Leaving the dark side of the force...

Just wondering if the last weeks activities in the market has burnt any of the 'active' investors in these forums so much that they've decided to leave the dark side of the force and start considering a passive investment strategy?

Read this comment in The Age on Wednesday:

'It's like a funeral in here, it's like we've all gone blind, you don't know what's coming. Until we see New York, all we can do is sell'. Ken Masusda - Shinko Securities Equities Dealer, Tokyo.

And people trust this guy with their money.

Insight (member) put it best in a recent thread:

..."I've been struggling with active trading for three years now. The single most amazing thing I have discovered is how difficult consistent alpha creation is and how few understand that.

It's not even a debate in my opinion, go an 80/20 core satelite or just 100% indexed and enjoy your life, it's already too short"...

Amen to that.

 

MJRoss,

Amen to that!

A no-brainer for me to.

Here's another pearler I posted in another thread here, you might have missed it, from Andrew A (futures trader) on the Somersoft forum:

 

What do you think MJRoss?

Oft quoted 'truisms' or cliches?!

What's the evidence on finding a 'system' like this?

I would have thought any apparent 'successes' could be more easily explained by pure LUCK!

 

Some luck, sure, but not luck like putting all your money on black.

I don't use a system.

If there was one trading technique that worked consistently, it would become the standard, rolled out by institutions on computer trading platforms, and run itself quickly out of business.

But I do strive for outperformance.

Living in WA, I did a lot of reading a few years ago about the resources industry, and how the BHPs and RIOs of the world were getting ready to feed China. I reckoned that they would know more about how this would unfold than anyone else, particularly more than stock analysts in CBD offices.

So, after about 100 hours concentrated research, I bought heavily (for me!) into BHP ($40k at $20) and RIO ($15k at $55) a couple of years ago, and took a couple of $5k positions in WA iron ore companies. I have since sold down the minors, extracting my initial $10k cash back in these plus a bit to cover CGT, and leaving about $20k profit to run. Sure, they've taken a hit lately, but I'm still a believer.

I'm willing to put the time in to do my own research, and sure, I get a few wrong (eg IAG, SIP). But since I'm obese (as opposed to overweight) resources, and underweight non-bank industrials, I'm a useful margin above the All Ords (I think about 5% pa weighted by timing of purchases - a difficult calculation!).

Now if iron ore and metals did not perform so well, then I'd be under the ASX returns. But I reckon picking BHP etc wasn't simply luck.

I manage my own portfolio, controlling the timing of transactions (eg to reduce CGT hits), always assuming a long term investment - I want my shares to provide passive income for the rest of my life (I'll become positively geared in about 2 years).

But what next in this wild ride? I don't know yet, I'm still researching. I'd like to follow the climate change and aging population themes, but finding companies here that meet my criteria is not easy.

But I enjoy the ride that much more for knowing that I am making the decisions. I will live or die by them.

 

I wouldn't call having a long term average of outperforming the index (talking 7/10 years here) as 'luck'. There are certainly funds out there that have done it and continue to do it. They won't do it every year, but not even the best of the best can do this.

Using your reasoning, Warren Buffett and many many many other managers just got 'lucky'. If you want a passive investment, good luck to you but it's pretty ridiculous to write off excellent managers who work extremely hard and maintain focus and have the results to prove it as simply 'luck'.

Mark

 

I should clarify, there are exceptions, but they are a very, very small minority. I seriously doubt very many (if any) posting here would fit into this category (of picking businesses/stocks, or picking fund managers successfully ra ra ra...). If you think you do...perhaps your ego needs checking. Good luck to you though .

 

Good for you, seems like you enjoy it.

I call this a JOB though.

 

Where on earth did this come from? Where did I ever claim to be a successful funds manager or state that I can outperform the market? You made a dodgy statement, I called you on it.

I will say with absolute clairty: people that can consistently outperform the market over the long term are not 'lucky'. They are intelligent and capable. To write off their success as luck is pretty poor form.

But then I suppose people who do well with property over the long term are 'lucky' too, right?

Mark

 

Sorry, you misunderstand, I wasn't actually referring to you specifically. More like 'youse' .

 

The issue in my opinion is that the only way we find out who beat the market is after the event. There is no reliable, scientific, proven methodology for selecting fund managers that you can reliably expect to beat the benchmark.

One problem we see is that once a fund manager has beaten the benchmark, money is poured into their fund to a point where it becomes to big for even them to realistically think they could beat the benchmark with the amount of money they have to invest.

They're charging 1%+ MER on the funds so they're hardly going to start telling people to stop giving them money.

If anyone knows of any methodology one can implement before the event, to identify fund managers that will outperform the benchmark, I'm all ears. The dart board doesn't count.

 

haha if ever there was a case of the pot calling the kettle black!

 

You mean like some of the 'Invested Dart Players' illustrated below?

PS: If anyone can find a picture of a blind-folded monkey playing darts, let me know. Thanks.

 

Okay, fair question
I unfortunately had to give it up, largely due to time constraints.
I found it quite enjoyable though, but am aiming at the moment to put a bit more time/capital into property, hopefully through adding another one and developing an existing one.

Now your turn: how has your indexed portfolio fared over the last few weeks? What is the composition of your indexed portfolio? How did you choose the particular components of that portfolio?

You are always happy to claim that you are an expert and everyone else is delusional and a failure, however we see sweet little of original thought from you or actual experiences (and no, cut & pasting someone's posts from another forum doesnt constitute original thought).

 

Some would argue here is a picture of a monkey throwing darts.... You could even argue he is 'blind'(folded)

My Bad...

 

I have NEVER claimed to be an expert, perhaps it just seems that way to you .

I have NEVER said anyone here is delusional and a failure (although I may have hinted at this to some here, without being as harsh as this ).

 

"No one calls me monkey boy, monkey boy!"

- George W Baboon
16 April 2003 (the day he declared the Iraq war over)

(although we know that he invaded Iraq for its bananas)

 

I haven't lost any money in indexed funds at present (believe it or not).

Regarding your other points, just note that there is a difference between 'sector betting/picking' and 'asset allocation'...

As I've posted before, I'm also planning to use index funds for my super fund (for a period of time), but this is still in the works.

In general though, I don't like investing in anything that is directly linked to the stockmarket.

I really only advocate passive index funds/ETFs over active stock/fund/LMI picking...for which the evidence is simply overwhelming - yet the majority here still does not see or accept?!

Most of my investment dollars are in 'direct' investments, not immediately influenced by the incessant fluctuations of the stockmarket.

 

which include what? Coin, stamp, aboriginal art, vintage car, wine etc??

 

This is the best I could do:

 

And this, but it's an elephant...and pretty good: