[HN Gopher] Nevada's public employee pension fund invests passiv...
___________________________________________________________________
Nevada's public employee pension fund invests passively and beats
peers (2016)
Author : cpncrunch
Score : 333 points
Date : 2024-07-13 23:24 UTC (1 days ago)
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| cpncrunch wrote:
| https://archive.is/hmkdj#selection-4317.0-4320.0
| jonahbenton wrote:
| (2016)
| cpncrunch wrote:
| Updated title.
| decasia wrote:
| I'm curious if this is demonstrably an optimal strategy for
| individual investment too... I haven't had much success getting
| any clear data about whether active management demonstrably
| produces better results.
| windwindow wrote:
| There's strong data supporting passive investment. I've found
| the stats in Andrew Hallam's book, "Balance: How to Invest and
| Spend for Happiness, Health, and Wealth"
| (https://www.amazon.ca/Balance-Invest-Happiness-Health-
| Wealth...) quite eye-opening.
| cornstalks wrote:
| There's the famous bet Warren Buffett won against an actively
| managed fund:
| https://www.investopedia.com/articles/investing/030916/buffe...
| elil17 wrote:
| Short answer re: investing in active managers (based on my many
| years listening to rationalreminder.ca) is that, if you
| eliminate some of the worst active managers, the average
| returns net of fees are the same. However, eliminating the
| worst managers is challenging (but not impossible) to do ex-
| ante. Even then, you're only getting the same average returns
| as indexing, not better. Plus, you will experience a higher
| dispersion with active managers (greater chance of extreme
| negative or positive outcome), which is not desirable. Because
| of these two issues, It's definitely better to pick an index
| fund.
|
| Re: picking stocks yourself, the answer is also pretty cut and
| dry. There's strong evidence no individual trader can expect to
| beat the market. Active managers can only beat the market gross
| of fees because they employ large teams of people to do a lot
| of work to gain a small edge (stuff like predicting retail
| sales numbers from satellite images of store parking lots).
|
| This is my attempt at summarizing a whole field of research in
| a few sentences. There are many more nuisances. I highly
| recommend listening to the Rational Reminder podcast if you're
| curious about this sort of thing. They interview a lot of
| academics.
| chii wrote:
| > a higher dispersion with active managers (greater chance of
| extreme negative or positive outcome), which is not
| desirable.
|
| some people prefer the chance to win the lottery rather than
| get a steady income stream.
| throwaway2037 wrote:
| Except this is a myth. You will not win the lottery without
| taking crazy amounts of risk. The active managers who do
| beat a major index for a long, long time almost do not
| exist in retail space, and they beat the market by a tiny
| amount (~1%). In my era Legg Mason was the most famous, but
| even they fell too.
| selestify wrote:
| How does that explain Warren Buffet's spectacular
| success?
| supertrope wrote:
| When you own one billionth of a company you are just
| along for the ride. When you buy a 10% or more stake you
| can influence the running of the company. Another aspect
| is he has offered liquidity to distressed companies like
| GE and got richly rewarded for it with favorable terms.
| anamax wrote:
| Someone with Buffet's success should exist by random
| chance. (Flip a fair coin enough times and it will come
| up heads 20 times in a row.)
|
| Also, some fraction of Buffet's success comes from deals
| that the rest of us don't have access to.
| mewpmewp2 wrote:
| Yeah, I have tried to simulate this several times under
| different conditions. Given zero sum game and random
| odds, there is always going to be small percentage who
| have a lot and most will have below what they started
| with. It is easy to explain as well, if you for example
| start with $1000 and you have 50% odds of winning 10%
| every time. If you win and lose 50% you are going to be
| below what you started.
|
| If you always win after lose and lose after win, then it
| would go like this:
|
| 1. $1000
|
| 2. $1100
|
| 3. $990
|
| 4. $1089
|
| And so on... After 100 turns you would have only around
| 600 - 700.
|
| But it's a zero sum right. Where does the 300 - 400 go?
| It goes exponentially to select few who by random chance
| have more wins than losses.
|
| In fact the longer it goes on, the higher odds of there
| being outlier with a lot - you might expect that everyone
| would converge around $1000, but that is not the case.
|
| I did an example run with 10 000 investors, each doing
| 1000 trades, each trade they bet 10% of their portfolio,
| with 50% odds of winning.
|
| First investor had 562 wins and 438 losses, with
| $1,666,061.
|
| Median investor had only $7 left with 500 wins and 500
| losses.
|
| Top 10th percentile investor had $364 with 520 wins and
| 480 losses.
|
| So interestingly even an investor that had 40 wins more
| than losses, lost 2/3 of portfolio.
| redox99 wrote:
| Stock market is not zero sum.
| mewpmewp2 wrote:
| Yes, but in terms of beating the market it should be.
| derriz wrote:
| Buffet isn't a passive investor. Berkshire Hathaway have
| often taken a very active role in the running of their
| acquisitions - appointing managers, setting strategy,
| merging/splitting off subsidiaries, etc. This is as much
| managing as investing. If Buffet was a pure stock picker,
| then he would be an interesting case in the active vs
| passive investment debate.
| JumpCrisscross wrote:
| > _How does that explain Warren Buffet's spectacular
| success?_
|
| Buffett buys "cheap, safe, high-quality stocks" with
| leveraged "financed partly using insurance float with a
| low financing rate" [1]. TL; DR He's doing private equity
| with discipline.
|
| [1] https://www.aqr.com/Insights/Research/Journal-
| Article/Buffet...
| throw0101d wrote:
| > _How does that explain Warren Buffet's spectacular
| success?_
|
| 1. Buffett has been underperforming the S&P 500 for about
| twenty years now:
|
| * https://www.linkedin.com/pulse/warren-buffett-has-
| underperfo...
|
| * https://news.ycombinator.com/item?id=37827101
|
| For most people who are saving for retirement between the
| ages of (say) 30 to 65, that's most of their investing
| lifetime, and such underperform could radically effect
| the life they can live once they start working. Do _you_
| want risk your proverbial Golden Years simply because you
| chose not to take the market average returns?
|
| 2. While Buffett is a better-than-average investor (and
| certainly better than me), the main reason why we know
| him is because he's so rich, but as Morgan Housel notes,
| the vast majority of that wealth has come from
| compounding:
|
| > _As I write this Warren Buffett's net worth is $84.5
| billion. Of that, $84.2 billion was accumulated after his
| 50th birthday. $81.5 billion came after he qualified for
| Social Security, in his mid-60s. Warren Buffett is a
| phenomenal investor. But you miss a key point if you
| attach all of his success to investing acumen. The real
| key to his success is that he's been a phenomenal
| investor for three quarters of a century. Had he started
| investing in his 30s and retired in his 60s, few people
| would have ever heard of him. Consider a little thought
| experiment. Buffett began serious investing when he was
| 10 years old. By the time he was 30 he had a net worth of
| $1 million, or $9.3 million adjusted for inflation.[16]
| What if he was a more normal person, spending his teens
| and 20s exploring the world and finding his passion, and
| by age 30 his net worth was, say, $25,000? And let's say
| he still went on to earn the extraordinary annual
| investment returns he's been able to generate (22%
| annually), but quit investing and retired at age 60 to
| play golf and spend time with his grandkids. What would a
| rough estimate of his net worth be today? Not $84.5
| billion. $11.9 million. 99.9% less than his actual net
| worth. Effectively all of Warren Buffett's financial
| success can be tied to the financial base he built in his
| pubescent years and the longevity he maintained in his
| geriatric years. His skill is investing, but his secret
| is time. That's how compounding works. Think of this
| another way. Buffett is the richest investor of all time.
| But he's not actually the greatest--at least not when
| measured by average annual returns._
|
| * https://www.goodreads.com/quotes/10551666-more-
| than-2-000-bo...
| gizajob wrote:
| To be fair to him, he does say time and time again
| "Invest in an S&P Index Fund"
| Galanwe wrote:
| There's more dimensions to an investment than average
| returns.
|
| Volatility adjusted returns (or Sharpe ratio) for instance,
| will tell you how much returns you have per unit of risk you
| take. This is important because getting 10% average annual
| returns with 10% annual volatility is worst than getting 5%
| returns with 1% annual volatility. You can only compare
| investments at equal amount of risk.
|
| An other factor to take into account is diversification. If
| you have an alternative investment to compare to your base,
| and it's average returns is lower than your base, but it is
| un correlated, then you actually get an increased volatility
| adjusted average returns by investing in both.
|
| That's just two dimensions to take into account, there are
| many others, but overall:
|
| - Don't compare investments based on annualized returns
| alone, it really doesn't make any sense.
|
| - Don't compare investments one against an other, instead
| look at the addivity of one on top of another.
| Karellen wrote:
| > getting 10% average annual returns with 10% annual
| volatility is worst than getting 5% returns with 1% annual
| volatility.
|
| Doesn't this depend on how long you're planning on
| investing for, and what your criteria for selling your
| investments are?
|
| If you're planning on investing for at least 10 years, and
| you're willing to give yourself a 2-3 year window for
| selling your investments once they reach a threshhold you
| decide on ahead of time, isn't the 10%/10% investment
| better?
|
| (e.g. if retirement is 20 years away, you might consider
| putting your funds in that sort of investment for 10 years,
| with a view to moving them to something less volatile in
| the 5 years after that, as soon as they cross a 10%
| annualised return threshhold during that window.)
| Galanwe wrote:
| > isn't the 10%/10% investment better?
|
| If you consider that "you don't know any better" and
| returns are normally distributed (i.e. you don't have
| some secret sauce nobody else knows about), then there is
| no dimension in which the 10/10 is better.
|
| You can convince yourself intuitively by imagining how
| you would maximize each strategy. The amount of money you
| have is a factor of the risk you take, because if you
| want to do something risky you will not be able to borrow
| much, whereas if you want to do something safe you can
| easily borrow.
|
| That is, you objective is to maximize your expected
| return, under the constraint of not breaking your risk
| limit.
|
| Suppose you have a 10% annualized volatility risk
| tolerance. That's your budget.
|
| If you invest it all in a 10% average return / 10% annual
| vol strategy, that's it.
|
| Now if I propose you a 5% average return / 1% volatility
| strategy, you just have to go to the bank and borrow 10x
| your capital. You will have the same risk exposure (in
| dollar), but 5x the expected returns.
| amanaplanacanal wrote:
| Until a black swan event bankrupts you because of the
| leverage you have taken on.
| hamilyon2 wrote:
| Is 10x borrowing even an option if we are talking
| retirement savings?
|
| I don't know much about finance. I guess that at that
| point (you borrowed 10 times your net worth). This is no
| longer your investment, it's your lender's investment.
| They will adjust interest rate to match the riskiness of
| whatever you are doing, leaving you with net zero.
|
| Borrowing money is not free.
| Galanwe wrote:
| > Is 10x borrowing even an option if we are talking
| retirement savings?
|
| Of course it is, though not exactly by "borrowing money"
| in a "mortgage" sense. Margin trading is a way to take
| leverage, derivatives is another. The former is simpler
| but costly, the latter is cheaper and allows you much
| more than 10x leverage, though it requires some high
| school mathematical thinking.
| alright2565 wrote:
| What you're saying sounds right. But in practice, no one
| is going to lend me, a nobody, 5x my money. At least
| outside real estate, that's it's own crazy alternate
| reality.
| Galanwe wrote:
| 5x leverage is nothing, most retail brokers will offer
| you much better future initial margins.
