That's really sad that he spent his last days writing a book about investing.
Really? Seems natural to repent after a lifetime of peddling garbage.
It's not like we're curing deadly diseases or anything like that around here. It's good that you're spreading what you believe in, I guess, but this isn't exactly life-changing stuff in the grand scheme of things. I couldn't care less if people prefer to actively manage their money and I wouldn't feel bad selling actively-managed investments to little old ladies. Peddling whatever he peddled is nothing to feel bad about. It's selling.
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Post by DRiP Guy »

KyleAAA wrote: (snips)

this isn't exactly life-changing stuff in the grand scheme of things.

Peddling whatever he peddled is nothing to feel bad about. It's selling.
I could not disagree more:

1) It *is* life changing in that people are largely being soaked for bad advice that will not only lower their returns, it may prevent them from ever reaching their goals, or at least having sufficient understanding to see for themselves WHY they are not reaching their goals.

2) Selling is okay. But (my own morality) is it's okay, only if you really feel you are giving fair value in the offer. I think selling something you *know* is inferior to a person when you know they could do better elsewhere is not something I could ever do. I know thousands, if not millions feel far differently, I just wish we were in a world where that was not so. I feel you can have a meeting of the minds and have commerce without dishonesty, and the now-usual playing 'hide the football' on the salient facts.
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Post by digit8 »

JMacDonald wrote:
KyleAAA wrote:That's really sad that he spent his last days writing a book about investing.
Hi,
I don't agree that it is sad. This book put meaning into his life as it comes to an end. This reminds me of one of the greatest movies I have ever seen: Ikiru http://www.amazon.com/Ikiru-Criterion-C ... 651&sr=8-1

Agreed on both. Ikiru is as good as anything Kurosawa(and by extension, any director, ever)ever did, even though the samurai get all the attention in the States.

I see where Kyle is coming from to some degree- I certainly don't intend to spend my last days at work- but the bottom line is the author found his muse. His version of what would make his last days worthwhile. Few people have the wit to sit down and really decide what they want to do before the end, and fewer still have the option to really do it. I'll applaud those that can, whether it's working, visiting Europe, or making apple cider.
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A message from someone who knows time is short

Post by shawcroft »

To my colleagues:
I've always found these short books reflecting on the messages gathered from life to be very moving and sometimes a bit disquieting. I haven't read Mr. Murray's book but I will soon. Two others written by individuals facing life-shortening illnesses which I would recommend are: "To Not Fade Away" and "Chasing Daylight".
Both books are (in my view) easy to read and nicely convey the message of the individual.
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Post by edge »

KyleAAA wrote:
edge wrote:
KyleAAA wrote:That's really sad that he spent his last days writing a book about investing.
Really? Seems natural to repent after a lifetime of peddling garbage.
It's not like we're curing deadly diseases or anything like that around here. It's good that you're spreading what you believe in, I guess, but this isn't exactly life-changing stuff in the grand scheme of things. I couldn't care less if people prefer to actively manage their money and I wouldn't feel bad selling actively-managed investments to little old ladies. Peddling whatever he peddled is nothing to feel bad about. It's selling.
Um, you seem to have an extremely self-centered view. No one cares about what you care about or don't, heh. But it is interesting that you don't seem to have any principals. Hopefully it doesn't take brain cancer to wake you up.

This guy spent nearly his entire life/career doing something that at the end of his life he realized was a waste - and not just a waste - probably harmful. It almost does not get more profound than that. Especially to wealthy guys like this banker - he realized along the way that making money is frighteningly easy and there were about 100 other productive roads he could have taken to make his 30-40 million or whatever.
Last edited by edge on Fri Nov 26, 2010 11:00 pm, edited 2 times in total.
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Post by KyleAAA »

