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Post by Deleted on Nov 16, 2022 22:35:29 GMT
This "guy" is actually the COO of Josh Brown's company. No offense, but I'm going with him. But regardless - there is a LOT of mystery about this fund. One can read about it. It is pretty interesting. It is not some brilliant trader sitting down and trading into success. It's a computer quant system, designed by a brilliant mathematician, with a lot of nondisclosure so that no one really knows what's being done.
Also - the author fully endorses the success of the fund. You had to hang in there. But contrary to what was stated it is unclear how the returns are being generated for the mainly employees who hold it and have taken money out and put in over the decades. Evidently a tremendous amount of leverage is also employed....kind of like CEFS.
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Post by retiredat48 on Nov 16, 2022 22:51:35 GMT
Another BTW folks. The most successful fund in history, Renaissance Medallion, was SOLELY based on market timing...each day...using algo's. Here's from google and Wiki: "Renaissance's flagship Medallion fund, which is run mostly for fund employees, is famed for the best track record on Wall Street, returning more than 66 percent ...
Their signature Medallion fund is famed for the best record in investing history. Renaissance was founded in 1982 by James Simons, a mathematician who formerly worked as a code breaker during the Cold War."
--------------------------------------- In interviews, Simons stated the words "can't time the market" were a challenge to him to do it. He succeeded big time. He is now one of the wealthiest people in the world. R48 For those interested, please read - ofdollarsanddata.com/medallion-fund/. Notice the statement - "With a 40% management fee, the S&P 500 would have outperformed the Medallion Fund by 4x by the end of 1999." Renaissance also runs other funds not doing as well. This is a quant computer generated system. Not only should you not try this at home - you can't. Sorry, but I have followed Renaissance for several decades, and my recollection is they DID NOT charge 5/44% (hedge fund type) fees along the way. Yes, recent fees have been increased to astronomical levels...selling the performance...but only recently. Further Simons has retired a few years back. But note the article you cited states up front: "As Greg Zuckerman noted in The Man Who Solved the Market, Renaissance’s flagship Medallion Fund generated 66% annualized returns (before fees) and 39% annualized returns (net of fees) from 1988-2018.
To put this performance in perspective, $1 invested in the Medallion Fund from 1988-2018 would have grown to over $20,000 (net of fees) while $1 invested in the S&P 500 would have only grown to $20 over the same time period. Even a $1 investment in Warren Buffett’s Berkshire Hathaway would have only grown to $100 during this time.
This means that the Medallion Fund outperformed one of the best asset classes of the last few decades by 1,000x and one of the best investors of all time by 200x!"-------------------------------------------------- I don't want to dig into details because my post was just a reference that the fund technique was based SOLELY ON MARKET TIMING...the theme of this thread. Fees charged/earned is irrelevant. Edit to add: I just noticed FD's post...yes, strange article. R48
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Post by Deleted on Nov 16, 2022 22:58:08 GMT
Details are important when claims are made. Again - it is repeatedly stated from many many sources that what is actually done to generate these returns is unknown. In fact there is a lot unknown. It's pretty fascinating and could deserve a thread of its own. If you have followed it, you know it uses a tremendous amount of leverage (rumored at least) to boost returns. It is a bit more than market timing - a computer churning small profits across an entire market to make a large profit. And of course it is computer generated. I actually read a book that might be based on this - computer took over and all of that. Edit - this seem like a pretty good article for those interested - I love finding the pattern of cloudiness and impact on European markets. Look at the leverage of 4 to 5 times. www.afr.com/technology/inside-the-medallion-fund-a-74-billion-moneymaking-machine-like-no-other-20161122-gsuohh
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Post by Deleted on Nov 17, 2022 1:29:54 GMT
For all those posting sources who state it is impossible to time the market, remember this: The guru's speak with no data. You see, most investors(including me) had no way to save data/trades/portfolio results to be measured. All the evidence is anecdotal by the guru's (who have a lot of vested interest), stating they do not know anyone who was successful. Really, no-one! The Jack Nicklaus Florida golfing community I bought into 28 years ago had an average age of 53 for year of retirement; many of these retirees had used market timing to a degree. And they could hit four irons in golf, another impossible task for many a finance guru! The key is to stop defining timing as "all in/all out"; there are many other forms of "timing." R48 These forums have gone round and round on how to define timing and buy and hold. No one will win these arguments as everyone has their own definitions and mindsets. To each his own. Personally I think there are plenty of unbiased studies having nothing to do with "gurus." You do not evidently, so stalemate. And the debate usually is timing consistently over a long term period vs buy and hold. And I think it has been shown pretty clearly most can't even buy and hold. And buy and hold doesn't mean never sell if you hold individual companies. It means to have a long term view and to stay invested with a long term view. Timing usually means trying to time the market to make profits in the short term. Again - we have gone round and round. As one poster said - the point is to make money. So does it really even matter? If timers are content and buy and holders too = happy forum. However - when extraordinary claims are made, I think it quite fair to ask for backup on the off chance us mere mortals can learn and improve.
