Patience is very important to profit from the stock market

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selftalk
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Patience is very important to profit from the stock market

Post by selftalk » Tue Sep 12, 2017 4:49 pm

I listened to an interview the other day and when the subject of tracking error came up I became all ears. The tracking error costs investors enormous sums of money in times past and most probably will in the future. An example would be in the past 6 yeas or so the emerging markets were for all intents and purposes flat in price. How many readers of this website initially bought that asset class 6 years ago and as the days, months and years went by finally got so frustrated that it was under performing and sold out. The same thing goes for the international asset class also. It seems like the financial planner people and investment writers say diversify so you can be in a bull market somewhere probably to ease your nerves so you hang in there. Just suppose you bought the emerging market asset class because it was cheaper via value measures than the rest of the asset classes and performed the worst in returns of the asset classes over the past 6 years. You would have a lot of shares accumulated at low prices and you wouldn`t know when it would go up in price if ever. The tracking error would be enormous to the S&P 500. But when the day came to start its bull run you would begin to profit handsomely by owning so many shares. My question would be what percentage of people would have the staying power to keep on accumulating shares over a long time all the while not seeing a rise in prices never knowing when the bull would come and also seeing the S&P 500 rising all the while ? It comes to thought that`s how it must be with buying land as an investment.

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Re: Patience is very important to profit from the stock market

Post by Fallible » Tue Sep 12, 2017 5:16 pm

selftalk wrote:
Tue Sep 12, 2017 4:49 pm
... My question would be what percentage of people would have the staying power to keep on accumulating shares over a long time all the while not seeing a rise in prices never knowing when the bull would come and also seeing the S&P 500 rising all the while ? ...
My question: Shouldn't these investors go in realizing there was no way to know for certain what prices would do or when, i.e., knowing patience would be needed?
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selftalk
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Re: Patience is very important to profit from the stock market

Post by selftalk » Tue Sep 12, 2017 5:20 pm

Fallable, telling them is 1 thing experiencing it is something else. It`s real tough to do.

livesoft
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Re: Patience is very important to profit from the stock market

Post by livesoft » Tue Sep 12, 2017 5:32 pm

Yes, tracking error is a big deal. Many people don't know what it is. Nor do they know what the return of their portfolio is. So it simply does not bother them.

For instance, let's look at Wellington so far in 2017. It is trailing a similar allocation to index funds (VSMGX) by about 2.25% so far in 2017. That's a huge tracking error.
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Re: Patience is very important to profit from the stock market

Post by arcticpineapplecorp. » Tue Sep 12, 2017 5:41 pm

livesoft wrote:
Tue Sep 12, 2017 5:32 pm
Yes, tracking error is a big deal. Many people don't know what it is. Nor do they know what the return of their portfolio is. So it simply does not bother them.

For instance, let's look at Wellington so far in 2017. It is trailing a similar allocation to index funds (VSMGX) by about 2.25% so far in 2017. That's a huge tracking error.
but they're not exactly alike. close, but different. and different makes the difference (not to mention the cost difference too). Now someone might think they're the same and therefore use them both for tracking purposes, but that's not the appropriate benchmarks to be using.
In fact the benchmarks are:

1. LS Moderate is "Moderate Growth Composite Index** (Benchmark)" which is:
**Weighted 36% CRSP US Total Market Index, 28% Bloomberg Barclays U.S. Aggregate Float Adjusted Index, 24% FTSE Global All Cap ex US Index, and 12% Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index as of July 1, 2015. In prior periods, the composite was 42% CRSP US Total Market Index, 32% Bloomberg Barclays U.S. Aggregate Float Adjusted Index, 18% FTSE Global All Cap ex US Index, and 8% Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index through June 30, 2015; 42% MSCI US Broad Market Index, 40% Bloomberg Barclays U.S. Aggregate Float Adjusted Index, and 18% MSCI ACWI ex USA IMI Index through June 2, 2013; 50% MSCI US Broad Market Index, 40% Bloomberg Barclays U.S. Aggregate Bond Index (with the Bloomberg Barclays U.S. Aggregate Float Adjusted Index used after December 31, 2009), and 10% MSCI EAFE Index through December 15, 2010; and 50% Dow Jones U.S. Total Stock Market Index, 40% Bloomberg Barclays U.S. Aggregate Bond Index, and 10% MSCI EAFE Index through April 22, 2005. International stock benchmark returns are adjusted for withholding taxes.
2. while the benchmark of Wellington is "Wellington Composite Index** (Benchmark)" which is "**65% S&P 500 Index and 35% Lehman U.S. Long Credit AA or Better Bond Index through February 29, 2000; 65% S&P 500 Index and 35% Bloomberg Barclays U.S. Credit A or Better Bond Index thereafter."