DRiP Guy wrote: 1) It *is* life changing in that people are largely being soaked for bad advice that will not only lower their returns, it may prevent them from ever reaching their goals, or at least having sufficient understanding to see for themselves WHY they are not reaching their goals.
Bad advice from your perspective, maybe. You'd be hard-pressed to prove that empirically, though. And that's the point. You're entitled to your opinion, but don't think of yourself as some sort of saint for spreading it. You're not. You're just a guy with a study that contradicts some other study somebody else has. Nobody knows for sure which is approach is right, and it doesn't really matter in any event.
DRiP Guy wrote: 2) Selling is okay. But (my own morality) is it's okay, only if you really feel you are giving fair value in the offer. I think selling something you *know* is inferior to a person when you know they could do better elsewhere is not something I could ever do. I know thousands, if not millions feel far differently, I just wish we were in a world where that was not so. I feel you can have a meeting of the minds and have commerce without dishonesty, and the now-usual playing 'hide the football' on the salient facts.
Anybody who claims to know for sure that active management is inferior to indexing is either a liar or an idiot. There are many ways to define "inferior," some of them conflicting and all of them perfectly valid. If you don't believe in active management fine, but people who sell it are not bad and they aren't necessarily wrong. It could be that indexing is inferior and we just haven't been measuring it correctly.
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Re: A poignant story

Post by grok87 »

Taylor Larimore wrote:
It is remarkable that someone so high-up in Wall Street never understood indexing and stay-the-course.
I think Upton Sinclair said it best: "It is difficult to get a man to understand something, when his salary depends upon his not understanding it. "

cheers,
RIP Mr. Bogle.
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Re: A Dying Banker's Last Financial Instructions

Post by grok87 »

Munir wrote:An interesting and touching article in today's NY Times about a dying banker who in his last days has seen the futility of active management a la Wall Street style and has written a short book about it with the help of a DFA advisor. See below for excerpts from the article.

http://www.nytimes.com/2010/11/27/your- ... anted=1&hp

"When Mr. Murray, a former bond salesman for Goldman Sachs who rose to the managing director level at both Lehman Brothers and Credit Suisse First Boston, decided to cease all treatment five months ago for his glioblastoma, a type of brain cancer, his first impulse was not to mourn what he couldn’t do anymore or to buy an island or to move to Paris. Instead, he hunkered down in his tiny home office here and channeled whatever remaining energy he could muster into a slim paperback. It’s called “The Investment Answer,” and he wrote it with his friend and financial adviser Daniel Goldie to explain investing in a handful of simple steps."

"Why a book? And why this subject? Nine years ago, after retiring from 25 years of pushing bonds on pension and mutual fund managers who were trying to beat the market averages over long periods of time, Mr. Murray had an epiphany about the futility of his former customers’ pursuits."

"He eventually went to work as a consultant for Dimensional Fund Advisors, a mutual fund company that rails against active money management. So when his death sentence arrived, Mr. Murray knew he had to work quickly and resolved to get the word out to as many everyday investors as he could."

“This is one of the true benefits of having a brain tumor,” Mr. Murray said, laughing. “Everyone wants to hear what you have to say.”

"He and Mr. Goldie have managed to beat the clock, finishing and printing the book themselves while Mr. Murray is still alive. It is plenty useful for anyone who isn’t already investing in a collection of index or similar funds and dutifully rebalancing every so often."

"But the mere fact that Mr. Murray felt compelled to write it is itself a remarkable story of an almost willful ignorance of the futility of active money management — and how he finally stumbled upon a better way of investing. Mr. Murray now stands as one the highest-ranking Wall Street veterans to take back much of what he and his colleagues worked for during their careers."

"The fact that Mr. Murray knew little up until that point about basic asset allocation among stocks and bonds and other investments or the failings of active portfolio management is shocking, until you consider the self-regard that his master-of-the-universe colleagues taught him. “It’s American to think that if you’re smart or work hard, then you can beat the markets,” he said."
great article- thanks for posting...
RIP Mr. Bogle.
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Post by zhiwiller »

Nihilism is fun as a philosophical exercise, but in real life I like to have principles.
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Post by DRiP Guy »

KyleAAA wrote:
DRiP Guy wrote: 1) It *is* life changing in that people are largely being soaked for bad advice that will not only lower their returns, it may prevent them from ever reaching their goals, or at least having sufficient understanding to see for themselves WHY they are not reaching their goals.
You'd be hard-pressed to prove that empirically, though.
Not really, either empirically or formulaically, if we allow the following:

a) Given: the market provides a return on investment for a period, "X",
b) Given: active managers extract management and/or advisory fees for their 'services', taken from that return, "X", and in addition, fees and expenses are taken from "X" as well, which include trading costs - I rather safely presume higher for active than passive. Let us call the aggregate return here: "X-(A+F1+E1)"
c) Passive investors, in aggregate receive market returns that are less ONLY the fees and expenses [hopefully very low cost!]: "X-(F2+E2)"
d) I am taking it as AXIOMATIC that the universe of fees and expenses for Passive investors (F2 & E2) are lower than the universe of fees and expenses taken by all active managers (F1 & F2), irrespective of the additional active management costs (A).
e) If you agree with all of the above, then simply as a matter of arithmetic,
"X-(A+F1+E1)" is a lesser amount than:
"X-(F2+E2)", where "A" is a positive non-zero amount, and where (F2+F2) is equal to or less than (F1+E1)

That establishes the formulaic "truth" quite compellingly, IMHO.

As to the empirical I would say that there are no losers reported for active management about like there are no losers in Vegas -- in perfectly analogous fashion to the gambling industry, the active management industry and it's customers are inclined to hype the few successes, while ignoring the failures, which, ON THE WHOLE, simply must all total out to be no greater than "X", the market return, which, as established above, is more wholly captured by passive investors than active ones.
And that's the point. You're entitled to your opinion, but don't think of yourself as some sort of saint for spreading it. You're not. You're just a guy with a study that contradicts some other study somebody else has. Nobody knows for sure which is approach is right, and it doesn't really matter in any event.
Wow. Well, that is certainly *your* (rather emotional) opinion, but unfortunately for you, my own opinion is backed up with the facts, which contradict you:

* I don't think I'm a saint
* I am not referencing a study, but pure logic
* Some people DO know which approach is "right", that is, if "right" is defined as "the method leading to both the best overall returns for the population, as well as the greatest probability that an individual investor will capture most of the market return."
* I assure you, it very much *does* matter!

Anybody who claims to know for sure that active management is inferior to indexing is either a liar or an idiot. There are many ways to define "inferior," some of them conflicting and all of them perfectly valid. If you don't believe in active management fine, but people who sell it are not bad and they aren't necessarily wrong. It could be that indexing is inferior and we just haven't been measuring it correctly.
See above for my reply, already established. If you care to define a different metric, i.e. best returns for those in the stock selling industry, then we can have that dialog. But as defined above -- which approach can capture most of the market return for it's CUSTOMERS -- there is simply no debate, as far as I can discern, using the very very best of my objective reasoning powers.

Cheers!

8)
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Post by Cloud »

I find it funny that KyleAAA constantly champions active management on this form and is so passionate about it too....

Think I'll add "A Dying Banker’s Last Instructions" to my Christmas list. I should get a copy for my friend who left his job at Best Buy to become a broker, or what ever you want to call him, at UBS. He makes cold calls all day trying to build up a client list so he can rob them with his management fees. He's a great salesmen and really likes his job. We discussed many times our differences in opinion on what he's really selling, but I don't fault every salesman like him. They truly believe in what they're selling, but then again, I guess when your job depends on it you must.
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Post by KyleAAA »

DRiP Guy wrote: Not really, either empirically or formulaically, if we allow the following:

a) Given: the market provides a return on investment for a period, "X",
b) Given: active managers extract management and/or advisory fees for their 'services', taken from that return, "X", and in addition, fees and expenses are taken from "X" as well, which include trading costs - I rather safely presume higher for active than passive. Let us call the aggregate return here: "X-(A+F1+E1)"
c) Passive investors, in aggregate receive market returns that are less ONLY the fees and expenses [hopefully very low cost!]: "X-(F2+E2)"
d) I am taking it as AXIOMATIC that the universe of fees and expenses for Passive investors (F2 & E2) are lower than the universe of fees and expenses taken by all active managers (F1 & F2), irrespective of the additional active management costs (A).
e) If you agree with all of the above, then simply as a matter of arithmetic,
"X-(A+F1+E1)" is a lesser amount than:
"X-(F2+E2)", where "A" is a positive non-zero amount, and where (F2+F2) is equal to or less than (F1+E1)
Lovely, but quite useless. As an investor, I don't care if active management as a WHOLE can't beat passive management. I only care if I can. Your logic has no real world application.


Your argument also completely ignores the fact that the universe of investable assets is exponentially larger than the list of PUBLICLY-TRADED universe of investable assets.

DRiP Guy wrote: Wow. Well, that is certainly *your* (rather emotional) opinion, but unfortunately for you, my own opinion is backed up with the facts, which contradict you:
It's emotional to assert that there is no way to know for certain which type of management is best? That's a novel argument.
DRiP Guy wrote: * I am not referencing a study, but pure logic
Logic only works in mathematics and philosophy. Its real-world record isn't so great.
DRiP Guy wrote: * Some people DO know which approach is "right", that is, if "right" is defined as "the method leading to both the best overall returns for the population, as well as the greatest probability that an individual investor will capture most of the market return."
No, some people THINK they know which approach is right. But nobody really does. Your argument is akin to saying "I must be right because I can't think of a way that I'm not." That may be true, but you probably didn't think of everything. You don't know what you don't know.

DRiP Guy wrote: But as defined above -- which approach can capture most of the market return for it's CUSTOMERS -- there is simply no debate, as far as I can discern, using the very very best of my objective reasoning powers.
Let's examine that argument for a second. People use this argument often. "It's so obvious," or "everybody knows x." If it's so obvious and there is simply no debate on the subject, why do people endlessly debate it? That should give you a clue right there.
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Post by KyleAAA »

Cloud wrote:I find it funny that KyleAAA constantly champions active management on this form and is so passionate about it too...
I have certainly never championed active management on this forum. I do defend it from dogmatic, close-minded attacks, but that's not the same as championing it. I fall firmly into the passive management camp and my own portfolio reflects that.
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Post by cjackson0 »

KyleAAA wrote:
DRiP Guy wrote: Not really, either empirically or formulaically, if we allow the following:

a) Given: the market provides a return on investment for a period, "X",
b) Given: active managers extract management and/or advisory fees for their 'services', taken from that return, "X", and in addition, fees and expenses are taken from "X" as well, which include trading costs - I rather safely presume higher for active than passive. Let us call the aggregate return here: "X-(A+F1+E1)"
c) Passive investors, in aggregate receive market returns that are less ONLY the fees and expenses [hopefully very low cost!]: "X-(F2+E2)"
d) I am taking it as AXIOMATIC that the universe of fees and expenses for Passive investors (F2 & E2) are lower than the universe of fees and expenses taken by all active managers (F1 & F2), irrespective of the additional active management costs (A).
e) If you agree with all of the above, then simply as a matter of arithmetic,
"X-(A+F1+E1)" is a lesser amount than:
"X-(F2+E2)", where "A" is a positive non-zero amount, and where (F2+F2) is equal to or less than (F1+E1)
Lovely, but quite useless. As an investor, I don't care if active management as a WHOLE can't beat passive management. I only care if I can. Your logic has no real world application.
That seems akin to playing the lottery knowing full well that the odds are stacked against you. The lottery is strictly random where one can claim to be able to predict the movements of a stock / bond / commodity / etc, but in the end active management is really about saying that you can beat the averages by more than the extra cost you are incurring by being active.

To me, that is pretty applicable in the real world. When my money's on the line, I'd like to know that I will capture the market return (minus expenses) instead of hoping AGAINST THE AVERAGES that I'll beat it.
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Post by KyleAAA »

cjackson0 wrote: That seems akin to playing the lottery knowing full well that the odds are stacked against you. The lottery is strictly random where one can claim to be able to predict the movements of a stock / bond / commodity / etc, but in the end active management is really about saying that you can beat the averages by more than the extra cost you are incurring by being active.

To me, that is pretty applicable in the real world. When my money's on the line, I'd like to know that I will capture the market return (minus expenses) instead of hoping AGAINST THE AVERAGES that I'll beat it.
How is that at all akin to playing the lottery? There is absolutely no reason the majority of investors can't earn above-average returns. Additionally, you have no way of knowing what my odds of success are. You are assuming they are low, but are they really? Nobody has ever measured the odds so far as I know. Perhaps the odds are heavily in my favor.
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Post by Hedonic Regression »

Cloud wrote:Think I'll add "A Dying Banker’s Last Instructions" to my Christmas list. I should get a copy for my friend who left his job at Best Buy to become a broker, or what ever you want to call him, at UBS. He makes cold calls all day trying to build up a client list so he can rob them with his management fees. He's a great salesmen and really likes his job. We discussed many times our differences in opinion on what he's really selling, but I don't fault every salesman like him. They truly believe in what they're selling, but then again, I guess when your job depends on it you must.
It's also plain market-forces. If you have a new machine that saves a company $XXX, you still charge what the market will bear, which in the limit is $XXX-risk&overhead. It's only market competition that forces you to bring down your prices.

Now, if someone has a market-beating strategy, there's no reason other than charity to share it with investors. That person can charge sufficient management fees until the return to the investor only slightly beats the market.

There's no reason for a management to give a free-ride to his investors, is there? So long as the investment is still enticing enough, for someone to buy, he can sell. I also feel the market is inefficient in that it is more likely people will follow a hot-shot manager than to demand a sufficient risk premium on active management.

Personally, I believe there are market-beating managers out there, but they command a high premium. There are also losing managers out there who due to good sales tactics still manage to command an undeserved premium. Somewhere out there is the budding new manager who hasn't proven himself yet, but she or he will be difficult to find.
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Post by Cloud »

Hedonic Regression wrote:
Cloud wrote:Think I'll add "A Dying Banker’s Last Instructions" to my Christmas list. I should get a copy for my friend who left his job at Best Buy to become a broker, or what ever you want to call him, at UBS. He makes cold calls all day trying to build up a client list so he can rob them with his management fees. He's a great salesmen and really likes his job. We discussed many times our differences in opinion on what he's really selling, but I don't fault every salesman like him. They truly believe in what they're selling, but then again, I guess when your job depends on it you must.
It's also plain market-forces. If you have a new machine that saves a company $XXX, you still charge what the market will bear, which in the limit is $XXX-risk&overhead. It's only market competition that forces you to bring down your prices.

Now, if someone has a market-beating strategy, there's no reason other than charity to share it with investors. That person can charge sufficient management fees until the return to the investor only slightly beats the market.

There's no reason for a management to give a free-ride to his investors, is there? So long as the investment is still enticing enough, for someone to buy, he can sell. I also feel the market is inefficient in that it is more likely people will follow a hot-shot manager than to demand a sufficient risk premium on active management.

Personally, I believe there are market-beating managers out there, but they command a high premium. There are also losing managers out there who due to good sales tactics still manage to command an undeserved premium. Somewhere out there is the budding new manager who hasn't proven himself yet, but she or he will be difficult to find.
Come on, he worked at Best Buy prior to his job at UBS. He's not beating anything or giving anyone a free ride, just a ride! hah...
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Post by DRiP Guy »

KyleAAA wrote: There is absolutely no reason the majority of investors can't earn above-average returns.
Um, well, outside of Lake Wobegon, there kinda is.

Unless you want to single out a 5 or 10% sub-population which is funding the outsized gains of the remainder.... seems a heavy burden to bear... what would induce anyone to do so...?
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Post by Noobvestor »

This is a great thread.

I think it's great that this guy did what he did in writing this book, and hope he enjoyed doing it (which, it sounds like, he did). Good for him!

I think it's great that there are all of these passionate folks (like Taylor) who sit around here guiding us noobs away from making horrible decisions that could destroy our future wealth. Good for them!

I think it's great that there is a discussion going on the side (never-ending though, it would seem) about active/passive. I just come back to the ten boxes: do you want the 7K or do you want to take a chance on getting 8K, 9K, etc...? To me, the 7K sounds just fine. Good for us!

Noob
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Post by iceport »

DRiP Guy wrote:
KyleAAA wrote: There is absolutely no reason the majority of investors can't earn above-average returns.
Um, well, outside of Lake Wobegon, there kinda is.
Okay, that's funny.

8)

--Pete
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Post by abuss368 »

Amazing that someone that high up on Wall Street was so out of touch.

A sad story.
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Post by Cut-Throat »

abuss368 wrote:Amazing that someone that high up on Wall Street was so out of touch.
Actually, I think that is THE Job Requirement.
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Post by S&L1940 »

Parthenon wrote:
tfb wrote:It was offered as a free PDF download back in August but I haven't had the chance to read it. I didn't know the dying banker story at all. Now I will go read it.
It's still free at or at least a short synopsis: http://www.theinvestmentanswerbook.com/ ... Answer.pdf

Ed
the link is not a synopsis but a promo for the book. the Times article outlines more of the basic (Bogle) philosophy from the book than what is in the PDF

good story, another revelation about the misdirection coming from Wall Street that the public will ignore. sad about the author's illness...

be well
Don't it always seem to go * That you don't know what you've got * Till it's gone
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Post by beoba »

KyleAAA wrote:There is absolutely no reason the majority of investors can't earn above-average returns.
lol
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Post by RTR2006 »

I read the article and was not all that sympathetic. He's been at the top of the banking industry, and in his final days repents to acknowledge that passive index investing is the way to go.