| Karellen wrote:
| > you just have to go to the bank and borrow 10x your
| capital.
|
| "just" is doing a lot of heavy lifting in that sentence.
| lottin wrote:
| > there is no dimension in which the 10/10 is better
|
| It's clearly better in the expected return dimension.
| This strategy has 10% expected return, while the other
| strategy has 5%.
| lotsofpulp wrote:
| > - Don't compare investments based on annualized returns
| alone, it really doesn't make any sense.
|
| >- Don't compare investments one against an other, instead
| look at the addivity of one on top of another.
|
| I don't think either of these matter to 90% of investors
| whose goal is to build up a nest egg for retirement which
| means not spending for decades in the future.
|
| Sharpe ratios and all those "risk" adjusted calculations
| all involve assumptions that may or may not be true.
|
| Comparisons of just annualized returns over long periods of
| time seems fine for broad market index funds, especially if
| you are assuming the federal US government will provide a
| backstop.
| Galanwe wrote:
| > Sharpe ratios and all those "risk" adjusted
| calculations all involve assumptions that may or may not
| be true.
|
| On the contrary, these risk adjusted measures assume
| nothing more than a normally distributed random variable.
|
| If you just look at annualized returns, then go ahead and
| invest in CDOs ETFs.
|
| More seriously, the S&P for instance has around 20%
| annualized vol, which IMHO is way above what you would
| want for a retirement fund. I would target something
| closer to 10%.
|
| > Comparisons of just annualized returns over long
| periods of time seems fine for broad market index funds
|
| Do you have any sort of reasoning or is it just a gut
| feeling?
| g15jv2dp wrote:
| > On the contrary, these risk adjusted measures assume
| nothing more than a normally distributed random variable.
|
| The financial sector isn't yet so unrelated to reality
| that the price of securities is random.
| Galanwe wrote:
| I think when stating your opinion against 40 years of
| econometrical research, including multiple Nobel prizes
| in economy, you should feel enticed to explain your
| opinion a bit more than "no I don't think so"...
| Maxatar wrote:
| This is absolutely absurd. Economists including Nobel
| prize winners, including even Eugene Fama who proposed
| the Efficient Market Hypothesis, does not think the stock
| market is normally distributed.
|
| At best, using a normal distribution is something that
| undergrads use as a tool to learn about the stock market
| and make some simplifying assumptions for pedagogical
| purposes, but it most certainly is not something that
| actual professionals or researchers in the field
| genuinely believe.
| Galanwe wrote:
| Come on, don't create a trial of nitpicking. I am not
| saying returns are a law of nature meant to teach us
| normality.
|
| My point is that, for all intent and purposes, you should
| assume normal distribution of returns.
|
| If you don't, you're obviously on either end of the
| spectrum: not knowing the subject at all, or nitpicking
| expertise on the internet.
|
| The subject of the matter here is convincing someone that
| risk adjusted measures should be considered when
| comparing portfolios. This is the basic underlying
| modelisation that 99.99% of the finance world makes,
| "compare sharpes", "compare volatility adjusted returns".
|
| I'm stating 1+1=2 and you're arguing it doesn't hold in
| Z/2.
|
| > At best, using a normal distribution is something that
| undergrads use as a tool to learn about the stock market
| and make some simplifying assumptions for pedagogical
| purposes
|
| Implicit normality assumptions are everywhere. I
| encourage you to think hardly about your model and
| question whether anything you do would work on non normal
| distributions, you will most likely find that you have
| millions of these assumptions in your linear
| combinations, sample renormalization, regressions, sharpe
| weighters and optimizations.
|
| Now of course you could refine that with students,
| lognormals, and whatever, but this is more _refinement_
| than anything.
| g15jv2dp wrote:
| Please quote a Nobel prize (well, there's no Nobel prize
| in economy, but surely we understand each other) winner
| explaining that stock prices are, in actual reality,
| random variables.
| Galanwe wrote:
| > explaining that stock prices are
|
| To be pedantic, stock returns, not prices.
|
| As for the quotes, I encourage you to strongly think
| about the meaning of the work of Sharpe, Black & Scholes
| and Markowitz applied to non normal distributions (both
| Nobel prizes, we understand each other).
|
| In particular, try to articulate the relevancy of sharpe
| ratios between two non normally distributed portfolios.
| g15jv2dp wrote:
| > To be pedantic, stock returns, not prices.
|
| If one is a random variable, so is the other. It's a
| simple change of variables. What's your point?
|
| > As for the quotes, I encourage you to strongly think
| about the meaning of the work of Sharpe, Black & Scholes
| and Markowitz applied to non normal distributions (both
| Nobel prizes, we understand each other).
|
| Could you quote the part where they say that actual,
| real-world stock prices (or returns, whatever) are
| random?
| Galanwe wrote:
| > If one is a random variable, so is the other. It's a
| simple change of variables. What's your point?
|
| Not sure I follow your reasoning. Prices are positive
| only, and non stationary. That is very much not the same
| for returns. Usually prices are log normal, leading to
| normal (log) returns.
|
| > Could you quote the part where they say that actual,
| real-world stock prices (or returns, whatever) are
| random?
|
| It is not said, but rather implied. Take the Sharpe ratio
| for instance, it is a measure that:
|
| 1) is used to compare different assets / portfolio
| returns
|
| 2) rely on the 2nd moment of the returns.
|
| The standard deviation is less relevant the further away
| from the normal distribution you go, so since this is a
| comparison metric, it can only be reasonably applied to
| compare normally distributed returns.
|
| If you believe the returns are not generally normal, then
| you reject the use of the Sharpe ratio as a relevant
| measure of comparison.
|
| I don't have a B&S reference at hand, and I did not read
| it since 15 years, but I'm pretty sure it assumes
| lognormals prices as well.
| g15jv2dp wrote:
| > Not sure I follow your reasoning. Prices are positive
| only, and non stationary. That is very much not the same
| for returns. Usually prices are log normal, leading to
| normal (log) returns.
|
| Perhaps we should take it back to the beginning. What do
| you believe "random variable" means...?
|
| > It is not said, but rather implied.
|
| I see.
| TacticalCoder wrote:
| Something however has to be said about winning a Nobel
| prize then using your model to lose billions and send
| your company into bankruptcy.
|
| The market is incredibly efficient at pricing many things
| incorrectly and Markowtiz then BSM was no exception.
| lotsofpulp wrote:
| >On the contrary, these risk adjusted measures assume
| nothing more than a normally distributed random variable.
|
| That is exactly what I am referring to. For example, from
| Wikipedia:
|
| https://en.wikipedia.org/wiki/Sharpe_ratio
|
| >However, financial assets are often not normally
| distributed, so that standard deviation does not capture
| all aspects of risk. Ponzi schemes, for example, will
| have a high empirical Sharpe ratio until they fail.
| Similarly, a fund that sells low-strike put options will
| have a high empirical Sharpe ratio until one of those
| puts is exercised, creating a large loss. In both cases,
| the empirical standard deviation before failure gives no
| real indication of the size of the risk being run.
|
| >Do you have any sort of reasoning or is it just a gut
| feeling?
|
| The reasoning is that their volatility is negligible over
| the long term due to political forces. Of course, it is
| also an assumption that could be wrong, but the
| mechanisms for government policy (democracy, aging
| demographics, and voter participation trends) seem to
| favor reducing purchasing power of currency rather than
| letting broad market equity prices stall or slide down.
| Galanwe wrote:
| > >However, financial assets are often not normally
| distributed, so that standard deviation does not capture
| all aspects of risk
|
| Volatility not being a full measure of risk obviously
| does not imply that volatility should be ignored.
|
| The former statement about returns not being normally
| distributed is a, trivially verifiable, factual mistake.
| Daily stock returns are normally distributed with a
| slight positive kurtosis. This remains true on any period
| over the last 30 years.
|
| I am bot arguing either that the Sharpe is an all
| encompassing measure, some strategies have a returns
| distribution that is not well explained by Sharpe. I
| don't think it matters in this argument though.
| bumby wrote:
| > _assume nothing more than a normally distributed random
| variable_
|
| But look at something like systemic risk: it's not
| necessarily normally distributed. The S&P returns skew
| left. I'm sure there are other risk metrics that break
| this assumption as well.
| Galanwe wrote:
| Right, risk is often fat tailed, but unless we enter an
| expert discussion, for which HN is hardly a good medium,
| it is safe to assume 99% of strategies out there yield
| normally distributed returns. Non normally returned
| strategies are rarer and sophisticated.
| bumby wrote:
| > _it is safe to assume 99% of strategies out there yield
| normally distributed returns._
|
| I don't know that I agree. If the market as a whole
| doesn't have normally distributed risk, it implies even
| the simplest strategy of buying SPY and holding will also
| not have normally distributed risk.
| Maxatar wrote:
| The level of discussion that HN is a good medium for has
| absolutely no bearing or causal relationship with whether
| or not the actual stock market is normally distributed.
|
| Imagine really thinking that the nature of a discussion
| forum can somehow influence the distribution of stock
| prices, as if stock prices examine comments on the
| Internet to determine their behavior.
| kjellsbells wrote:
| I dont have a dog in this hunt but that seems like a
| strangely aggressive response. Perhaps the comment meant
| nothing more than that plaintext HN is a difficult place
| to start having a discussion that really requires some
| mathematical machinery, and therefore, since we cant
| throw around sigmas and integral signs here, we will make
| some assumptions.
|
| Attacking the comment with sarcasm isn't in the spirit of
| HN even if you think that is a dumb idea.
| Maxatar wrote:
| >I dont have a dog in this hunt but that seems like a
| strangely aggressive response.
|
| Well I do and as someone who has seen his other posts on
| this subject as well, he has a tendency to try to dismiss
| differing points of views on the basis that he has 20
| years of experience and knows better than everyone else
| but can't be bothered to explain it.
|
| Someone who has experience and wants to flaunt that
| experience should do so by coming up with good arguments,
| pointing people to good resources, and making a good
| effort to inform rather than pulling rank as a way to
| dismiss the conversation under the guise of
| sophistication and pretention.
|
| I too have decades of experience working at a quant firm,
| and guess what... many people who post on HN have subject
| matter expertise and frankly I don't think many of us
| would agree with the idea that the stock market is
| normally distributed, or that you need a great deal of
| mathematical machinery and sophistication in order to
| demonstrate that fact.
|
| Math models reality, reality does not model math. Whether
| or not stock prices or portfolios, even the portfolios of
| those on Hacker News, follow a normal distribution has
| nothing to do with the nature of the discussion of those
| portfolios.
|
| Also, policing people's tone is also against the spirit
| of HN as well, but here we are. If you want to police how
| I speak, flag my comment and/or downvote it.
| throwaway2037 wrote:
| > decades of experience working at a quant firm
|
| Has quant finance existed for "decades"?
| Galanwe wrote:
| The meaning of quantitative changes a bit with time and
| context.
|
| I would say the more "bayesian / sell side / derivative
| pricing" kind of meaning exists since the late 70s, the
| more "frequentist / buy side / let's hire 100 physics
| PhDs" meaning came prominent in the early 2000s. (as a
| general feeling).
| Galanwe wrote:
| >> I dont have a dog in this hunt
|
| > Well I do
|
| Well then what's your stake here?
|
| > he has a tendency to try to dismiss differing points of
| views on the basis that he has 20 years of experience
|
| I surely will concede I have this tendency, now you have
| to keep the context in mind. You are on an internet forum
| focused on CS, and emerges a comment thread on personal
| investments. The very subject of this thread is whether
| it makes sense to consider risk adjusted returns or just
| any kind of returns for your investments.
|
| My argument is based on the fact that risk adjusted
| returns should be used, and you should assume normal
| distribution. I am not saying this is a law of nature,
| but rather that this is a fine and widely used assumption
| for both practitioners and academics, which allows the
| argument and explanation to go further without entering
| an experts debate (like you are trying to start).
|
| So I stand by what I said: for all intents of this
| discussion, assuming normal distribution should be a
| given. If you want to dance around it and demonstrate
| that a students distribution or whatnot is a better fit,
| go ahead. I think this is more armful than helpful here.
|
| > try to dismiss differing points of views on the basis
| that he has 20 years of experience
|
| I think this is important on the contrary. What is lost
| on a forum like HN is the context of people answering
| comments. When someone comments "I don't think risk
| adjusted returns are important", it makes a hell lot of a
| difference if it's just the opinion of a random guy, or
| someone with actual experience.
|
| Now while it takes 1 sentence to wrongfully dismiss a
| scientific fact, it can take 100 pages of an expert to
| prove that it's true. Look at a proof that 1+1=2.
|
| That is where credentials are important IMHO. Some debate
| tengents are not interesting in a discussion, and will
| only lead to an expert explanation serving no purpose
| other than confusing a reader, and making the expert
| proud of himself. In these situations, just stopping the
| tengent is the best reaction IMHO.
|
| So I apologize if you take my comments as dismissing, but
| try to assume good intent. When someone asks why you
| should use risk adjusted returns to compare investments,
| I think the saner thing to do is to tell him to assume
| normal distribution, because that's the far more likely
| scenario, most of the research do take this overall
| assumption, and you can proceed to the demonstration that
| makes sense, which I showcased in my previous comment
| about 10% returns on 10% annual vol versus 5% returns on
| 1% annual vol.
|
| To re take the example I posted above, when the
| discussion is about 1+1=2, I don't think you're doing any
| good contradicting that it doesn't hold on Z/2.
|
| Assuming normal distribution of returns is a pretty
| standard base for comparing investments. It is a base
| shared by many models and metrics. Sharpes don't make a
| lot of sense on non normal distributions, mean variance
| optimization either.
| bumby wrote:
| > _this is a fine and widely used assumption_
|
| Modeling (and possibly economics, especially) is rife
| with simplifying assumptions that break down in practice.
| You can find many economists who think modeling
| individuals as rational agents is a "fine and widely used
| assumption" while also finding many economists and
| psychologists showing where this assumption can get you
| into trouble. There is a big difference between "this
| assumption is made because it reflects reality" and "this
| assumption is made because it makes my life as an
| economic modeler not suck." The latter is still fine, but
| only if you're upfront about its limitations.
| YZF wrote:
| Interesting related concept:
| https://en.wikipedia.org/wiki/Efficient_frontier
| personjerry wrote:
| > There's strong evidence no individual trader can expect to
| beat the market.
|
| I don't understand that. If you just bought Apple instead of
| SPY 20 years ago wouldn't you be doing great?
| desmosxxx wrote:
| You do know there are thousands of stocks right. how many
| people dump their entire savings into one stock. 20 years
| ago you wouldn't have known apple was going on to do so
| well. If people did know it would have been bid up in price
| at the time
| qwytw wrote:
| Which still means that SOME individual investors will
| inevitably beat the market.
| amanaplanacanal wrote:
| Some will, but there is no reliable way to tell which one
| in advance.
| ghaff wrote:
| And a lot of the Apple run-up happened relatively late in
| the game. Don't get me wrong. Apple--and what I was able
| to do with the money--was good to me. But so was a late
| 2010s Microsoft purchase and I don't think a lot of
| people are highlighting Microsoft as a stock they missed
| out on during the last 10 years.
| cowthulhu wrote:
| The key is that for every Apple, there are a ton of
| companies we don't even remember the names of that went out
| of business or otherwise did not beat the SP500.
|
| Put another way - if you can reliably pick the next Apple
| before anyone else, you should go work in finance and make
| tons of money.
| qwytw wrote:
| > Put another way - if you can reliably pick the next
| Apple before anyone else
|
| Problem is that it might take years to verify that.
|
| > The key is that
|
| That doesn't change the fact that there are plenty (in
| absolute numbers) of individual investors who
| consistently beat the market. Whether that's because of
| luck or something else is rather hard to tell.
| Marsymars wrote:
| > That doesn't change the fact that there are plenty (in
| absolute numbers) of individual investors who
| consistently beat the market. Whether that's because of
| luck or something else is rather hard to tell.
|
| It's actually not very hard to tell; if it was because of
| something other than luck, you'd expect that beating the
| market in the past would have some predictive value of
| their ability to beat the market in the future.
| satvikpendem wrote:
| It is on average, not from cherry picked examples.
| qwytw wrote:
| That claim is not phrased like that, so why would we
| interpret that way?
|
| > average
|
| So what? It's like saying that since an average person
| can't run a marathon it wouldn't make sense for any
| individual to even try it. How does that make sense?
|
| > cherry picked
|
| If we agree that 50% of all investors can't beat the
| market, what proportion can? 1%, 10%, 30%? Because there
| is a massive difference.
|
| How do we even define that group? Is it any random person
| buying random stocks with pocket change? Is it above a
| certain portfolio size? etc.
| StackRanker3000 wrote:
| You're missing the word "expect" in the original claim.
|
| You can beat the house at blackjack, but you can't
| reliably expect to do it.
| qwytw wrote:
| Investment is hardly a zero sum game. If it were nobody
| would make anything buy investing passively either. So
| how is that a reasonable analogy?
|
| > you can't reliably expect to do it.
|
| Sure, I can't. But assuming that it's not entirely random
| chance some proportion of people certainly can.
| StackRanker3000 wrote:
| > Investment is hardly a zero sum game. If it were nobody
| would make anything buy investing passively either. So
| how is that a reasonable analogy?
|
| I think you're reading too much into the analogy, which
| is maybe my fault for using an analogy. The point was
| just that it's not that you can't win, just that you very
| likely don't have an edge - not because it's
| mathematically impossible like in blackjack with a shoe
| that's continuously shuffled, but because it's so
| difficult.
|
| > Sure, I can't. But assuming that it's not entirely
| random chance some proportion of people certainly can.
|
| Yes, but the bar is very high.
| jltsiren wrote:
| "Average" is a bit misleading word when it comes to the
| market.
|
| If you're a top investing expert, you do things carefully
| in the right way, and you don't make mistakes, you can
| expect average performance. Because the market primarily
| consists of experts like you.
|
| Of course, investing is a random process, and you often
| beat the market by being lucky. But luck doesn't last
| indefinitely.
|
| There are basically two ways to beat the market
| consistently. One is trading based on information not
| available to the rest of the market. This is sometimes
| banned, because it makes the market less fair and less
| efficient. It can also be a crime. The other is finding a
| market that's small enough or obscure enough that it's
| not interesting to the professionals.
|
| But there is no investing stat that allows you to beat
| the market. Life is not an RPG.
| StackRanker3000 wrote:
| Individual traders beat the market all the time, it's not
| _impossible_. But you can't expect to do it reliably,
| because in practice it's essentially gambling, unless
| you're Warren Buffett, or those firms that utilize
| sophisticated quantitative or algorithmic trading.
|
| So for all intents and purposes, the takeaway for regular
| investors should be that they cannot expect to beat the
| market (but they can gamble on it if they like).
| freeopinion wrote:
| Lots of people "play the market" as a mostly total game
| of chance. They might just as well join a giant pool that
| tries to guess the ratio of alphabetic characters within
| each morning's top headline of their favorite newspaper.
|
| Warren Buffet buys the newspaper and has significant
| control of the editor. That's not the same game at all.
|
| There's a lot of talk here about active fund management.
| Active ownership is playing on a completely different
| level.
| ghaff wrote:
| Yeah. And 20 years ago, there was no iPhone and an only
| somewhat interesting MP3 player compared to other brands. I
| did OK with Apple but not suggesting it was much other than
| luck.
| ta1243 wrote:
| And if you put your house on 26-black and it came up you'd
| be doing great too.
|
| Take 100 people randomly throwing darts at the companies on
| the SPY, and a fair few will do better than the SPY
| overall. Doesn't mean they can expect to beat the market
| qwytw wrote:
| > picking stocks yourself, the answer is also pretty cut and
| dry. There's strong evidence no individual trader can expect
| to beat the market.
|
| Is there? It would make sense if an average individual trader
| can't expect to beat the market. Claiming that there are no
| individual investors who did/can do that over a reasonably
| long period is both objectively false and rather absurd.
| hibikir wrote:
| Read the GP carefully.Expect to beat is very different than
| beat. You don't expect to beat the casino in roulette, but
| some people will luck out. That doesn't mean they could
| expect to win in advance: They should expect a small loss,
| depending on the table, and be surprised when luck smiles
| upon them.
| qwytw wrote:
| > You don't expect to beat the casino in roulette,
|
| Do you believe that investment is entirely random and
| there is absolutely no skill involved?
|
| Because if not, that's a nonsensical analogy. You should
| use a a both both luck and skill based game like poker
| (probably not the casino variety, though) etc.
|
| Otherwise if you can reasonably expect to beat 50% of all
| "players" (of course it takes much more time to verify
| that in the market) then you can expect to make more than
| the average.
| ryandrake wrote:
| > Do you believe that investment is entirely random and
| there is absolutely no skill involved?
|
| The skill involved is more just "best practices" that let
| you _match_ the market: Buy-and-hold, diversify,
| basically, do what the index funds do and you will be
| roughly +0 to the market. Beyond that, it 's a totally
| random distribution that adds between -X and +X which
| allows some participants to beat the market and causes
| some to underperform. You can't tell beforehand which
| participants will beat the market, even having full
| knowledge of their strategies and skill. If you think you
| can, please tell me which active funds will beat the
| market in the next 10 years based on their skills. I'll
| invest in them.
| qwytw wrote:
| > You can't tell beforehand which participants will beat
| the market, even having full knowledge of their
| strategies and skill
|
| I never implied that I can. That fact doesn't prove that
| it's somehow fundamentally impossible to do that. The
| problem is that it's impossible to tell if you "strategy"
| is working until a significant amount of time passes and
| by that point the markets conditions might have changed
| to such an extent that you don't longer have an edge (add
| to that the fact that it's hardly possible to determine
| what part of your success was luck/skill). So there is
| always a huge amount of uncertainty.
|
| Albeit if we look back by ~10-15 years it's rather
| obvious that it was possible to beat the market by a very
| significant e.g. there were clear rational reasons to
| believe that Nvidia would do better than its competitors
| like AMD or Intel and that there would be significant
| growth in GPU compute/ML/AI (of course accurately
| estimating the extent and exact timing but that wasn't
| necessary at all to get above market return) same applies
| to many companies in adjacent and unrelated sectors. Was
| I or the overwhelming majority of investors capable of
| realizing that and more importantly acting on it?
| Certainly not. But looking back it obviously wasn't
| random.
|
| The efficient-market hypothesis is clearly false, at
| least in the short to medium term. That in no way means
| that most investors are even remotely capable of
| utilizing this fact.