Not the same benchmarks for both.

Also this is wellington:

Image
source: https://personal.vanguard.com/us/funds/ ... =INT#tab=2

while this is LS Moderate:

Image
source: https://personal.vanguard.com/us/funds/ ... 0914#tab=2
Last edited by arcticpineapplecorp. on Tue Sep 12, 2017 5:44 pm, edited 2 times in total.
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Re: Patience is very important to profit from the stock market

Post by Fallible » Tue Sep 12, 2017 5:43 pm

selftalk wrote:
Tue Sep 12, 2017 5:20 pm
Fallable, telling them is 1 thing experiencing it is something else. It`s real tough to do.
Right. As Buffett said, "The stock market is a device for transferring money from the impatient to the patient."
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Re: Patience is very important to profit from the stock market

Post by livesoft » Tue Sep 12, 2017 5:46 pm

arcticpineapplecorp. wrote:
Tue Sep 12, 2017 5:41 pm
Not the same benchmarks for both.
You made me laugh because if you asked 5 people what the benchmark for the Wellington they own is, all 5 would probably ask back "What's a benchmark?"
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Re: Patience is very important to profit from the stock market

Post by jebmke » Tue Sep 12, 2017 5:48 pm

This is where easily accessible information works against you. For many years, the largest share of our assets were only reported on an annual basis. It made it much easier to ignore the tracking error.
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Re: Patience is very important to profit from the stock market

Post by Slacker » Tue Sep 12, 2017 6:01 pm

selftalk wrote:
Tue Sep 12, 2017 5:20 pm
Fallable, telling them is 1 thing experiencing it is something else. It`s real tough to do.
In 2008, I had very little money in a 401K at the time, but I remember getting annoyed at seeing my 401K going down faster than my little 5% per paycheck.

I didn't know anything about rebalancing at the time so I didn't try to make any interfund transfers between bonds and stocks until near the bottom in March 2009 where I decided it was "good enough" and sold all my bonds to buy all VFINX 500 (vanguard S&P500). I was quite pleased when it ticked back up steadily after that and felt like a genius for having sold my bonds at basically the lowest point.

Having lived through that experience, I definitely feel more ready today to go through a similar market disruption.

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Re: Patience is very important to profit from the stock market

Post by dbr » Tue Sep 12, 2017 6:33 pm

Comparing an asset that is not the S&P 500 to the S&P 500 makes no sense. I don't understand calling this an error of any kind. Tracking error is when a fund that intends to follow a certain index fails to actually do so. The tracking in question is the objective of tracking the index.

What actually occurs is a question of comparing the actual performance of an investment with it's expected performance. To speak statistically that is measured by the scatter in the results that might possibly materialize compared to the mean of that distribution. As time goes on that scatter actually increases so no amount of patience is going to help.

If the issue at question is that one portfolio selection will deliver greater wealth than a different portfolio selection, then that expectation can be based on selecting a portfolio that has greater expected return than the other. Over time the outcomes for the first will drift as a distribution higher than the outcomes for the second. If one looks at the probability of ending up with more wealth the one way than the other that probability increases with time, so in that sense patience is required. It may be there are some bizarre hypothetical distributions where this is not true, but that would take thinking about.

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Re: Patience is very important to profit from the stock market

Post by Random Walker » Tue Sep 12, 2017 8:21 pm

Dbr,
Everything you say is correct, but I think you're missing the point. We're not talking about informed investors critically looking at performance the way statisticians and pros should and would. Instead we're talking about the guy subject to the psychological difficulty of comparing his investments to an inappropriate, common, popular index that everyone keeps an eye on. Tracking error regret (underperforming an inappropriately chosen popular index) is completely a psychological / behavioral issue.