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Post by habsui on Nov 17, 2022 3:25:56 GMT
For all those posting sources who state it is impossible to time the market, remember this: The guru's speak with no data. You see, most investors(including me) had no way to save data/trades/portfolio results to be measured. All the evidence is anecdotal by the guru's (who have a lot of vested interest), stating they do not know anyone who was successful. Really, no-one! The Jack Nicklaus Florida golfing community I bought into 28 years ago had an average age of 53 for year of retirement; many of these retirees had used market timing to a degree. And they could hit four irons in golf, another impossible task for many a finance guru! The key is to stop defining timing as "all in/all out"; there are many other forms of "timing." R48 These forums have gone round and round on how to define timing and buy and hold. No one will win these arguments as everyone has their own definitions and mindsets. To each his own. Personally I think there are plenty of unbiased studies having nothing to do with "gurus." You do not evidently, so stalemate. And the debate usually is timing consistently over a long term period vs buy and hold. And I think it has been shown pretty clearly most can't even buy and hold. And buy and hold doesn't mean never sell if you hold individual companies. It means to have a long term view and to stay invested with a long term view. Timing usually means trying to time the market to make profits in the short term. Again - we have gone round and round. As one poster said - the point is to make money. So does it really even matter? If timers are content and buy and holders too = happy forum. However - when extraordinary claims are made, I think it quite fair to ask for backup on the off chance us mere mortals can learn and improve. I completely agree. In addition, I like to learn from different sources. It would be nice if people don't get harassed when posting about their (successful) investments within the context of their situation and parameters, even though it may not fit my requirements. This is one reason why after a while some posters disappear as it is tiring to constantly getting told that my sharpe is sharper than yours.
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Post by FD1000 on Nov 17, 2022 4:47:58 GMT
For those interested, please read - ofdollarsanddata.com/medallion-fund/. Notice the statement - "With a 40% management fee, the S&P 500 would have outperformed the Medallion Fund by 4x by the end of 1999." Renaissance also runs other funds not doing as well. This is a quant computer generated system. Not only should you not try this at home - you can't. This article is one of the most misleading articles I have seen in years. Let's assume it's correct that medallion charges 5 and 44. That means 5% annual fees you must pay + 44% of positive performance. This guy runs the numbers for 40% management fee no matter what. Let's see an example: What does it mean if you invest 1 million Dollar? If medallion lost 10%=100K. You pay medallion only the annual $50K fee. Now you have only $850K. The author says let's test it with a flat fee of 40%. This means, you lost 10% + 40% = 50%. So, instead of being down just $150K, you will be down $500K
The author is a genius or Madoff? I let you pick.My point was to show this guy made an irrelevant case. No reasonable investor will pay a 40% fee annually, so why even write about it? If medalion did consistently "only" 25-30% per year, you still lose money. One of my friend's daughter in Israel works for Final. They developed algos and makes millions. Several years ago, it was estimated they are making one million per day. They keep very low profile. Many of the stuff are PhD in different STEM fields. Just a small glimpse ( link). Many rich people are looking for excellent risk-adjusted performance. If they can get LT performance of the SP500 -2% with half the volatility, they are ecstatic. BTW, PRWCX (60-65% stocks) made 10% annually more than VFINX(SP500) while VFINX had 50% more volatility. This is a great example of a better risk-adjusted returns. See PV( link). PRWCX isn't your typical allocation fund. The managers use a flexibil approach with great market calls and one of the goals is to have stock performance with lower SD. Not many achieved that. Basically=great timing.