| ghaff wrote:
| It must have been nice in the early 2010s to be so smart
| to predict AI would be a huge hit (after a couple
| previous AI winters) and that GPUs would be the key and
| that NVIDIA specifically would reap the benefits. But I'm
| sure you're smarter than me and a lot of other people.
| And AMD also did pretty well during much of that same
| period although I sadly sold my modest holdings after
| they went nowhere for years after spiking with some
| adoption by the big server makers. It would probably have
| made more sense to bet on Intel during that period.
| ryandrake wrote:
| Exactly. The point is that the _only_ way you can know
| that a particular "strategy" was market-beating is by
| looking back after the fact. Just like you can only know
| who is a good coin flipper _after_ running 10 trials and
| looking back at who flipped heads 10 times. And the
| strategies will be similarly repeatable.
| stouset wrote:
| The problem is that any active trading strategies now
| need to beat the market by the cost of a fund manger, the
| cost of their research, the cost of regular trades, and
| the cost of short-term capital gains taxes on those
| trades.
|
| These add up _significantly_. Instead of having to beat
| the market at all, you have to beat it by an extra half
| of a percent or more every year. And you have to do it
| year after year after year.
|
| All the evidence shows that actively-managed funds are a
| weighted (against you) coin flip. Less than half will
| beat the market in a given year. And the results from any
| given year are independent of the next.
| TacticalCoder wrote:
| Yeah managed funds sucks big times. They rip people off
| with fees, quite some have insane performance fees and
| they just don't beat the market.
|
| Then I suspect that even with all the supervision in
| place, quite some manage to also do Hollywood accounting.
|
| Not to mention the friend of the cousin of the fund
| manager's niece who happened to buy x shares of y or
| options before, shocker, the fund invested in y.
|
| We know these people cheat. If they were so good they
| wouldn't need to leech on fees.
|
| I live in a tiny country where lots of fund are managed
| (only second to the US). I know the drill. Most of them
| by very far are about suckering people's money in, no
| matter what the fund is about.
|
| Creat 16 funds, after four years show the prospectus of
| the one fund that performed best. Rinse and repeat.
|
| Actively managed funds are a scam.
|
| Also depending on where you buy it, anywhere from zero
| (good) to 1% entrance and exit fees.
|
| "Scam" is not a strong enough word.
| jefftk wrote:
| We expect some individual traders to beat the market (and
| some to do much worse than the marker); that's variance.
| But each individual trader should not expect to beat the
| market, because they don't know if they're one of the lucky
| ones.
| qwytw wrote:
| > But each individual trader should not expect to beat
| the market
|
| In aggregate sure. But unless we believe that it's
| entirely random some individual investors can still
| certainly expect to beat the market, they just can't
| verify that in advance.
| stouset wrote:
| You're being pedantic in all the wrong ways.
|
| I offer you a bet. We flip a perfectly fair coin. On
| every heads you gain 10% on top of your bet. On every
| tails you lose 10%.
|
| It is fair to say that after 100 flips you may profit. If
| one million people play this game, someone almost
| certainly will. But you can _expect_ to lose money on
| this game. By the end, the average person will have about
| 60% of their original holdings (0.9^50 * 1.1^50).
|
| In this game it's possible for winners to exist. It's not
| even uncommon! You only have to get at least 53 out of
| 100 flips as heads. Unfortunately there's also no
| function that lets you determine a winner in advance, and
| the longer you play this game the greater the expected
| loss.
|
| _All_ of the available evidence shows that publicly-
| available actively-managed funds are essentially playing
| this game. As expected, many have incredible winning
| streaks... right until they don't.
|
| Yes, Ren Tech's Medallion Fund exists. But you can't
| contribute to it; they don't want your money. Because
| that requires scaling market inefficiencies and that in
| and of itself is an intractable problem. Novel strategies
| ripe for profit don't have unlimited capacity. They
| rapidly exhaust alpha.
| qwytw wrote:
| > You're being pedantic in all the wrong ways.
|
| No, I simply disagree with the whole premise, at least to
| a limited extent.
|
| > All of the available evidence shows that publicly-
| available actively-managed funds are essentially playing
| this game
|
| Yeah that's true, I was mostly talking about individual
| investors and/or non public funds.
| gbear605 wrote:
| That's not what "expect" means in statistics. If we're
| rolling 100-sided dice (each person rolls once), no
| person should expect to roll a 1, even though 1% of
| people will in practice roll a 1. Likewise, no one should
| expect to beat the market, even though many will in
| practice.
| qwytw wrote:
| > Likewise, no one should expect to beat the market, even
| though many will in practice.
|
| My only point is only that not every investor is rolling
| the same dice. It's just that it is effectively
| impossible to every verify whether you were rolling a
| 90-sided dice or a 100-sided one. It's rather clear that
| at least in the short to medium term (e.g 2-3 years) the
| stock is not even remotely perfectly efficient (that
| doesn't mean that the overwhelming majority of investors
| are somehow capable of utilizing that fact or that a
| significant proportion of those that did seemingly manage
| to do that weren't just lucky)
| Dylan16807 wrote:
| If you don't know what dice you have, then the reasonable
| way to model that is a random choice of dice.
|
| And doing that gives you the same expectations as
| everyone using the same dice.
| asdasdsddd wrote:
| The catch 22 for active management is that if they are actually
| good then they would just use their strategies to manage their
| own money.
| throwaway3306a wrote:
| The catch 22 for this assumption is that they want to be
| richer than their own money would allow
| samus wrote:
| They probably do. They just make it their day job by selling
| their services to others as well.
| OJFord wrote:
| They do. But if you offer the service to other people, you
| get a lot more money to play with (meaning you can do more or
| different things than you could with less) and get to charge
| performance fees etc. in addition to your own capital gains.
|
| Really, you could say it about absolutely any job, it's just
| a bit more direct with managing money. 'If you were any good
| at writing software you would just sell your own SaaS', etc.
| asdasdsddd wrote:
| That's the common claim, but if you actually look at the
| successful funds that beat market year after year, their
| public fund is always the low yield, experimental
| strategies while the internal funds demolish the market.
| The reality is that most lucrative strategies have a yield
| cap and people who find them quickly surpass the cap so
| they just keep the strategies to themselves.
| OJFord wrote:
| That doesn't really invalidate my point though: the extra
| capital gives the option, and the fees.
| throwaway2037 wrote:
| But why stress about beating the market? Just be the market
| with an ETF that tracks the S&P 500 index. Literally, setup
| auto invest from your paycheck. Go to sleep (Rip van Winkel
| style). Wake up 40 years later and retire comfortably.
|
| Look at total returns over the last 40 years on the most
| popular indices in the world. S&P 500 crushes them all. I see a
| lot of "Internet advice" recommending various MSCI world
| indices. They are all much worse than the S&P 500.
| theK wrote:
| Sometimes I wonder whether ETFs that track top valuation will
| lead to some weird stickyness and overvaluation in say,
| S&P500.
| rblatz wrote:
| I have the same thoughts. Eventually there will be a lot of
| money to be made breaking the s&p 500.
| throwaway2037 wrote:
| Can you explain the "breaking" trade? And why haven't we
| seen more written about it?
| cess11 wrote:
| Not sure what they mean specifically but you've probably
| seen a lot written about it, in terms of BRICS, the
| petrodollar, ARM in China, subsidies on electric cars,
| and so on.
|
| Personally I try to avoid investing in the US for
| political reasons, besides the wishful expectation that
| the empire could fall within my lifetime and hence be a
| not so good investment.
| rblatz wrote:
| Think of when George Soros broke The Bank of England for
| an example of the type of trade.
|
| There is a lot of demand for S&P 500 index , but that
| demand isn't exactly tied to the fundamentals of the
| index, and the price isn't tied to value of the
| underlying companies, it's tied to demand of people
| looking to save money for retirement or a place to store
| a nest egg. This is an opportunity for price discovery to
| get things wrong and eventually the market should correct
| that.
|
| https://www.investopedia.com/ask/answers/08/george-soros-
| ban...
| twoodfin wrote:
| I don't get it. Soros was able to break the pound because
| the UK government was committed to maintaining an
| artificial price. That's nothing like an ETF or mutual
| fund of the S&P 500, which probably has one of the most
| efficient (relative to the capital involved) market price
| discovery mechanisms in history.
| wcoenen wrote:
| Picking the S&P500 over a world index because you think it
| will outperform, has the same problem as picking individual
| stocks over an index. You can't actually know which will
| outperform in the future.
| bluGill wrote:
| You don't need to be the best, just do well.
| throwaway2037 wrote:
| Over 40% of revenues from S&P 500 companies come from
| overseas. That is world enough for me.
| OJFord wrote:
| Or, where in the world do you need to spend your money?
|
| I live in the UK: if I buy the S&P500 over the FTSE100 (or
| even more so the 250, the next 250 largest companies which
| are typically more UK-market-oriented) I'm making a US-
| weighted bet. But maybe I think I'll move there, and
| _should_ have that exposure. Or maybe I spend a lot of
| money all over the world and want a more global exposure
| overall.
|
| I think at least vast majority index is right for basically
| everybody, but you do still need to think about which
| index/indices are most applicable to your
| situation/intentions.
| humansareok1 wrote:
| Has the World Index ever outperformed the SP500 over a
| 40-50 year span?
| rsynnott wrote:
| World indexes are normally somewhat less volatile (they're
| typically _much bigger_; MSCI World is 1400 companies, and
| MSCI ACWI nearly 3000), which may be a useful attribute,
| depending on what you're going for.
|
| (Conversely, there are smaller indexes which tend to beat the
| S&P500, like the NASDAQ100, but there's a volatility cost.)
| wenc wrote:
| The common refrain is that "time in the market always beats
| timing the market".
|
| The implicit assumption in that refrain is that, despite
| periodic dips, the U.S. stock market always goes up over time.
| This has been true since the Great Depression (see graph of S&P
| 500 since 1929)
|
| https://www.officialdata.org/us/stocks/s-p-500/1929
|
| The implicit assumption behind _that_ is that the American
| economy always invents a way to grow. Buffet famously said,
| "never bet against America".
|
| For as long as these assumptions match reality, it's likely
| that passive management will continue to succeed.
| gizajob wrote:
| It's also just capitalism and fiat currency - in a world
| where the money supply _has_ to inflate, the prices in the
| market have to go along with it.
| 317070 wrote:
| That is too strong of a condition. The economy doesn't need
| to grow for passive investing to work.
|
| Even when the economy is flat, passive management works. As
| long as companies are economically productive, capitalism
| will hand over a chunk of the profits to the owners of the
| capital.
|
| Of course, growth increases the size of that chunk year over
| year, but capitalism doesn't stop when growth stops.
|
| Active investing is when you are looking to exceed this
| passive margin by timing your trades well. Active investing
| requires changes in productivity (such as growth).
| kjksf wrote:
| Returns from stock investing come from increasing stock
| prices.
|
| Stock prices increase when earnings of the company grow.
|
| In other words: when the economy grows.
|
| You can argue that Amazon and Apple and Google and Facebook
| etc. will grow earnings even if the overall economy is flat
| or shrinks but I don't see how that would apply to passive
| investing i.e. investing in S&P 500 i.e. investing in 500
| largest US companies.
|
| S&P 500 is U.S. economy and they all are sensitive to
| overall economic situation. If people have less money, they
| buy less stuff. Amazon makes less money, their stock goes
| down. Apple sells less iPhones, their stock goes down. All
| other companies make less money, they spend less on
| advertising, Google and Facebook make less money.