Dave

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Re: Patience is very important to profit from the stock market

Post by Johnnie » Tue Sep 12, 2017 8:39 pm

Fallible wrote:
Tue Sep 12, 2017 5:43 pm
Right. As Buffett said, "The stock market is a device for transferring money from the impatient to the patient."
Or as J.P. Morgan said about the flip side of today's market, “In bear markets, stocks return to their rightful owners.” :D

~~~~~~~~

Question: Does a buy-and-hold investor who has carefully considered and set his asset allocations for the long term need to care about tracking error? It almost feels like "peeking."

ETA, Random Walker may have answered that in the post before this one.
"I know nothing."

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Re: Patience is very important to profit from the stock market

Post by staythecourse » Tue Sep 12, 2017 11:30 pm

To be honest, I didn't even realize EM (20% of my portfolio) has been flat the last 6 years until you mentioned it. I just keep buying whatever is lagging in my portfolio every month and don't stress over the current value of anything. The "patience part" is not really that difficult as I already know and TRULY believe every asset class has its run. Each will be up, down, or sideways at some point.

Personally, I think asset allocation and the math in today's world of personal finance has turned the focus of investors to less important factors (yes I don't think asset allocation is that important as opposed to other factors) and away from what is really important, i.e. Saving, making a lot of money, LBYM, coming up with a plan that fits your time horizon, staying the course, having liquidity if/ when needed, etc...

Good luck.
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Re: Patience is very important to profit from the stock market

Post by nedsaid » Wed Sep 13, 2017 12:54 am

selftalk wrote:
Tue Sep 12, 2017 4:49 pm
I listened to an interview the other day and when the subject of tracking error came up I became all ears. The tracking error costs investors enormous sums of money in times past and most probably will in the future. An example would be in the past 6 yeas or so the emerging markets were for all intents and purposes flat in price. How many readers of this website initially bought that asset class 6 years ago and as the days, months and years went by finally got so frustrated that it was under performing and sold out. The same thing goes for the international asset class also. It seems like the financial planner people and investment writers say diversify so you can be in a bull market somewhere probably to ease your nerves so you hang in there. Just suppose you bought the emerging market asset class because it was cheaper via value measures than the rest of the asset classes and performed the worst in returns of the asset classes over the past 6 years. You would have a lot of shares accumulated at low prices and you wouldn`t know when it would go up in price if ever. The tracking error would be enormous to the S&P 500. But when the day came to start its bull run you would begin to profit handsomely by owning so many shares. My question would be what percentage of people would have the staying power to keep on accumulating shares over a long time all the while not seeing a rise in prices never knowing when the bull would come and also seeing the S&P 500 rising all the while ? It comes to thought that`s how it must be with buying land as an investment.
I suppose an academic will come up with the "Bogleheads' Thread Contrary Indicator", which pretty much means that there is a big buying opportunity when you see threads like, "Why do we need (fill in the blank) anyway?" Usually what goes in the blank is an asset class that we don't need is something that hasn't performed well lately. When the indicator flashes, it is time to buy.

Here are some things that Bogleheads don't need are below.

Emerging Markets - Larry Swedroe recommended these because of their valuations.

International Stocks in general - Taylor Larimore, King of the Bogleheads, started a thread and stated that he no longer owned International stocks. The biggest buy signal of all time.

TIPS - Fewer and fewer Bogleheads believe in this. Grok87 and his TIPS ladders are about the only
thing holding up the price. TIPS don't represent value now but nobody around here thinks we will ever see inflation again in our lifetime, hence inflation must be right around the corner.

Value stocks - a strong, pounding the table buy recommendation since Packer16, essentially threw in the towel. He is the next to the last believer in Value on this forum. I think I am the only one left. When I finally throw in the towel, that is the signal to sell everything you have and buy Value stocks. :wink:
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Re: Patience is very important to profit from the stock market

Post by Grt2bOutdoors » Wed Sep 13, 2017 7:49 am

livesoft wrote:
Tue Sep 12, 2017 5:32 pm
Yes, tracking error is a big deal. Many people don't know what it is. Nor do they know what the return of their portfolio is. So it simply does not bother them.

For instance, let's look at Wellington so far in 2017. It is trailing a similar allocation to index funds (VSMGX) by about 2.25% so far in 2017. That's a huge tracking error.