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Post by Norbert on Nov 17, 2022 5:06:16 GMT
Am wondering the underlying debate is about market efficiency, not just "market timing"?
The Efficient Market Hypothesis (EMH) states that all available information is already priced into stocks. Alpha generation is impossible.
"According to the EMH, stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices. Therefore, it should be impossible to outperform the overall market through expert stock selection or market timing, and the only way an investor can obtain higher returns is by purchasing riskier investments." (Investopedia)
The Bogleheads believed in the EMH. If memory serves, they exclusively invested in index funds.
Sara owns individual stocks and, furthermore, occasionally buys and sells based on various factors, including price. Therefore I doubt that she'd be an EMH believer.
We might even argue that she's a kind of "market timer", insofar as she thinks there are good and bad times to buy a stock. She recently posted this: "Made a decent size add to RHHBY - down on Alzheimer's failed trial." In my view, that's market timing; driven by a perception of value thanks to a price decline.
What Sara doesn't do is adjust her overall asset allocation based on value or other issues. Still, she pays attention to macroeconomic factors such as inflation; and watches the Fed carefully.
So, would it really be such a big step to move beyond occasional trading of individual stocks to occasional trading of the overall market; i.e., adjusting stock exposure based on valuations, Fed liquidity policy, inflation predictions, etc?
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Post by Deleted on Nov 17, 2022 11:09:46 GMT
Am wondering the underlying debate is about market efficiency, not just "market timing"? The Efficient Market Hypothesis (EMH) states that all available information is already priced into stocks. Alpha generation is impossible. "According to the EMH, stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices. Therefore, it should be impossible to outperform the overall market through expert stock selection or market timing, and the only way an investor can obtain higher returns is by purchasing riskier investments." (Investopedia) The Bogleheads believed in the EMH. If memory serves, they exclusively invested in index funds. Sara owns individual stocks and, furthermore, occasionally buys and sells based on various factors, including price. Therefore I doubt that she'd be an EMH believer. We might even argue that she's a kind of "market timer", insofar as she thinks there are good and bad times to buy a stock. She recently posted this: "Made a decent size add to RHHBY - down on Alzheimer's failed trial." In my view, that's market timing; driven by a perception of value thanks to a price decline. What Sara doesn't do is adjust her overall asset allocation based on value or other issues. Still, she pays attention to macroeconomic factors such as inflation; and watches the Fed carefully. So, would it really be such a big step to move beyond occasional trading of individual stocks to occasional trading of the overall market; i.e., adjusting stock exposure based on valuations, Fed liquidity policy, inflation predictions, etc? I think you make a very true statement and yes I do try to exploit price. Try being the operative word. However, I have come around to the concept - I can't beat the market in the long term. I can't. All I have done is reconfigure my income stream and have stayed invested. I see absolutely nothing wrong with totally "trading" the occasional market. I take it you mean that as a euphemism to sell totally OUT of the market? As I have said - in my opinion, one is then not invested.I do think it is a big step from a very minor tweak of an allocation to a very very large one. FD makes the same point - you buy and sell a stock - then you are a trader. I disagree and think time horizon/intent matters. Won't be an argument won - so why have it? I bought Boeing when it fell dramatically on some accounting error that was irrelevant. And my CTRA purchase yesterday was because the sector was being sold off. I intend to hold long term. When I thought T would cut its dividend, I sold that. When KMI did cut its dividend, I sold that. Am I a trader? I don't think so, but some here might. I stay fully invested because I believe I will earn or closely approach the total market return. As said - I see absolutely nothing wrong with selling out of the market. I know people who did and now are back in. Some not. But there are perils - ones I am not confident I can overcome nor take the tax bite. Just like I don't think many can buy and hold, I don't think many can "successfully" sell in and out of the market (i.e. beat the market return long term). Does it matter? No...unless it is repeatedly claimed without backing. I am certain most investors don't even think about such. But to continually argue there are not perils to "market timing" rather than acknowledge and candidly discuss seems pointless. Is a computer system that processes massive amounts of data looking for minute patterns to make small accumulated profits, with a huge dose of leverage, and secret sauce, a poster child for successful trading in and out of the market, or even as a realistic model for traders? Your efficiency point - particularly with what is known about this model, is well taken, as well as my attempts to buy lower (I see OXY every day to remind me that I can't do that consistently). I am still holding OXY - for nearly a decade now. My basis is close to 90. Anyways - no one's mind is getting changed here. Edit - interest in macro factors. For me it is just that. Really not investing based on that. Became so interested when on these forums in late 2020 and early 2021 I was asking questions about taking a large stake in bonds (I had none). The advice was BND or BIV. Doing my due diligence I ran across theories of impending serious inflation. It made sense. It was a sea change. So - yes - I certainly see the wisdom of observing sea changes - however as we all know, there are plenty of opinions on those things too.
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Post by Norbert on Nov 17, 2022 11:40:41 GMT
Fun discussion, just a quick reply ...
I don't care about the semantics; e.g., who is a "trader"!
Of course, there's risk everywhere! We can be wrong about finding "value", like buying certain banks mid-2008. We can go to cash and watch the market rally again.
I think of it as probably analysis. Generally it's true that outsmarting the market is very difficult. But, not always. Think of the absurd tech stock valuations of 1999, repeated to a lesser degree last year.
We do seem to agree that the market isn't rational per the EMH. Once we cross that line, it could just be a matter of degree as to how far we go. You decided that a stock's price fall was illogical based on the market's narrative. Or that a dividend cut meant trouble.
As for being "out of the market" by going mostly to cash, that's a red herring. The "market" consists of multiple asset classes; tilting heavily to one or the other asset class doesn't take me out of the market. (OK, selling everything and moving to an uninhibited Pacific island, that's getting out of the market.)
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Post by Deleted on Nov 17, 2022 11:43:13 GMT
Fun discussion, just a quick reply ... I don't care about the semantics; e.g., who is a "trader"! Of course, there's risk everywhere! We can be wrong about finding "value", like buying certain banks mid-2008. We can go to cash and watch the market rally again. I think of it as probably analysis. Generally it's that outsmarting the market is very difficult. But, not always. Think of the absurd tech stock valuations of 1999, repeated to a lesser degree last year. And you know what - I bought into that a little. Lost a bit with COIN. Fortunately a very small position. I would love to say lesson learned, but the mind forgets quickly. Hopefully y'all can remind me if I venture there again. Human nature is human nature. I'm not immune. My intent was long term......Some people made a lot of money. I was not one of them. Buying and selling absurd valuations isn't easy! Thought - Mr. Buffett and I own several of the same stocks. There is a good reason he is world-known Mr. Buffett and I am Sara on the Big Bang Investors Forum. His basis in OXY, TSM, KO, USB, BK are much much better than mine. Mine in AAPL and CVX are better, but I don't own 10% or whatever of AAPL. Oh well!
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Post by Norbert on Nov 17, 2022 11:54:48 GMT
That's what these boards are useful for: getting feedback on specific investing ideas. To get a reality check.
On Bitcoin, I still don't understand it. Would have zero confidence in holding the stuff.
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Post by Deleted on Nov 17, 2022 12:02:58 GMT
That's what these boards are useful for: getting feedback on specific investing ideas. To get a reality check. On Bitcoin, I still don't understand it. Would have zero confidence in holding the stuff. 100% with you there - on both points!
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Post by chang on Nov 17, 2022 12:03:47 GMT
That's what these boards are useful for: getting feedback on specific investing ideas. To get a reality check. On Bitcoin, I still don't understand it. Would have zero confidence in holding the stuff. A few years ago I spent an hour trying to understand Bitcoin and cryptocurrency. I couldn’t understand a thing. Admittedly I’m not that tech-savvy, but I just couldn’t make heads or tails out of it. I’ve had zero interest in crypto. Charlie Munger has been pretty outspoken on it, and he’s no dummy.
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Post by Deleted on Nov 17, 2022 12:05:57 GMT
That's what these boards are useful for: getting feedback on specific investing ideas. To get a reality check. On Bitcoin, I still don't understand it. Would have zero confidence in holding the stuff. A few years ago I spent an hour trying to understand Bitcoin and cryptocurrency. I couldn’t understand a thing. Admittedly I’m not that tech-savvy, but I just couldn’t make heads or tails out of it. I’ve had zero interest in crypto. Charlie Munger has been pretty outspoken on it, and he’s no dummy. Probably not the thread to go in depth - will comment later on that thread - nothing is every simple. Fiat currencies have their issues. I think it will have its place at some point or something like it. Not being backed is an issue. Edit - Mr. Munger isn't a dummy, but he bought BABA too. Everyone makes big mistakes.
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Post by win1177 on Nov 17, 2022 12:51:47 GMT
That's what these boards are useful for: getting feedback on specific investing ideas. To get a reality check. On Bitcoin, I still don't understand it. Would have zero confidence in holding the stuff. A few years ago I spent an hour trying to understand Bitcoin and cryptocurrency. I couldn’t understand a thing. Admittedly I’m not that tech-savvy, but I just couldn’t make heads or tails out of it. I’ve had zero interest in crypto. Charlie Munger has been pretty outspoken on it, and he’s no dummy. I agree about cryptocurrency, I understand it (to some degree), but will NOT invest in it. WAY too risky, volatile, and not what I would call an “investment”. Investments have underlying “value”, something you can measure and quantify, and at least the expectation that they will provide a “return” in terms of capital growth, dividends, increases in “value”, etc. I DO NOT see that with cryptocurrencies! It is like the “Wild West” right now, and I’m not interested. Similar to gambling! Win
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Post by Mustang on Nov 17, 2022 14:05:13 GMT
Am wondering the underlying debate is about market efficiency, not just "market timing"? The Efficient Market Hypothesis (EMH) states that all available information is already priced into stocks. Alpha generation is impossible. "According to the EMH, stocks always trade at their fair value on exchanges, making it impossible for investors to purchase undervalued stocks or sell stocks for inflated prices. Therefore, it should be impossible to outperform the overall market through expert stock selection or market timing, and the only way an investor can obtain higher returns is by purchasing riskier investments." (Investopedia) The Bogleheads believed in the EMH. If memory serves, they exclusively invested in index funds. I don't know that I believe in the Efficient Market Hypothesis. Yes, many individual stock investors do look at estimated future performance. And in a world of perfect knowledge it would work perfectly.
But the market has a herd mentality. A few investors panic causing more to panic then all are running to the cliff. Some get tired and calm down, others sense safety and before long all are grazing again. There is nothing rational about herd mentality. Sometimes the thing that panic the first runners to safety are not a pack of wolves but a rustling in the bushes. Herd mentality can have a lot of investors selling and few buying for no other reason than fear or the unknown. I still remember Black Monday 1987. www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.asp
I don't like indexes. They are a basket of companies all with different outlooks for the future. It would seem to me that with the help of analysts fund managers would not pick all the companies in the basket but the ones with rosier outlooks. Since index funds have no choice in the companies they pick I decided to compare VBIAX to the two funds that I own: ABALX and VWENX. All three are moderate-allocation funds. VBIAX is an index fund. According to Morningstar its stock holdings are large blend and bonds are high quality with moderate interest rate sensitivity. In the last ten years it has had 6 Top Quartile years. ABALX is a managed fund with the same type of stock and bond holdings. It has had 7 Top Quartile years. VWENX' stock holding are large blend. Bonds are a little different. They are medium quality with moderate interest rate sensitivity. It has had 7 Top Quartile years in the last 10 years.
Performance 1-yr 3-yrs 5-yrs 10-yrs 15-yrs VBIAX -15.2% +4.8% +6.4% +8.3% +6.8% ABALX -10.7% +5.0% +6.2% +8.7% +6.8% VWENX -12.6% +5.0% +6.7% +8.8% +7.1%
It seems to me that balanced managed funds can and do often beat balanced index funds.
After thought: If the market has already processed all available information and if an index fund is the reflection of the market then why wasn't VBIAX in the Top Quartile all 10 years?
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Post by mozart522 on Nov 17, 2022 17:10:23 GMT
Mustang, VBIAX has 6 top quartile ranks in the last 10 years. The point you are missing is VWENX always has a higher equity allocation than VBIAX, and the last 10 years have been a massive bull for equities. The M* category is 50-70% equity. Outperforming an index means you have a different allocation, that's all. Bogleheads are happy to take the market return that an index provides. The efficient frontier is based on past equity class performance and expected return for an acceptable level of risk to the investor. It is probably accurate over long periods of time, but certainly not in every 10 year period. "It seems to me that balanced managed funds can and do often beat balanced index funds" Well you showed one over a 15 year period and one tied. And you picked two of the very best balanced funds in existence. What you might ask is why did the 700-800 balanced funds in that category, most of which are actively managed, very badly underperform the index on a percentage basis every year but 1?
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Post by Chahta on Nov 17, 2022 17:28:27 GMT
“Bogleheads are happy to take the market return that an index provides.”
It all boils down to providing what one needs and wants. Simple. No looking at things going up or down daily and what to do next week.
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Post by mozart522 on Nov 17, 2022 18:27:23 GMT
“Bogleheads are happy to take the market return that an index provides.” It all boils down to providing what one needs and wants. Simple. No looking at things going up or down daily and what to do next week. Yes and to simple odds. The odds of beating the market are not high accross investors. The odds of the market index producing a return that will meet reasonable expectations while only taking the market risk for a very low fee are very high historically. The odds of staying with a stragegy like that in downturns are likely better than staying with active managers when they underperform, because to a Boglehead, the index never underperforms.
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Post by Mustang on Nov 17, 2022 21:35:17 GMT
Mustang , VBIAX has 6 top quartile ranks in the last 10 years. The point you are missing is VWENX always has a higher equity allocation than VBIAX, and the last 10 years have been a massive bull for equities. The M* category is 50-70% equity. Outperforming an index means you have a different allocation, that's all. Bogleheads are happy to take the market return that an index provides. The efficient frontier is based on past equity class performance and expected return for an acceptable level of risk to the investor. It is probably accurate over long periods of time, but certainly not in every 10 year period. "It seems to me that balanced managed funds can and do often beat balanced index funds" Well you showed one over a 15 year period and one tied. And you picked two of the very best balanced funds in existence. What you might ask is why did the 700-800 balanced funds in that category, most of which are actively managed, very badly underperform the index on a percentage basis every year but 1? I didn't miss the different equity allocation. That is the flexibility associated with managed funds. They can eliminate bad performing companies and change allocation within limits. Index funds can't.
Yes, I picked two of the best balanced funds. Why would I pick something less for my portfolio? Both beat the index fund in 1-yr, 3-year, and 10-yr performance. For 5-year one beat the index fund and one lost to it. Like you said, for 15-year one beat it and one tied. Only one time did the index fund win. That is why I said managed funds can and do often beat index funds. They don't always but good funds often do.
I read an article a long time ago that said index stock funds beat managed funds but the author said they didn't with bond and balanced funds. I don't know whether that is true or not. It appears true looking a my two funds.
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Post by mozart522 on Nov 18, 2022 3:28:31 GMT
Mustang, So what you are saying is if a balanced fund active manager has more equity all the time and riskier bonds then some of them (2 we know of) can outperform VBIAX. Or put another way, "managed funds can often beat index funds" as long as the managed funds have different asset allocations, or take more risk, or both. You could be on to something. But if I take VFINX at 66% (Wellington's equity allocation) and VFICX at 34%, I have an index balance that beats Wellington over the last 15 years according to PV. A much fairer comparison, you know, like apples to apples. And this is why I've always thought it was useless to compare index funds with active funds. Index funds hold the index and get the index return minus a small fee. Active funds hold whatever their manager decides to hold in keeping with the fund prospectus; different allocations and different risks. You are never comparing apples to apples. Some prefer the simplicity of knowing they will get the market return and others generally try to beat the market return with active funds. If your equity portfolio beats the total stock market then you have beaten the market. Same with bonds. Still others don't seek to beat the market but seek to create an adequate income stream which can be done with indexes (VYM, SCHD) or active funds like VWINX. It's all about choices
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Post by Mustang on Nov 18, 2022 8:39:16 GMT
Asset allocation varies according to what is performing best. Yes, VWENX is around 66% stock right now. That is close to the top of the moderate-allocation category. It has been lower. ABALX was around 65% stock a couple of years ago. Today ABALX's stock allocation is 59.3% which is very close to VBIAX's 60.9%. Being able to adapt to market conditions is part of a good managed fund's strength. But, my original point wasn't that some seek to beat the market. Of course they do. It was that I don't believe in the Efficient Market Hypothesis and the idea that the market processes all available information all the time. Sometimes, yes. Sometimes it behaves rationally. But, other things move the market as well. There are times it moves without much information at all. That was Black Monday's problem. www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.asp
"It was a striking wake-up call for the market, individual investors, and the Fed, seeing the gains of the prior year wiped out in a matter of hours. Worse, there was no compelling fundamental reason for the crash, which occurred mainly as a result of programmatic trading and investor panic." [bold print added]
"These computer programs automatically began to liquidate stocks as certain loss targets were hit, pushing prices lower. To the dismay of the exchanges, program trading led to a domino effect as the falling markets triggered more stop-loss orders. The frantic selling activated yet further rounds of stop-loss orders, which dragged markets into a downward spiral."