No one from Wall Street stepped forward to say that our economy was being taken for a ride, and now the situation is no different than it was before the meltdown.

I think he is looking for absolution, and I don't buy it. If he wasn't dying, I wonder how much of his wealth he'd have donated to charity by now....

:thumbsdown

RTR
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Post by natureexplorer »

How will his former clients feel now?
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Post by ftobin »

KyleAAA wrote:There is absolutely no reason the majority of investors can't earn above-average returns.
While this is technically true, it is considerate to clarify the statement by substitution something for confusing word "average": "There is absolutely no reason the majority of investors can't earn above-index returns."

To all those who are mocking the statement, consider a hypothetical that clarifies how it can be true. Pretend 51% of investors hold 30% of the market. It's certainly possible that this 30% of the market outperforms the other 70%. If so, this majority of investors would have outperformed the index.
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Post by beoba »

ftobin wrote:To all those who are mocking the statement, consider a hypothetical that clarifies how it can be true. Pretend 51% of investors hold 30% of the market. It's certainly possible that this 30% of the market outperforms the other 70%. If so, this majority of investors would have outperformed the index.
That is giving equal weighting to eg a state pension fund and an individual investor. It's equivalent to doing an evaluation of a company's size where you ignore the market cap and instead use shareholder count. Talk about twisting the numbers.

So lets say you lucked out and picked a top quartile winner for the last year. Unfortunately, the fund is 80% likely to drop out of that position by the following year. Even a mere 'above average' fund is 58% likely to be below average the next year. You wouldn't have to just be lucky once, you'd have to keep being lucky, switching between funds year after year, just to stay ahead. You'd basically need to actively manage your actively managed funds. Better call a 2% AUM fund picker to handle this!
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Post by ftobin »

beoba wrote:
ftobin wrote:To all those who are mocking the statement, consider a hypothetical that clarifies how it can be true. Pretend 51% of investors hold 30% of the market. It's certainly possible that this 30% of the market outperforms the other 70%. If so, this majority of investors would have outperformed the index.
That is giving equal weighting to eg a state pension fund and an individual investor. It's equivalent to an evaluation of company stock where you ignore market cap and instead use shareholder count. Talk about twisting the numbers.
I was merely pointing out that the original quote was technically possible, and stand by what I said in attempting to help clarify things for others.
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Post by beoba »

ftobin wrote:I was merely pointing out that the original quote was technically possible, and stand by what I said in attempting to help clarify things for others.
Ah, gotcha. Yeah I was a little harsher than really intended there, sorry.
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Post by DRiP Guy »

ftobin wrote:I was merely pointing out that the original quote was technically possible, and stand by what I said in attempting to help clarify things for others.
:yawn

I believe the 'technically possible' was given MUCH more than a reasonable nod in my initial reply -- one which you elected not to answer:

"How would such an improbability be likely occur?*"

* more literally, I asked:
Unless you want to single out a 5 or 10% sub-population which is funding the outsized gains of the remainder.... seems a heavy burden to bear... what would induce anyone to do so...?
If you do chose to finally answer that question, (ahem) then I am ready with just one follow-up question:

"How long to you suppose such an unnatural condition would persist?"

In closing, I think your reply did the opposite of 'clarifying things for others.' It actually asserts an unstable oddity, with no substantiation on how you suppose such a situation would occur, and then (apparently?) promote that as your argument for active management! I find that.... odd.
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Post by KyleAAA »

Suppose you have a population of 30 individuals. 29 of these individuals earn $30,000 per year and 1 individual earns $10,000 pear year. The average salary of this group is just over $29,000 per year. In this case, 29 of the 30 people (over 96%) earn an above-average salary. It's a very common misconception that only half the population can be above-average. In actual fact, the vast majority can be and sometimes are. This is nothing new.

The practical parallel is that just because the giant pension funds and mutual funds can't beat the market in no way implies the majority of individual investors can't, which is EXACTLY what I see asserted in this forum time and again. That simply isn't true, doesn't make sense, and is entirely illogical.
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Post by beoba »

So where have you seen examples of this actually occurring? Do you measure company size by shareholder count rather than market cap?
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