YTD VWELX (er. 0.16) is up 6.20%. YTD VSMGX (0.14 er) is up 7.42%. What's the difference? The difference is the exposure or lack there of as compared to Lifestrategy Moderate Growth in international equities. While Wellington can and does invest in international equities it's not mandated to hold a 30 or 40% slice as is the Lifestrategy funds. However, if you look at Wellington's returns over the 1,3,5 and 10 year periods, it performs as well if not better. Stay the course. (btw, I do hold Wellington in my Roth and might I add buying more - value stocks will have their day in the sun again).
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Re: Patience is very important to profit from the stock market

Post by livesoft » Wed Sep 13, 2017 9:13 am

Grt2bOutdoors wrote:
Wed Sep 13, 2017 7:49 am
YTD VWELX (er. 0.16) is up 6.20%. YTD VSMGX (0.14 er) is up 7.42%.
Careful because that is not YTD, that might be to end of August, but I don't know. VSMGX is up 10.64% YTD as of yesterday.
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Re: Patience is very important to profit from the stock market

Post by dbr » Wed Sep 13, 2017 9:22 am

Random Walker wrote:
Tue Sep 12, 2017 8:21 pm
Dbr,
Everything you say is correct, but I think you're missing the point. We're not talking about informed investors critically looking at performance the way statisticians and pros should and would. Instead we're talking about the guy subject to the psychological difficulty of comparing his investments to an inappropriate, common, popular index that everyone keeps an eye on. Tracking error regret (underperforming an inappropriately chosen popular index) is completely a psychological / behavioral issue.

Dave
You may be right, but I put comparing to an inappropriate index in the category of ignorance rather than in the category of behavior. I suppose an argument can be made that jumping to conclusions about one's investments before making an effort to understand what one has is a behavioral failing.

Livesoft posts another example just above where two investments that don't hold the same kind of assets perform differently from each other. He then goes on to explain what the difference is, thus correcting possible ignorance. I really, really cannot swallow the idea that different holdings behaving differently is some kind of "error" let alone an error that can get a fancy name like that. This is an objectionable misuse of the English language.

A last comment is that this whole thing is so fundamentally simple I don't even understand how it rises to a level of discussion.

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Re: Patience is very important to profit from the stock market

Post by dbr » Wed Sep 13, 2017 9:34 am

Just an added comment: If the object in investing differently from the S&P 500 is to get a different return than the S&P 500, wouldn't it be odd to call actually getting a different return than the S&P 500 an "error." Note the expected return could be more or less as a person might intentionally invest for less risk expecting less return.

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Re: Patience is very important to profit from the stock market

Post by Greg in Idaho » Wed Sep 13, 2017 9:39 am

Random Walker wrote:
Tue Sep 12, 2017 8:21 pm
Dbr,
Everything you say is correct, but I think you're missing the point. We're not talking about informed investors critically looking at performance the way statisticians and pros should and would. Instead we're talking about the guy subject to the psychological difficulty of comparing his investments to an inappropriate, common, popular index that everyone keeps an eye on. Tracking error regret (underperforming an inappropriately chosen popular index) is completely a psychological / behavioral issue.

Dave
Then why call it tracking error when you apparently mean something else?

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Re: Patience is very important to profit from the stock market

Post by Random Walker » Wed Sep 13, 2017 9:40 am

Dbr,
I think it's definitely worthy of discussion. For example, I consider myself sort of varsity level Boglehead. I'm a factor junkie and have a super torqued (and expensive by BH standards) portfolio. Even I cannot help myself from every day looking at how each of my individual assets performed relative to the S&P500. I think we all behaviorally are searching for a baseline anchor, no matter how inappropriate or illogical it is. The key is to realize it's senseless and to never act on it.

Dave

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Re: Patience is very important to profit from the stock market

Post by Grt2bOutdoors » Wed Sep 13, 2017 9:46 am

livesoft wrote:
Wed Sep 13, 2017 9:13 am
Grt2bOutdoors wrote:
Wed Sep 13, 2017 7:49 am
YTD VWELX (er. 0.16) is up 6.20%. YTD VSMGX (0.14 er) is up 7.42%.
Careful because that is not YTD, that might be to end of August, but I don't know. VSMGX is up 10.64% YTD as of yesterday.
You're right, the Vanguard tool is wrong. It's up 8.56% YTD.
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Re: Patience is very important to profit from the stock market

Post by dbr » Wed Sep 13, 2017 9:57 am

Greg in Idaho wrote:
Wed Sep 13, 2017 9:39 am
Random Walker wrote:
Tue Sep 12, 2017 8:21 pm
Dbr,