The herd running toward the cliff.
"In response to the breakdown of market balances between buy and sell orders, major exchanges instituted various types of trading curbs, frequently called circuit breakers, intended to halt market trading and allow investors time to gather their wits. The hope is that markets will take the cue and stabilize once the trading curb is lifted." [bold print added]
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Post by mozart522 on Nov 18, 2022 13:22:43 GMT
Asset allocation varies according to what is performing best. Yes, VWENX is around 66% stock right now. That is close to the top of the moderate-allocation category. It has been lower. ABALX was around 65% stock a couple of years ago. Today ABALX's stock allocation is 59.3% which is very close to VBIAX's 60.9%. Being able to adapt to market conditions is part of a good managed fund's strength. Agree, however I have never seen Wellington under 65% for any length of time. Certainly well over 60% for the last 15 years. But, my original point wasn't that some seek to beat the market. Of course they do. It was that I don't believe in the Efficient Market Hypothesis and the idea that the market processes all available information all the time. Sometimes, yes. Sometimes it behaves rationally. But, other things move the market as well. There are times it moves without much information at all. That was Black Monday's problem. www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.aspAgree
"It was a striking wake-up call for the market, individual investors, and the Fed, seeing the gains of the prior year wiped out in a matter of hours. Worse, there was no compelling fundamental reason for the crash, which occurred mainly as a result of programmatic trading and investor panic." [bold print added]
Lived through it, kept investing.
"These computer programs automatically began to liquidate stocks as certain loss targets were hit, pushing prices lower. To the dismay of the exchanges, program trading led to a domino effect as the falling markets triggered more stop-loss orders. The frantic selling activated yet further rounds of stop-loss orders, which dragged markets into a downward spiral."
The herd running toward the cliff.
"In response to the breakdown of market balances between buy and sell orders, major exchanges instituted various types of trading curbs, frequently called circuit breakers, intended to halt market trading and allow investors time to gather their wits. The hope is that markets will take the cue and stabilize once the trading curb is lifted." [bold print added] None of this is what we were discussing, which is that you were suggesting that Wellington and VBIAX were comparable. I have owned and followed W & W for many years. I don't own them now. They are both great funds, but Wellington does not compare with VBIAX either in allocation % or in asset class over 15 years. For many year until recently, it was a value fund. It has moved to growth equities in response to the growth bull. That is the value of a manager and it has served them well. But it hasn't beaten a fair comparison with index funds, and I'm not sure a fair comparison exists. You brought up the point that you didn't like indexes because they hold all stocks and that managers can just pick the ones with "rosier" outlooks. The problem is that their evaluation of rosier outlooks is on average, wrong at least 70% of the time over longer periods according to the SPIVA reports.
www.spglobal.com/spdji/en/research-insights/spiva/
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Post by Mustang on Nov 18, 2022 14:09:42 GMT
Apparently I'm discussing heads and you are discussing tails. Both sides of the same coin and both can lead to success. You can buy indexes and I'll stick with my three funds. Apparently their managers are in the top 30%. Yes, Wellington went from value to blend because its returns were lagging a little. But that was just before growth stocks started their decline. No one is perfect and I think that is the reason why its 1-yr return is worse than ABALX but it still beat the index fund.
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Post by racqueteer on Nov 18, 2022 14:16:27 GMT
You brought up the point that you didn't like indexes because they hold all stocks and that managers can just pick the ones with "rosier" outlooks. The problem is that their evaluation of rosier outlooks is on average, wrong at least 70% of the time over longer periods according to the SPIVA reports.
www.spglobal.com/spdji/en/research-insights/spiva/ One should note, however, that this only becomes an issue if HOLDING a set of assets long-term. Since we're discussing active management, however, being "wrong" after six years (or whatever) would seem irrelevant; given that the fund may not be holding the same investments, no?