|
| I don't see a scenario where overall U.S. (or world)
| economy declines and S&P 500 doesn't decline.
|
| In fact, declining economy is an argument for active
| investing. Even when overall economy declines, among 6000
| companies listed on stock market there will be some that
| will be growing and if you invest in them, you'll make
| money.
| 317070 wrote:
| > Returns from stock investing come from increasing stock
| prices.
|
| There are other ways to make returns. Return from stock
| comes mainly from increasing stock prices and from
| dividends. But fundamentally, it comes from profits.
|
| > Stock prices increase when earnings of the company
| grow.
|
| There are many reasons stock prices increase. But whether
| it does or doesn't isn't really relevant.
|
| When a company makes a profit, either:
|
| * the profit is reinvested, the value of the company
| grows and the stock price grows, making a return for the
| passive investor
|
| * the profit is returned as dividends, making the passive
| investor a return as well.
|
| No growth needed for the individual companies either. As
| long as they are profitable, they make a steady return
| for the passive investor.
|
| Thought experiment: imagine a company which is going to
| make 1 dollar of profit per year for all eternity, which
| it returns as dividends. For an investor with a discount
| rate of 95%, that company is worth 20 dollars. Say he
| buys the company for 20 dollars. After 10 years, that
| company is still worth 20 dollars, as eternity is still
| eternity, but the passive investor owning the company has
| made 10 dollars from the company.
|
| As you can see, the passive investor made a return,
| despite the company only being profitable, but not
| growing nor shrinking.
|
| You will make a return on your investment when your
| investment makes a profit, that is capitalism. Whether
| the profit is increasing, decreasing, flat or going in
| circles does not really matter, as long as it is a profit
| and not a loss.
| stkdump wrote:
| This is all correct, but missing the higher order. Most
| investors will not take out the dividends, but reinvest
| them. A few might sell, because they are in retirement.
| But assuming that the retired people make up a small part
| of investors, profit is reinvested. Further, people
| invest a percentage of their income for retirement. All
| that means that work income and dividends make the stock
| prices go up and retirement makes the stock prices go
| down. You could say that retired people consume and help
| companies make profit, but it is actually worse for stock
| prices than investment, because the consumption requires
| companies to sell products and services that come with
| cost.
| cess11 wrote:
| For me returns on personal investment in stocks, funds
| and ETF:s consist largely of dividends.
| qwytw wrote:
| > time in the market always beats timing the market > The
| implicit assumption in that refrain is that,
|
| Only if you were fine with waiting 50-100 years. The market
| in 1950 was more or less at the same level in real terms as
| in 1906, of course dividends were way higher back in those
| days. If we take that into:
|
| e.g. if you invested 200$ in S&P 500 in 1906 adjusted by
| inflation in 1950 you would have had ~$1570 in 1950. Which is
| an average annual return of ~4.7% which is not terrible but
| you would have made approximately the same by buying high
| grade corporate bonds just with way less volatility.
| jackcosgrove wrote:
| > American economy always invents a way to grow
|
| There are various macroeconomic models which attempt to
| explain the factors of growth, for example the Solow growth
| model. In this model technological advancement is only one of
| three factors. The others are the savings rate and the
| population growth rate.
|
| According to this model, you may not be able to innovate your
| way to growth if one or both of the other factors are
| contrary to growth. This may sound academic but there are
| concrete examples in the last twenty years of countries that
| have not grown because of a stagnant or shrinking working age
| population, e.g. Japan and Italy.
|
| This has no bearing on the passive vs active debate, as I'm
| fairly confident that passive investing will always be the
| better strategy for a retail investor regardless of the
| growth potential of an economy.
|
| It's just in a country with unfavorable macroeconomic
| conditions, passive investing may be the way to minimize
| losses rather than maximize gains.
|
| The assumption of continued growth will probably hold true
| for the American economy through the end of the century at
| least, so for everyone here investing in US equities it is
| academic. But we can try to decompose an economy into factors
| and use those to check whether we expect growth to occur at
| all.
| throw0101d wrote:
| > _The implicit assumption behind that is that the American
| economy always invents a way to grow. Buffet famously said,
| "never bet against America"._
|
| Or you invest in a total world market fund for better
| diversification.
|
| Diversification would have helped anyone in Japan(-only) in
| 1990, and anyone in the US(-only) in the 2000s. It's a very
| easy strategy nowadays:
|
| * https://investor.vanguard.com/investment-
| products/etfs/profi...
|
| * https://www.vanguardinvestor.co.uk/investments/vanguard-
| ftse...
|
| * https://www.vanguard.ca/en/advisor/products/products-
| group/e...
| immibis wrote:
| And the assumption that the stock market will go up from now
| is itself a form of timing the market. It assumes that now is
| the best buying opportunity in the whole future. I don't like
| that refrain.
| riku_iki wrote:
| > the American economy always invents a way to grow
|
| I suspect American economy grows slower than stock market.
| Last 25 years its about printing debt and money supply.
| acchow wrote:
| The general wisdom is that it's basically impossible for most
| people to tell the good fund managers from the bad/mediocre
| ones.
|
| Except Warren buffet. A lot of people went with Berkshire
| Hathaway and did very well.
| throw0101d wrote:
| > _Except Warren buffet. A lot of people went with Berkshire
| Hathaway and did very well._
|
| Buffett has been underperforming the S&P 500 for about twenty
| years now:
|
| * https://www.linkedin.com/pulse/warren-buffett-has-
| underperfo...
|
| * https://news.ycombinator.com/item?id=37827101
| danielmarkbruce wrote:
| It's sort of self evident - if you are freakishly capable of
| spotting mispriced securities in a market full of smart hard
| working people who are paying attention, you can do better than
| average. If you aren't freakishly capable... you cant.
|
| It's sort of like "does playing pro golf make sense?".
| bumby wrote:
| There's an interesting corollary to this. There's some
| evidence that low-volatility strategies can outperform, at
| least when not using leverage. My working theory is that it
| is due to an overconfidence bias. People who actively trade
| assume they can pick better stocks, or else they wouldn't
| trade. This manifested in more volume in high-beta stocks,
| leaving low beta stocks undervalued.
| gizajob wrote:
| They're only mispriced until they're not though, or they're
| priced well until they're suddenly mispriced. That is the say
| the market is an evolving system varying on the time axis -
| that things are mispriced assumes that time isn't rolling
| along and new events don't happen and new information doesn't
| arrive. Everything's price today is just a guesstimate until
| tomorrow's guesstimate following some new data. Granted it's
| not like the past where whole companies were sitting there
| underappreciated because of a lack of analytics, but at the
| same time coming out of covid companies like Rolls Royce
| (makes aircraft engines) had their prices crash completely,
| then were demonstrably "mispriced" for ages and are still
| recovering now air travel is back to 2019 levels. But the
| price wasn't mispriced when the planes weren't flying, just
| cheap to those who believed covid would get sorted eventually
| and the debt RR took on to survive would get repaid.
| danielmarkbruce wrote:
| The fact they are mispriced then not mispriced at a later
| time is almost the entirety of the reason one has the
| potential to make better than average returns.
| llelouch wrote:
| Active does better much better. If you know how the price moves
| you can easily beat the market.
| abbadadda wrote:
| Source?
| taraparo wrote:
| It is the opposite. Market timing does not work reliably.
| Active management produces worse results on the long run. no
| individual trader or active manager can consistently beat the
| market. however active fonds may have periods (even several
| years) where they out perform.
|
| for private investors buy-and-hold of highly distributed ETFs
| is the best way to do it. The easiest way to get started is a
| one ETF portfolio like e. g. Vanguard FTSE All World or SPDR
| MSCI ACWI IMI. They perform internal rebalancing automatically
| and you virtually have nothing to do. buy them and don't look
| at them for the next 20 years.
| TrainedMonkey wrote:
| Noting that it is possible to beat market, with strategies /
| algorithms that are generally non-public. For example
| medallion fund, see https://posts.voronoiapp.com/markets/Jim-
| Simons-Medallion-Fu... . Note that these crazy performance
| stats are after the steep fixed + performance fees.
| amanaplanacanal wrote:
| Strangely, the other funds operated by the same company and
| actually open to outside investors, have not performed as
| well. It is unexplained exactly why.
| benrapscallion wrote:
| Acquired.fm has a great episode on RenTec medallion fund
| vs their institutional funds.
|
| 'David: The way that some folks we talked to described
| the difference between the institutional funds and
| Medallion to us is that Medallion's average hold time for
| their trades and positions is (call it) a day, maybe a
| day-and-a-half. Whereas the average hold time for the
| institutional funds positions is a couple of months.'
| mikeyouse wrote:
| From some of their legal settlements it seems a not
| insignificant part of their advantage is dreaming up
| obscure illegal tax dodges on short term capital gains
| that are later revealed as such to keep more funds
| invested.
|
| https://www.moomoo.com/news/post/5891516/the-biggest-tax-
| eva...
| humansareok1 wrote:
| Seems pretty obvious that their keeping their best
| returning strategies for employees rather than outside
| investors?
| pfortuny wrote:
| Yep. Statistically, there must be some outlier. Always.
| And... good luck having the data they use to trade and the
| money to just enter into the markets they participate in.
| ryandrake wrote:
| It's possible only in the sense that it is _possible_ to
| flip a coin heads 10 times in a row. One out of 1024 should
| do it. But you don't know which one will until the
| experiment is over and you look back at the results.
| pizzalife wrote:
| Yes, read "The little book of common sense investing" by Bogle.
| graemep wrote:
| On average yes. An index tracker will get the average market
| return ignoring fees, so its returns will be those of an
| average active fund.
|
| However, the active find will charge higher fees.
| aantix wrote:
| Take a look at the automated systems that have resided on
| Collective2 for more than 2 years.
|
| https://collective2.com/grid
|
| There are only a couple that has a large history of trades,
| fairly even equity curves, older than two years, and small(ish)
| drawdowns (< 30%).
|
| In other words, it's difficult but possible.
| hindsightbias wrote:
| Fund was up to $55B in 2022, but they made him take a roomie
|
| https://thenevadaindependent.com/article/lawmakers-approve-d...
| nxobject wrote:
| Oh, that's funny... apparently to reduce the risk of there just
| being one person.
| Cthulhu_ wrote:
| Which is fair, see https://en.wikipedia.org/wiki/Bus_factor
| djkivi wrote:
| Fidelity: Successful investors forget they have an account:
|
| https://www.bogleheads.org/forum/viewtopic.php?t=146347
| BurningFrog wrote:
| That's pretty much how I did it.
|
| I didn't actually forget, of course, but I didn't get around to
| looking at the numbers every year. And when I did, I hardly
| ever changed anything.
|
| Of course, buying Apple in 1997 was also an important factor.
| heresie-dabord wrote:
| > Of course, buying Apple in 1997 was also an important
| factor.
|
| Had the fare, boarded the right train at the right time.
| geodel wrote:
| Funny. Just today I receive main from Fidelity to review my
| account. The only thing I wish to but can't afford to change is
| retirement age to an earlier date.
| pants2 wrote:
| In crypto, successful investors get their funds stolen and then
| later recovered (MtGox, Gemini Earn)
| cm2187 wrote:
| Or go to jail and only get to sell on their release
| AuryGlenz wrote:
| Mine were just stolen by the government and not given back.
| Btc-e.
|
| I'm not bitter or anything.