Everything you say is correct, but I think you're missing the point. We're not talking about informed investors critically looking at performance the way statisticians and pros should and would. Instead we're talking about the guy subject to the psychological difficulty of comparing his investments to an inappropriate, common, popular index that everyone keeps an eye on. Tracking error regret (underperforming an inappropriately chosen popular index) is completely a psychological / behavioral issue.

Dave
Then why call it tracking error when you apparently mean something else?
It is possible the terminology originates with Larry Swedroe. He has been a strong advocate of "factor" investing which results in portfolios quite different from total market or S&P 500 portfolios. Larry does an excellent job of explaining and warning people about the nuances of taking such a strategy, which among others is that portfolios very different from total market might have a higher expected return and/or lower risk, yet for extended periods of time not deliver those advantages. As an example small cap value stocks might return less than the total market for a long time even though expected to have a higher return. The point is the point made by the OP that one has to be patient about what one invests in. But back to the question, Larry refers to this discrepancy in performance as "tracking error" and more importantly he expresses concern over investor impatience as "tracking error regret." This latter "regret" is dangerous as it might result in the behavioral error of bailing out when things don't go well rather than sticking to a plan.

If this is a misreading of Larry's comments then apology is offered in advance.

My personal opinion is that this is a misuse of the term although to point out a very real concern.

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Re: Patience is very important to profit from the stock market

Post by DartThrower » Wed Sep 13, 2017 4:08 pm

I helped someone set up a portfolio using stock and bond index funds at Fidelity. The portfolio had a mix that was appropriate for her risk tolerance and objectives. We discussed this all at great length. She was pretty happy with the portfolio and seemed to "get" index investing. That was early 2016.

Fast forward to summer of 2017. Fidelity displays a bar chart on its dashboard comparing her combined portfolio to the S&P 500 index. You can guess what happened. She contacted me very concerned and confused as to why her portfolio had so badly under-performed "the market". It took quite a lot of explaining to get across the idea that her portfolio was more conservatively structured then the S&P 500 and that this "under-performance" was normal.

I then spoke with a rep from Fidelity asking them why they show, by default, a comparison of a mixed stock/bond portfolio to the S&P. The rep admitted that it could be quite misleading and basically empathized. Maybe Fidelity will change its dashboard, but probably not.

At the time I helped my friend set up the portfolio I think she understood. But over time her thinking reverted to a vague concept of matching the performance of the stock market or at least getting close to it with her investments. I wonder how she would have reacted had the stock market been way down.

Fidelity assumes a level of sophistication among its investors that is sometimes just not there.
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Re: Patience is very important to profit from the stock market

Post by dbr » Wed Sep 13, 2017 4:14 pm

DartThrower wrote:
Wed Sep 13, 2017 4:08 pm
I helped someone set up a portfolio using stock and bond index funds at Fidelity. The portfolio had a mix that was appropriate for her risk tolerance and objectives. We discussed this all at great length. She was pretty happy with the portfolio and seemed to "get" index investing. That was early 2016.

Fast forward to summer of 2017. Fidelity displays a bar chart on its dashboard comparing her combined portfolio to the S&P 500 index. You can guess what happened. She contacted me very concerned and confused as to why her portfolio had so badly under-performed "the market". It took quite a lot of explaining to get across the idea that her portfolio was more conservatively structured then the S&P 500 and that this "under-performance" was normal.

I then spoke with a rep from Fidelity asking them why they show, by default, a comparison of a mixed stock/bond portfolio to the S&P. The rep admitted that it could be quite misleading and basically empathized. Maybe Fidelity will change its dashboard, but probably not.

At the time I helped my friend set up the portfolio I think she understood. But over time her thinking reverted to a vague concept of matching the performance of the stock market or at least getting close to it with her investments. I wonder how she would have reacted had the stock market been way down.

Fidelity assumes a level of sophistication among its investors that is sometimes just not there.
It is inexcusable for investment companies to aid and abet ignorance and stupidity, by they all do.

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Re: Patience is very important to profit from the stock market

Post by selftalk » Wed Sep 13, 2017 4:20 pm

nedsaid, VTV (Large Value U.S.) tripled since the bottom in 2009. What`s so bad about that ? VUG (large Growth U.S.) went up about 4 1/2 times since the bottom in 2009. In my opinion both did well.

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Re: Patience is very important to profit from the stock market