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Post by mozart522 on Nov 18, 2022 14:49:48 GMT
One should note, however, that this only becomes an issue if HOLDING a set of assets long-term. Since we're discussing active management, however, being "wrong" after six years (or whatever) would seem irrelevant; given that the fund may not be holding the same investments, no? Well, an active lg cap growth fund is competing against the index lg cap growth fund over a certain period. If the manager underperforms because he changes assets, isn't that on him/her? If you go to the link, you can see the scorecard for 1,3, 5, 10, and 15 years for all classes. And this doesn't reflect the funds that just go away over the period, which would bring the % of outperformance down even more.
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Post by racqueteer on Nov 18, 2022 15:44:10 GMT
One should note, however, that this only becomes an issue if HOLDING a set of assets long-term. Since we're discussing active management, however, being "wrong" after six years (or whatever) would seem irrelevant; given that the fund may not be holding the same investments, no? Well, an active lg cap growth fund is competing against the index lg cap growth fund over a certain period. If the manager underperforms because he changes assets, isn't that on him/her? If you go to the link, you can see the scorecard for 1,3, 5, 10, and 15 years for all classes. And this doesn't reflect the funds that just go away over the period, which would bring the % of outperformance down even more. It's an old argument, however, and which is unlikely to be resolved. I would have to look at the actual data in order to determine specifics for a particular fund. As always, we're probably looking at an average and ignoring (or assuming) that the respective adherents engaged in the same behavior. We KNOW that most investors are psychologically incapable of exercising sound judgement, and I suspect that someone who indexes would also tend to be passive. So we probably have issues related to transacting at the wrong times. I suspect also that buying and selling pressures would themselves move prices (and performance) around somewhat. Either way, we're assuming an investor buys, but never interacts personally. I think that's a flawed assumption. It would be useful to know, for example, if the actively-managed funds which outperform are the same ones which have CONSISTENTLY outperformed... Or... If someone favoring active management has simply changed funds with the ever-changing outlook. And how successful THEY may be at doing that. Then there is always the issue of whether the MANAGER remained engaged and utilizing the same behaviors over time. When people are involved, things invariably become complicated.
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Post by mozart522 on Nov 18, 2022 17:01:14 GMT
Well, an active lg cap growth fund is competing against the index lg cap growth fund over a certain period. If the manager underperforms because he changes assets, isn't that on him/her? If you go to the link, you can see the scorecard for 1,3, 5, 10, and 15 years for all classes. And this doesn't reflect the funds that just go away over the period, which would bring the % of outperformance down even more. It's an old argument, however, and which is unlikely to be resolved. I would have to look at the actual data in order to determine specifics for a particular fund. As always, we're probably looking at an average and ignoring (or assuming) that the respective adherents engaged in the same behavior. We KNOW that most investors are psychologically incapable of exercising sound judgement, and I suspect that someone who indexes would also tend to be passive. So we probably have issues related to transacting at the wrong times. I suspect also that buying and selling pressures would themselves move prices (and performance) around somewhat. Either way, we're assuming an investor buys, but never interacts personally. I think that's a flawed assumption. It would be useful to know, for example, if the actively-managed funds which outperform are the same ones which have CONSISTENTLY outperformed... Or... If someone favoring active management has simply changed funds with the ever-changing outlook. And how successful THEY may be at doing that. Then there is always the issue of whether the MANAGER remained engaged and utilizing the same behaviors over time. When people are involved, things invariably become complicated. I don't disagree, but the data is the best we have. I'm not suggesting indexing is best for anyone, only that it tends to do better than the entire universe of funds of the same class. An individual investor may do better or worse regardless, because they may not hold a fund through any given period and may move to another. Personally, I use a mix of both when I'm in the market. Right now, I'm mostely T-bills and cash.
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Post by retiredat48 on Nov 18, 2022 17:07:18 GMT
Just a point here folks.
If my memory is correct, ALL of Vanguard's actively managed funds have beaten their comparable index funds, since inception. Primarily has to do with having LOW COST actively managed funds.
R48
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Post by Norbert on Nov 18, 2022 19:26:04 GMT
Just a point here folks. If my memory is correct, ALL of Vanguard's actively managed funds have beaten their comparable index funds, since inception. Primarily has to do with having LOW COST actively managed funds. R48 Exactly.
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