| kalium-xyz wrote:
| Heh i had this with bittrex
| Mistletoe wrote:
| Those are the lucky ones that get paid back in kind in the
| crypto currency they had. Some like the FTX folks are
| unfortunately paid in the dollar value of their account at
| the time.
|
| Bitcoin was like 15-20k at the time of the FTX collapse and
| is now 60k again like the highs in 2021.
| blcknight wrote:
| Until it gets liquidated and the cash put into state lost money
| accounts because of escheatment rules. You should still login
| once a quarter or so.
|
| https://www.investopedia.com/ask/answers/110415/what-are-dor...
| Mathnerd314 wrote:
| > The dormancy period for IRAs cannot begin until the account
| owner reaches the age at which one must begin taking required
| minimum distributions. As of 2023, the required minimum
| distribution age is 73.
|
| So not until you retire.
| recursive wrote:
| I've been harboring a suspicion for several years that I've
| forgotten an account or two. Maybe I'm one of the fidelity
| investors.
| TeMPOraL wrote:
| Subscription fatigue.
|
| I sometimes worry if I have a forgotten paid subscription on
| an e-mail of mine I don't check, that slowly drains a bank
| account I forgot I have. There's just Too Many Accounts, and
| Too Many Subscriptions.
| ghaff wrote:
| That's the thing with subscriptions. The default is just to
| let them continue to leak. I've periodically discovered
| subscriptions that presumably resulted from me not
| explicitly _not_ checking a box somewhere,
| throw0101d wrote:
| Your link has John O'Shaughnessy being interviewed by Barry
| Ritholtz (two respected folks in finance), and O'Shaughnessy
| later corrected himself:
|
| *
| https://twitter.com/jposhaughnessy/status/115517108366392524...
|
| While I do believe set-and-forget passive investing is best for
| the vast majority of people, last time I checked that Fidelity
| study does not actually exist, and the story is apocryphal (no
| one seems to be able to actually link to it).
|
| If you ask Fidelity about it, they'll tell you it does not
| exist:
|
| * https://www.morningstar.com/columns/rekenthaler-
| report/archi...
| djkivi wrote:
| Thank you.
|
| There are too many of these apocryphal stories out there of
| various kinds. Sorry that this one appears to be too.
| AlbertCory wrote:
| > "Doing nothing is harder than it looks"
|
| He means that when people are screaming at you to _do something_
| because the market 's tanking, you earn your salary by yawning
| and saying, "No, I think we're good."
| dclowd9901 wrote:
| Reminds me of that scene in The Long Short where Michael Burry
| is hemorrhaging money on the bet against CDSes and basically
| everyone has completely turned on him.
| jbs789 wrote:
| *The Big Short, for anyone curious.
| dclowd9901 wrote:
| Thanks for the correction -- I have no idea why I wrote it
| like that, it's one of my favorite movies.
| eppsilon wrote:
| "The Long Short" is the story of the invention of capri
| pants.
| sameerds wrote:
| Completely off-topic. The article is paywalled, and for once I
| decided to go down the subscription rabbit hole. I am viewing
| this in Firefox on Windows. But every "subscribe" button on the
| WSJ page points to an Apple store page for the "app". WTF?!
| rty32 wrote:
| Unfortunately Firefox is often treated as a forgotten child.
|
| I say this as a mostly Firefox user on every platform. When the
| Firefox experience sucks too much, I switch to Chrome or
| Samsung Internet.
|
| (Well, Firefox itself has a number of open bugs that haven't
| been fixed for a long time)
| thevillagechief wrote:
| It was Richard Thaler's Misbehaving: The Making of Behavioral
| Economics book that finally broke through my thick, anxiety
| ridden skull and convinced me to stop reading economic news
| everyday and just forget the the retirement accounts existed. If
| I'd read that book earlier, I'd be up 3X on my positions.
| ChrisMarshallNY wrote:
| I haven't touched my 401(K) in over 30 years. It's done 9-20%
| per year. It's not super aggressive, but will take a hit, on
| really bad markets (the only year it actually lost money, was
| 2020 -and it has completely made up for that. It even made some
| money in 2008).
|
| I ignore the Fidelity calls. Every time a new broker rotates
| in, they try to get me to move my money around.
| benrapscallion wrote:
| Is it invested in an index fund?
| ChrisMarshallNY wrote:
| Yes.
|
| I contributed 50% to a bond fund, as well, but that is
| like, 10% of the total, nowadays.
| lkdfjlkdfjlg wrote:
| > I contributed 50% to a bond fund, as well, but that is
| like, 10% of the total, nowadays.
|
| That's one of the ridiculous aspects of fixed-percentage
| allocations: by constructions those allocations tell you
| that you should get rid of the things that are making you
| the most money, and put it into the things which are
| underperforming instead. (I get that you didn't do that,
| I'm just got reminded of it.)
| carbotaniuman wrote:
| The tradeoff is you lock some of those gains down in
| safer assets. Probably the wrong choice for retirement
| earlier on, but if you need money during an economic
| crisis, say you got laid off, then that might change how
| it's viewed.
| mattmaroon wrote:
| That's very true, but he's had the account for 30 years
| and assuming that means he started it young, 50% in bonds
| is borderline insane. It's a lot more likely to cost you
| a large amount in retirement than bail you out in your
| 30's.
| ChrisMarshallNY wrote:
| Well, what's done is done. I was planning to bail, back
| in my 30's, but changed my mind, and stayed for almost 27
| years.
|
| It still makes more than I spend, but we'll see what the
| future brings.
| mattmaroon wrote:
| That's the great thing about saving, even if you do it
| suboptimally, it still is a lot better than the opposite.
|
| And in hindsight it's almost always suboptimal.
| ghaff wrote:
| You can do insanely stupid things of course.
|
| But saving in some remotely rational and diversified way
| is better than not saving at all even if some bets turn
| out to be better than others.
| Majromax wrote:
| Applying optimal portfolio theory to the long history of
| market returns suggests that the most risk-efficient
| allocation is something like 60% stocks and 40% bonds.
| The diversification reduces volatility faster than it
| reduces the overall return, so equity-like returns can be
| regained by using leverage on the portfolio.
|
| Following this advice _today_ is tricky thanks to the
| persistent yield inversion: you obviously can 't improve
| returns by using short-term borrowing at 5% to invest in
| long-term bonds at 4%.
| throwaway2037 wrote:
| I am not sure that anyone recommends that 22 year olds
| put 40% of their retirement portfolio in bonds! That is
| insanely conservative.
| Majromax wrote:
| That's where leverage comes in. Under more ordinary
| conditions, the 22 year-old would have something like 80%
| in equities and 50% in bonds, using leverage to have a
| net 130% invested.
|
| Under current conditions, that allocation is more
| questionable. The yield inversion means that the expected
| value of a leveraged bond investment is about zero
| (borrowing at a higher short-term rate to lend at a lower
| long-term rate), so any portfolio gains come from anti-
| correlation of bond and stock prices. However, the
| current market worry is more about stagflation than a
| traditional recession, such that inflation leads to both
| higher interest rates and lower equity returns (through
| equity de-leverage).
| mattmaroon wrote:
| Wouldn't the most risk-efficient strategy both depend on
| a large number of factors and also, in any case, start
| off with a higher allocation of equities and move over
| time to a higher allocation of bonds?
|
| The stock market has never not outperformed bonds over a
| 45 year period, maybe even half that, so if you're 20 and
| putting 40% of your savings in an account you can't touch
| until your 65, you're kind of just chucking money down a
| well right?
| Majromax wrote:
| > Wouldn't the most risk-efficient strategy both depend
| on a large number of factors and also, in any case, start
| off with a higher allocation of equities and move over
| time to a higher allocation of bonds?
|
| Not really. The most risk-efficient strategy optimizes
| the ratio between expected return (less the risk-free
| rate) and volatility (standard deviation), regardless of
| the absolute value of those parameters.
|
| If that optimal allocation has too much risk, such as for
| the near-retiree, then the investor can keep a fraction
| of their portfolio in the mix and the other half in cash
| (money market, paying the risk-free rate). If the
| allocation has too little risk, then the inverse applies:
| borrow on margin (at approximately the risk-free rate) to
| invest more than 100% of net assets into the mix.
| SkyBelow wrote:
| Isn't the point to change as you get closer to
| retirement? When your investments have a decade plus to
| recover, leave them in aggressive investments. There is a
| risk that a decade+ recession might mean delaying
| retirement, but in that situation delaying retirement is
| likely the best option even if your money was in s safe
| investment.
|
| Once you are close to needing some amount of money, say X
| a year, then you don't have time for that X to recover,
| so the idea is to move X into a safer investment so it
| won't go up or down. Any money you don't need is still in
| aggressive options that have time to recover. Now you
| need X money every year, so you decide how many years you
| want to sacrifice growth for safety. Maybe 5 years, maybe
| 10 years. Call it Y years. Simulations show the historic
| optimal Y, though I don't recall the exact number and
| some people might want to gamble depending upon how much
| freedom they have to change X if needed. So X*Y is
| roughly the amount of money that needs to be in safer
| investments.
|
| This all ends up being too complicated a math equation to
| optimize for the average person, so percentages are given
| that are much easier to follow which roughly work as a
| solution to this equation.
|
| Individuals should be able to come up with their own
| plans based on what they want. For example, if I'm
| heading towards an early retirement, I might leave all my
| money in aggressive investments because if a market
| downturn hits, I'm okay with working a few more years
| before retiring. I'm also aiming for a retirement with
| big X spend a year, but have plans on how to live life if
| I have to move down to medium X or small X. Others might
| be aiming for a retirement of X and won't be able to make
| finances work with les than X, so they have to take a
| much safer approach to guarantee a retirement that
| doesn't lead to running out of money.
| ghaff wrote:
| It really depends upon your age, your financial
| situation, what you want to do in terms of passing down
| money--and, as you suggest--if retirement means opening
| the money funnel on extravagant vacations... If you're
| comfortable with your ongoing situation with very
| conservative investments, that's probably what you should
| do. If you want to play the typical equity numbers over a
| reasonable timeframe, that may be a better bet. I've
| certainly been ratcheting down my equity, especially
| individual stocks, over time even if the expected value
| is probably lower.
| milesvp wrote:
| You are thinking about it backwards. Humans have a
| tendency to buy high and sell low. It seems to be a
| psychological benefit of some sort that holds us back in
| abstract market scenarios.
|
| By having a fixed percentage portfolio you are forcing
| yourself to sell high and buy low.
|
| This was also the only basic strategy that mathematically
| beats the market based on papers I read during
| undergraduate (there may be others now). Basically, by
| splitting investments among higher and lower investments
| that are out of phase you can make sure that you are
| moving money out of an investment before it falls and
| into it before it rises.
|
| What I find interesting is that the advantage only works
| with discrete periods of rebalancing. Instantaneous
| rebalancing doesn't provide any advantage. I do not
| understand why but I saw a paper that showed that being
| able to take advantage of phase shifts in nearly
| correlated signals goes to zero as delta t goes to zero.
| lkdfjlkdfjlg wrote:
| > By having a fixed percentage portfolio you are forcing
| yourself to sell high and buy low.
|
| Yes, and the things you sell high are the ones that
| performed well in the past, so you'll have less of those
| in the future, which is what I said. I'm not thinking
| about anything backwards.
| UncleMeat wrote:
| The question is whether "thing that did well in the past"
| is more or less likely to do well in the future than
| "thing that did less well in the past." This seems to
| vary somewhat by "thing."