Post by Fallible » Wed Sep 13, 2017 4:47 pm

DartThrower wrote:
Wed Sep 13, 2017 4:08 pm
...
I then spoke with a rep from Fidelity asking them why they show, by default, a comparison of a mixed stock/bond portfolio to the S&P. The rep admitted that it could be quite misleading and basically empathized. ...
Did the Fidelity rep say why they do this by default and apparently with no explanation?
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Re: Patience is very important to profit from the stock market

Post by bigred77 » Wed Sep 13, 2017 4:58 pm

I agree with that tracking error is not the proper term for what is being discussed.

We are talking about "extended periods of under performance" when comparing our portfolio to a different benchmark that may or may not be appropriate. And yes I think this is really an issue worth discussing because so many on here are already capitulating with holding their small slice of international equities while others are advocating small and value tilts which we know (or at least I think we all concede) can be quite "bursty" in terms of their returns.

That's why my default recommendation to most investors is to start with a target date fund. Then move to a 3 fund portfolio if you have a legitimate reason, usually when you start investing in taxable accounts and you want your fixed income in tax deffered. One should only deviate from that when they understand, believe, and can articulate WHY they are choosing to tilt or overweight some other asset class or sub asset class. You really need some conviction behind your decision or you put yourself at risk for capitulation when you inevitably hit those longer periods of under performance compared to the next best or reasonable alternative.

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Re: Patience is very important to profit from the stock market

Post by Fallible » Wed Sep 13, 2017 5:45 pm

bigred77 wrote:
Wed Sep 13, 2017 4:58 pm
I agree with that tracking error is not the proper term for what is being discussed.

We are talking about "extended periods of under performance" when comparing our portfolio to a different benchmark that may or may not be appropriate. And yes I think this is really an issue worth discussing because so many on here are already capitulating with holding their small slice of international equities while others are advocating small and value tilts which we know (or at least I think we all concede) can be quite "bursty" in terms of their returns.

That's why my default recommendation to most investors is to start with a target date fund. Then move to a 3 fund portfolio if you have a legitimate reason, usually when you start investing in taxable accounts and you want your fixed income in tax deffered. One should only deviate from that when they understand, believe, and can articulate WHY they are choosing to tilt or overweight some other asset class or sub asset class. You really need some conviction behind your decision or you put yourself at risk for capitulation when you inevitably hit those longer periods of under performance compared to the next best or reasonable alternative.
More than conviction - self-discipline and patience i.e., emotional control, are needed to stay the course as years of underperfance go by. How does one know for certain going in that they have that control, even if they have chosen a wise course?
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Re: Patience is very important to profit from the stock market

Post by bigred77 » Wed Sep 13, 2017 6:08 pm

Fallible wrote:
Wed Sep 13, 2017 5:45 pm


More than conviction - self-discipline and patience i.e., emotional control, are needed to stay the course as years of underperfance go by. How does one know for certain going in that they have that control, even if they have chosen a wise course?
Well IMO education is the best way to position yourself to stick your allocation over long periods of underperformance. That means reading the research for yourself, asking questions on bogleheads, understanding the theory behind the recommendations and truly believing it yourself BEFORE you take any action on it.

I would never recommend a tilt to anyone who asked me for portfolio advice. I would even be hesitant to tell them I tilt myself unless they asked specifically. I think that decision really needs to be self driven, or else you are less likely to stick with your plan long enough to yield the benefits.

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Re: Patience is very important to profit from the stock market

Post by Fallible » Wed Sep 13, 2017 8:42 pm

bigred77 wrote:
Wed Sep 13, 2017 6:08 pm
Fallible wrote:
Wed Sep 13, 2017 5:45 pm

More than conviction - self-discipline and patience i.e., emotional control, are needed to stay the course as years of underperfance go by. How does one know for certain going in that they have that control, even if they have chosen a wise course?
Well IMO education is the best way to position yourself to stick your allocation over long periods of underperformance. That means reading the research for yourself, asking questions on bogleheads, understanding the theory behind the recommendations and truly believing it yourself BEFORE you take any action on it.