| milesvp wrote:
| If you can time the market, then by all means, do that.
| The reason periodic rebalancing works, is because stocks
| and bonds don't exclusively go up (or down). By
| rebalancing you can take advantage of a racheting effects
| as a result of signal variance. By rebalancing at set
| times, you can overcome the psychological effects of
| waiting just one more day to get gains that then
| evaporate while you watch.
|
| I'm having a hard time finding the paper around
| instantaneous rebalancing eroding the effects (or any
| good papers atm). But you can model this very easily. You
| can take 2 signals that randomly walk up or down. One at
| a "high apr" and one with a "low apr". I'm not sure if it
| matters, but typically I'd expect the lower apr to have
| lower variance of the 2. Most of the literature around
| rebalancing assumes lower volatility of at least one
| asset class, but I'm not convinced it's necessary from
| some of the math I've seen. You may need to add an
| assumption of correlation between the 2. Be sure to
| include code that if a signal reaches 0 it stays there.
| Be sure to backtest as well. Few strategies work in a
| bear market, but rebalancing is expected to still
| outperform when markets go down.
|
| Kelly criterion is another thing to look up. It's a
| mathematical look at betting stategies and what's the
| biggest bet you can afford to make in the long term given
| that no bet is 100% gauranteed.
| lkdfjlkdfjlg wrote:
| You're making this sound more complicated that it is.
| Correlations, random walks, backtesting, strategies,
| rebalancing, kelly criterion, have nothing to do with
| this.
|
| Bonds give you cash later. Cash loses value over time.
|
| Stocks give you a participation in the best companies in
| the world.
|
| Bonds versus S&P I know which one I'm holding. Good luck
| with your thing.
| refurb wrote:
| Your falling for the same trap as most novice investors -
| past performance has no predictive value of future
| performance.
|
| In fact, high performing equities if anything tend to
| fall and regress to the mean.
| ozim wrote:
| Not underperforming but with less risk. If something goes
| to the moon there is high chances it will drop back to
| the ground. So you want to put some of that growth into
| something that will keep on flying.
| lkdfjlkdfjlg wrote:
| I guess we think about risk very differently.
| njarboe wrote:
| I think that this holding stocks and bonds and then re-
| balancing every year or so is advice from back in the
| 1980's when historically bonds got under valued when
| stocks boomed and vice versa, so this made sense. I don't
| think that works so well now, especially when we had zero
| or negative interest rates for such a long time. If you
| can tolerate the risk (have a large amount of assets
| relative to your spending), investing in close to 100%
| stocks for retirement makes more sense.
| mcguire wrote:
| The volatility of stocks is much higher than that of
| bonds or some other asset classes. If your time horizon
| is shorter than, say, five years, or if you are the sort
| of person who checks your portfolio daily, keeping a
| portion of your portfolio in bonds will drastically
| reduce your personal volatility.
|
| I have an inherited IRA that I am required to take
| mandatory withdrawals from; I keep part of it in bonds so
| that I don't have to sell my stock funds when they're
| down.
| throwaway2037 wrote:
| Bond funds are weird to me because you cannot hold to
| maturity to realize yield-to-maturity. The only point to
| them is to get coupon payments. Is your bond fund total
| return or, if not, what do you do with the coupon
| payments? To me, it just seems better to buy outright mix
| of 2yr and 10yr US treasuries and always hold to
| maturity.
| chii wrote:
| > just seems better to buy outright
|
| which is fine, but you're just adding administrative
| burden on yourself.
|
| The bond fund is doing exactly what you're trying to
| achieve, except that they reinvest the bond capital back
| into new bonds when they mature. You get the coupon
| payment as income, and you sell the bond fund when you
| want capital back.
|
| The price of the bond fund is a reflection of the value
| of the bond at market prices - exactly as if you would
| yourself, if you held the bond directly, and wanted to
| sell before maturity.
|
| You might eek out a tiny bit of efficiency due to lack of
| fund fees you pay, if you held bonds yourself - but then
| the administrative burden you have to do yourself is
| going to cost just the same imho (via time taken for
| example).
| throwaway2037 wrote:
| I don't work for Interactive Brokers, but I do periodically
| shill for them here on HN! Their market access diversity and
| rock bottom fees are very hard to beat. It should be possible
| to transfer a 401k in-whole with zero tax consequences nor
| booked trades.
| TacticalCoder wrote:
| Yeah... At times I just take funds I like, read what they
| re actually made of, and replicate their holdings in IBKR.
| This way I dodge the fund's 0.5% annual fees and
| performance fees.
|
| 39 cents per transaction is hard to beat.
|
| The lump sum of cash on the sideline gets you 4.83% on IBKR
| (as long you have $100K+ on he sidelines). Cash secured
| puts you sell bring you yield on the USDs securing the put.
|
| Financial reports they make are top Noth and entirely
| configurable.
| usaar333 wrote:
| > the only year it actually lost money, was 2020 -and it has
| completely made up for that. It even made some money in 2008
|
| How did you manage to not lose money in 2022? Almost every
| asset class was negative then.
| pc86 wrote:
| Most people just look at the balance and forget (in the
| self-preservation, "I want to be right" kind of forgetting)
| that they contribution $20k+ that year so unless you've got
| a multi-million dollar 401(k) or the market was down 10%+
| across the board you're very likely to see more on December
| 31st than was there January 1st regardless.
| ghaff wrote:
| I'm not sure that's quite fair. Unless it were 2001 or
| 2008 people look at their balances and see they're
| generally up unless they made some big gamble and at
| least unconsciously conclude they probably did as well as
| they reasonably could. But that may be what you're
| saying. Worrying about a percent here or there probably
| isn't worth it for most people.
| pc86 wrote:
| We're saying the same things, I just meant you could
| actually lose a lot of money but see your balance go up,
| especially with smaller portfolios. As your portfolio
| gets bigger it's less likely to happen because eventually
| a single-digit loss over the course of a year might be
| enough to wipe out more than the max contribution.
| ghaff wrote:
| Yes. Even if your overall balance is going up, it makes
| sense to keep your eye on doggy investments. I really
| cleaned shop a couple years ago and I'm glad I did.
| dralley wrote:
| I've done well (39% annual returns) investing in 2-3 individual
| stocks in addition to index funds for the rest of my
| investments. More than that would be IMO too much to pay
| attention to.
|
| Admittedly my choices for stocks are a bit on the high-risk
| side, but it's worked out well so far. Picking up lots of AMD
| in 2017, and Rivian 6 weeks ago, seems to have been decent
| calls.
| zeroonetwothree wrote:
| Sorry but I never believe these online claims given with no
| evidence about ridiculously high returns. It's not to say you
| are lying but it's easy to miscalculate these things.
| ghaff wrote:
| Yeah, I've done quite well with a few specific (tech)
| stocks that were reasonable picks (and some modest bets
| that were simply wrong). (Which I mostly funneled into a
| charitable trust that pays an annuity.) But I certainly
| wouldn't put all my money or even most of it on such a bet.
| Even if I think I have a better insight than John Q. Public
| into something, there are so many variables.
| BeetleB wrote:
| He's talking about 7 years. Lots of people do very very
| well on short timeframes. They usually balance out in the
| long run.
| dralley wrote:
| I bought into AMD stock when it was $10 per share, it's
| now $180, yes it's a bit lucky but I'm not bullshitting.
|
| It seemed quite logical to me at the time that they would
| do well. This was right as Intel was being savaged by
| Meltdown and the performance hits of the mitigations and
| Zen 1 was successful.
| wingworks wrote:
| But will you sell in time for all that growth to not be
| eroded away? Tech has been doing really well last few
| years, but it won't last forever looking at history. So
| when do you sell, and what do you buy when you sell.
|
| This is why people opt for low fee index funds, like a
| total stock market fund. It'll always be in the right
| companies.
| dralley wrote:
| As noted in my original comment, a large portion of my
| savings / retirement IS in index funds. My individual
| stock investments represent such a large percentage of my
| account only because they've done very well, not because
| I dumped all my money into them.
| dukeyukey wrote:
| I did something similar albeit more recently - I saw
| Nvidia was doing _extremely_ well, and figured it would
| pull AMD up as one of the few genuine competitors. I was
| right.
| Cthulhu_ wrote:
| Anecdotally I can confirm there's been a few 40% years in
| the past decade, but it really is a gamble, and because of
| survivorship bias it's easy to only hear about the ones
| that gained and not the ones that lost.
| wingworks wrote:
| I started my investing journey about 5 years ago, started
| with stock picking, and my average yearly return is...
| 4.5% p.a. I would've 100% been better of investing in a
| low fee index fund, like S&P500 (VOO), or even just a
| world ETF like VT.
|
| I picked some winners, like Microsoft / Google, both up
| 150%, but they're tiny fraction of my total portfolio, so
| hardly returned anything all counted up. I did 170% at
| one point with Tesla too, but didn't sell at the peak. So
| ended up with 4.4%p.a. over 5 years.
|
| Save to say I don't stock pick anymore and just buy VTI
| (kinda like VOO) and some VT.
| HenryBemis wrote:
| Lore has it that SP500 doubles your money every 7 years.
| If someone is 60 and just started, well, it's not going
| too high.
|
| But for someone who is 20something and begins placing
| $EUR200 per month in SP500 (preferably somewhere with the
| lowest possible fees), and does so every month for all
| the years he/she works, then there is a very nice
| surprise waiting for them (and their kids) later in life.
|
| Keep in mind, investment funds don't die like our
| pensions, they are transferred 'down'. So even if someone
| has e.g. 200k when they have kids, by the time those kids
| turn 21, that 200k would have turned to 0-7yo 200k->400k,
| 7-14yo 400k->800k, 14-21yo 800k->1600k. It needs
| discipline and consistency though.
| plasticchris wrote:
| Can't argue with the math but there are still risks
| (inflation, the government that issues your currency,
| etc). I've seen people sell all investments to buy all
| the supplies they need to live out their lives, and I
| used to think it was insane. But it is just a different
| sort of hedge.
| throwaway2037 wrote:
| Thanks for the assumed honest post. How are your returns
| after switching to indexed?
| wingworks wrote:
| Up 13% since March. (I only recently switched to index
| funds, so far it's good)
| gizajob wrote:
| You could have doubled your money on Nvidia since January??
| Look at the charts for all the evidence you need. There's
| survivorship bias in all the claims but it's easily done
| for the survivors.
| bobsmooth wrote:
| I 10x with NVDA, but I got lucky. It's like winning the
| lottery.
| francisofascii wrote:
| I believe it, but remember we only hear about the success
| stories. The people like me who bet on losers are not
| posting their stories.
| patmcc wrote:
| It's incredibly believable if you remember there are
| equally many (very quiet) folks with portfolios down
| 20/40/60%.
| jandrewrogers wrote:
| Anecdotally, the prior decade had a few years that returned
| >40% for many people that weren't indexing, and averaged
| well above the S&P500 over that period. The market
| conditions were nearly ideal for making those kinds of bets
| in the 2010s. We are no longer in that market and ZIRP is a
| fading memory. Part of being a more active investor is
| recognizing periods of years when certain strategies are
| likely to be profitable and robust and when they are not,
| and adjusting your investments appropriately.
| dukeyukey wrote:
| So I use the Freetrade app for my "fun" investments. I've
| got about PS2k in there, and I've had it for about 4 years
| now.