I would never recommend a tilt to anyone who asked me for portfolio advice. I would even be hesitant to tell them I tilt myself unless they asked specifically. I think that decision really needs to be self driven, or else you are less likely to stick with your plan long enough to yield the benefits.
Agree. Educating, researching, and questioning are the right ways to set an investing course that has the best chance of being held. That's the intellectual side of investing. There also is the emotional side, the one that requires self-knowledge, understanding temperament and self-control that comes from discipline and patience needed especially during the downsides of investing.

It all refers to the intellectual framework and emotional discipline essential to successful investing that Ben Graham and Warren Buffett have written about so well. A couple quotes:

Graham: “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”

Buffett: "What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."

I also agree that the decision to invest in any particular way has to be self-driven. It has to be right for the individual investor who knows, or should know, himself or herself best.
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nedsaid
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Re: Patience is very important to profit from the stock market

Post by nedsaid » Wed Sep 13, 2017 8:56 pm

selftalk wrote:
Wed Sep 13, 2017 4:20 pm
nedsaid, VTV (Large Value U.S.) tripled since the bottom in 2009. What`s so bad about that ? VUG (large Growth U.S.) went up about 4 1/2 times since the bottom in 2009. In my opinion both did well.
Well, the whole point of factor investing is to beat the market over time. I am not saying that Large Value has done poorly, obviously anyone would be happy tripling their money. The thing is, there is a lot of tracking error from the S&P 500. I am saying there are time periods where Value does better than Growth and other time periods where the opposite is true. The academics say that Value beats Growth over long time periods. I am strongly suggesting that since Large Growth has been outperforming Large Value since the 2009 bottom, at some point we will see a change in this trend and go into a period where Large Value predominates over Large Growth. These periods can run 7-10 years. Pretty much I am doing the reverse of performance chasing. It also seems that the odds are becoming more favorable for Large Value and will become more and more favorable the longer the Large Growth trend continues. This is similar to a reversion to the mean argument.
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Re: Patience is very important to profit from the stock market

Post by selftalk » Wed Sep 13, 2017 9:04 pm

In my opinion you are so right nedsaid. Just keep buying the worst performer in the haystack/ your allocation.

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Re: Patience is very important to profit from the stock market

Post by DartThrower » Thu Sep 14, 2017 12:33 pm

Fallible wrote:
Wed Sep 13, 2017 4:47 pm
DartThrower wrote:
Wed Sep 13, 2017 4:08 pm
...
I then spoke with a rep from Fidelity asking them why they show, by default, a comparison of a mixed stock/bond portfolio to the S&P. The rep admitted that it could be quite misleading and basically empathized. ...
Did the Fidelity rep say why they do this by default and apparently with no explanation?
The Fidelity rep was new and seemed relatively inexperienced with the Fidelity way. (Fidelity has had recent layoffs of experienced staff apparently :( ) Nevertheless she did seem quite bright and energetic. She understood the point I was trying to make right away. I got the impression she simply had no answer for why Fidelity portrayed the information the way they did, and sensing the situation, I didn't press her on it.

We were there in the rep's office to meet face-to-face and make sure that some new money being transferred from my friend's former high cost advisor was transferred correctly into the intended Fidelity index funds. This service was provided to us flawlessly. We succeeded in reducing expenses by around 1.5% by going from the advisor to Fidelity. The problem with the bar charts related to money already in Fidelity.
A Boglehead can stay the course longer than the market can stay irrational. It's impossible to have a bubble in common sense.

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Re: Patience is very important to profit from the stock market

Post by Fallible » Thu Sep 14, 2017 3:43 pm

DartThrower wrote:
Thu Sep 14, 2017 12:33 pm
Fallible wrote:
Wed Sep 13, 2017 4:47 pm
DartThrower wrote:
Wed Sep 13, 2017 4:08 pm
...
I then spoke with a rep from Fidelity asking them why they show, by default, a comparison of a mixed stock/bond portfolio to the S&P. The rep admitted that it could be quite misleading and basically empathized. ...
Did the Fidelity rep say why they do this by default and apparently with no explanation?
The Fidelity rep was new and seemed relatively inexperienced with the Fidelity way. (Fidelity has had recent layoffs of experienced staff apparently :( ) Nevertheless she did seem quite bright and energetic. She understood the point I was trying to make right away. I got the impression she simply had no answer for why Fidelity portrayed the information the way they did, and sensing the situation, I didn't press her on it.
...
Probably no matter who you asked about the dashboard chart you wouldn't get the whole truth and nothing but the truth. But it's good that you did ask because she may mention it to other reps and it might get back to those responsible. Not that they'd do anything about it, but at least they've got some client feedback.
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dbr
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Re: Patience is very important to profit from the stock market

Post by dbr » Thu Sep 14, 2017 4:15 pm

At least it is a good sign when the investor is able to detect crap like this. It is one of the first steps to good investing.

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Re: Patience is very important to profit from the stock market

Post by pkcrafter » Thu Sep 14, 2017 4:33 pm

The "average" investor would not know the true benchmark--it would mean nothing to them. The S&P500 is the market benchmark and most every one has at least heard of it, although in many cases it isn't the correct benchmark. I don't know if it's better to be accurate or less confusing to average investors. Maybe the best thing to do is list both the correct benchmark and the S&P500.

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Re: Patience is very important to profit from the stock market

Post by Greg in Idaho » Thu Sep 14, 2017 4:33 pm

I appreciate the clarifications on terminology...and with them on the table, no big deal in using "tracking error" as short hand for the misleading influence of (actual) tracking error on investors.

So I hope I'm making progress in avoiding that influence, since a few days ago, I saw all the major U.S. indices were up, and I browsed my portfolio to get a picture of how my actual holdings did...net loss for the day...international was down, emerging was down, U.S. bonds were down...all enough to off-set the advances ...my response: "on the bright side, I guess that means I'm diversified."

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Re: Patience is very important to profit from the stock market

Post by selftalk » Thu Sep 14, 2017 5:43 pm

It`s so natural when people hear on tv, radio, friends etc. that the DOW went up today they think that their net worth increased and they feel good. But if they see that their net worth decreased that day and other days when the market rose they do not feel that good feeling and when it`s repeated over and over they begin to question their own decisions about their stock and bond assets. When the black swan appears and the DOW drops a lot along with hearing and seeing what negatives the "experts" are saying about the market then it becomes very hard for these investors to hold on to what they currently own all the time viewing the decrease in their net worth. Ain`t human nature wonderful ! Buy the whole haystack and do not PEEK or listen.

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Re: Patience is very important to profit from the stock market

Post by dbr » Fri Sep 15, 2017 10:35 am

selftalk wrote:
Thu Sep 14, 2017 5:43 pm
It`s so natural when people hear on tv, radio, friends etc. that the DOW went up today they think that their net worth increased and they feel good. But if they see that their net worth decreased that day and other days when the market rose they do not feel that good feeling and when it`s repeated over and over they begin to question their own decisions about their stock and bond assets. When the black swan appears and the DOW drops a lot along with hearing and seeing what negatives the "experts" are saying about the market then it becomes very hard for these investors to hold on to what they currently own all the time viewing the decrease in their net worth. Ain`t human nature wonderful ! Buy the whole haystack and do not PEEK or listen.
Maybe better than not peeking is getting just enough understanding about what one is invested in to not be stupid. The process starts by understanding that much of what one hears on tv, etc., is not useful or even relevant and true information and that the comments of pundits are worth even less. It would seem that this would be obvious regarding just about everything that happens in life. It is also natural to be lazy, greedy, fearful, etc. etc. But it is also natural to be prudent, skeptical, generous, diligent, and all the good things.

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Re: Patience is very important to profit from the stock market

Post by selftalk » Fri Sep 15, 2017 11:16 am

I agree dbr.

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Re: Patience is very important to profit from the stock market

Post by nedsaid » Fri Sep 15, 2017 3:51 pm

selftalk wrote:
Wed Sep 13, 2017 9:04 pm
In my opinion you are so right nedsaid. Just keep buying the worst performer in the haystack/ your allocation.
I am not a 100% Value investor. I do have Growth investments too. It is a matter of tilting and not going 100% into Value.

I have endorsed two methods of investment. If you believe the Academic research, use a lower cost factor tilted portfolio. If you don't believe the Academic research, just stick with the broad index funds. Nothing wrong with a simple 3-5 fund portfolio.
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Re: Patience is very important to profit from the stock market

Post by selftalk » Fri Sep 15, 2017 6:17 pm

I am going to stick with the broad based index funds. Factor investing is not for me at this time.

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