|
| There's a section where you can check the "Time-weighted
| rate of return", basically removing the effects of deposits
| and withdrawals. Their wiki says this is usually the best
| figure to compare portfolio performance.
|
| Over that time, my performance has been 337%. The
| performance of the FTSE All-World Acc has been 67%.
|
| Apparently I'm _massively_ outperforming the world market,
| which I'm a little suspicous of. I'm mostly invested in
| tech since I'm a software engineer - I got real lucky with
| both ARM and AMD, investing days before they skyrocketed,
| but also got good returns from TSMC (took ages though),
| Coinbase, and Games Workshop.
| iamacyborg wrote:
| GW seems to be mostly flat though the dividends are nice.
| I wish I'd bought a chunk a decade ago
| dukeyukey wrote:
| I only bought about a month ago, and I'm up 10% already,
| plus a round of dividends. I'm not trying to time the
| market, I just think GW is a great company with a
| lucrative future.
| arcanemachiner wrote:
| With enough darts (and monkeys throwing them), you're bound
| to get some outliers over time.
| throwaway2037 wrote:
| Have thought to start your own fund? If what you say is true
| (which I doubt), you can make squillions in fees.
| ghaff wrote:
| Great read. I actually recommend it over Nudge. I had him as a
| professor at Cornell for a couple courses before "behavioral
| economics" was a term.
| EVa5I7bHFq9mnYK wrote:
| It depends. I had a pension plan that grew x2 in 17 years
| (don't know what they invested into). My own investments grew
| much faster than S&P though.
| thevillagechief wrote:
| I should have clarified, this is a 401K, not a pension plan.
| So it's just passive index funds. I don't even think of
| pensions as a thing anymore.
| throwaway2037 wrote:
| Is that pension plan defined benefit or defined contribution?
| embwbam wrote:
| What about the book made the difference? I'm 100% convinced
| that it's better to do as you say, and forget about the
| accounts, and also unable to resist the temptation to check
| them every day. I'm constantly tempted to make changes.
| rr808 wrote:
| In general avoiding fees is definitely a good thing. Its one of
| those things that hindsight finds the best strategy and they were
| kinda lucky about the crazy bull market in the USA in this time.
|
| If you were a Pension fund in France, Australia, UK, Japan, China
| etc and put all your money in the local passive index tracker
| you'd maybe double your money in the last 20 years but way under
| perform S&P which is like 6x in that period.
| immibis wrote:
| This is true. Of course, when you have many indices, with
| random returns, some of them will perform well, but past
| performance doesn't guarantee future results.
| throwaway2037 wrote:
| Except the performance of S&P 500 isn't random. Over a long
| horizon, it is explained by economic policy and resulting
| economic conditions. There is a reason that most EU and LatAm
| nation indexes have done so much worse in the last 25 years:
| Worse economic policy. I still have high hopes for China
| equities.
| jvanderbot wrote:
| > Except the performance of S&P 500 isn't random
|
| Is this a controversial opinion? The _most_ I could say
| without feeling like a total liar is: It is probably random
| around some signal, and that signal is indirectly affected
| by economic policy in ways that are itself not perfectly
| deterministic. Is it I who is out of touch?
| emacdona wrote:
| To any fund manager out there that truly believes you can beat
| the market, here is how you can sell me your fund:
|
| We agree on an index and a time frame. You guarantee me the same
| return as the index within that time frame. If you beat the
| index, you keep 90% of returns ABOVE the index (and I get 10%).
| We both win, and you win big.
|
| If you don't beat the index (within the time frame), you make up
| the difference (so I get the return to the index).
| jppittma wrote:
| I feel like some creative use of beta could make this a very
| lucrative deal for a patient, but unscrupulous fund manager.
| Findeton wrote:
| Fundsmith for example has beaten the market for a long time
| (not this year though). I can also mention another Spanish fund
| that I know: Tercio Capital.
|
| https://markets.ft.com/data/funds/tearsheet/charts?s=GB00B4Q...
| https://www.finect.com/fondos-inversion/ES0174115057-Cinvest...
| cjblomqvist wrote:
| There are some research (instead of cherry
| picking/anecdotes). I don't have any links right now but
| basically half of the funds lose compared to the index (by
| law of nature - averages and all that). Furthermore, taking
| fees into account, just a few percentages make anything more
| (over time) - which is probably within scope of randomness.
| Findeton wrote:
| In general hard working prudent value investors are able to
| beat the index. It's just that those are very few. I mean
| Buffet has done it for half a century, that's not a
| coincidence.
| p_j_w wrote:
| Given the statistics and number of investors involved, it
| seems like an absolute certainty that a few people would
| beat the index for the entirety of their lives simply by
| chance.
| Findeton wrote:
| Yes some people might do it by chance. Some other people,
| they do it by knowledge.
| sdenton4 wrote:
| Find me the one who knows they got there by chance
| alone...
|
| It's very easy to create a narrative around random
| movements. I expect that anyone who is ahead of the
| market creates such a narrative, and declare themselves a
| genius. And then half of the geniuses underperform each
| year, same as every year...
| p_j_w wrote:
| How do you tell one from the other?
| cjblomqvist wrote:
| Half will beat index by definition. The key is to beat it
| including the cost of beating - and we've also seen that
| the extra value have generally been captured by the fund
| managers - not the fund buyers.
| abound wrote:
| An important component of a bet like this: you should base the
| win/lose calculation on returns _after accounting for fees_.
| The index fund likely has fees that are two orders of magnitude
| lower than the active fund. Otherwise, a random fund may beat a
| broad index just by chance.
|
| Warren Buffett's very similar bet was done this way.
| Scarblac wrote:
| You won't have any guarantee that they will be able to make
| good on their promise and won't just go bankrupt.
| bandyaboot wrote:
| You're probably aware that no fund manager would accept your
| offer. But it doesn't prove that they don't think they can beat
| the market (as misguided as that belief might be), it just
| means they're not willing to take on an absurd amount of risk
| to prove it.
| cjblomqvist wrote:
| Exactly. No point being the one taking the risk - if the
| professionals don't dare take the risk then any non-
| professional (fund buyer) shouldn't either (under normal
| circumstances).
|
| PS. Furthermore, an accurate comparison is not beating the
| index, it's beating it enough to cover the
| salary/compensation of the fund manager + some (with less
| risk! Risk = cost!)
| bandyaboot wrote:
| Well I think many fund managers regularly take on risk to
| achieve higher returns. They just won't take on 100%
| downside risk while being taxed 10% on the upside.
| emacdona wrote:
| I think this gets at a deeper point I'm trying to make.
|
| If you truly can consistently beat the market, you are
| already making a killing with your _own_ money.
|
| If you want to use _my_ money to place your bets
| (presumably b/c you want to leverage your market beating
| ability), I want a guarantee (because I'm more than happy
| to take the return of the index).
| DistractionRect wrote:
| I follow, essentially you're viewing it like a loan +
| interest + a minor stake in the venture. If the venture
| fails, you still expect to repaid loan + interest and
| your stake in the venture is worth $0.
|
| Unfortunately no one will agree to this as long as
| everyone else is willing to invest _and_ shoulder the
| risk
| ImPostingOnHN wrote:
| It sounds like they're simply critically evaluating the
| claims of beating the market.
|
| If you can't beat the market with your own money, you
| shouldn't be trying to do it with someone else's.
|
| If you _can_ beat the market with your own money, why are
| you so worried about the downside? There should be little
| risk for someone who claims to be able to beat the
| market.
|
| If they say that's too much risk, they likely don't think
| they can consistently beat the market.
| jancsika wrote:
| You've just found a way to restate "they don't truly
| believe they can (consistently) beat the market."
|
| On the flip side-- a passive fund manager _would_ take
| 100% downside risk of the fund failing to properly track
| the index, and only in return for a modest fee. Stated
| differently-- passive funds can and do consistently track
| the market.
| dullcrisp wrote:
| That's fair. I'd do it for just 1% of the upside.
| Maxatar wrote:
| That's right, fund managers expect their clients to take
| 100% of the downside risk and tax their clients 20% on
| the up side.
|
| Where I disagree with you is that fund managers regularly
| take risk. They never take risk themselves, rather they
| supply all of the risk to their clients.
| emacdona wrote:
| I don't think the risk is "absurd". Or, at least it's no
| different than the risk they ask any investor to take by
| charging them 1% of their portfolio for it to be "actively
| managed".
|
| Plus, they are being compensated. I'm offering 90% of the
| returns above the index :-)
| stouset wrote:
| Exactly.
|
| Active funds ask investors to accept 100% of the downside
| and get taxed on the upside. Actually it's worse: they're
| taxed on _both_ the up and down sides.
|
| If this is a terrible deal for fund managers then virtually
| by definition actively-managed funds are a terrible deal
| for investors.
| joe_the_user wrote:
| The risk your (completely hypothetical) offer would involve
| is reputational. There's no reason for a funds manager to
| ever risk their reputation on your stunt since they are
| constantly risking money and reputation in the ways that
| they control. Indeed, one could almost certainly put
| together a bet similar to yours using derivatives and have
| the potential upsides and downsides without the
| reputational damage.
|
| Of course, if you offered your bet to all comers and gave
| significant publicity, unknown "funds managers" would be
| happy to take you up, though they might well default if
| they lost.
| mort96 wrote:
| I mean it does mean that they don't have faith in their
| ability to beat the market on average across significant time
| spans.
| KptMarchewa wrote:
| Or, it's just that risk management isn't about faith.
| mort96 wrote:
| In my eyes, "we have sincere faith in our ability to
| sustain higher-than-market returns on average" and "our
| risk management calculations tell us that we will have
| beat the market on average with very high probability"
| are the same statement.
| the_cat_kittles wrote:
| it points out the inherrent bullshit to the current
| arrangement
| hhmc wrote:
| Why would anyone take the other side of this bet? It's an
| incredible financial instrument, that anyone on the buyside
| would buy in an instant (as formulated -- ignored fees/tcosts
| etc).
| stavros wrote:
| If I can consistently make more than 10% on your money, I'll
| take the other side.
| hhmc wrote:
| If you can consistently make more than 10% you don't need
| to hamstring yourself with this terrible deal, you can just
| get investment on typical terms.
| stavros wrote:
| If I can consistently make 30%, this terrible deal will
| make me 20%, whereas the typical terms of management fees
| will make me 5%.
| swexbe wrote:
| If you can consistently make 30%, a bank loan will make
| you 24%.
| stavros wrote:
| Fair point. I don't know why BlackRock did it, then.
| stouset wrote:
| > Why would anyone take the other side of this bet?
|
| People accept this bet every single day... when they buy
| actively-managed funds.
|
| Actually they accept a worse bet. Instead of taking 100%
| downside risk and being taxed on anything above the index,
| they're taxed on both gains and losses.
|
| You're right that it's an incredible financial instrument.
| Actively-managed funds are extremely profitable... for fund
| managers, who get paid out of investors' assets in bad years
| and also get to skim off the gains in good years.
| paxys wrote:
| Where will they find the money to pay you if they lose?
| cess11 wrote:
| If they don't they'll enter bankruptcy proceedings and their
| assets get sold and divided between creditors.
| otoburb wrote:
| Sounds similar to recently launched buffer ETF products,
| specifically BlackRock and Innovator that hedge 100% of
| downside while capping your upside across different time
| horizons indexed to the S&P500.[1]
|
| [1]
| https://www.bloomberg.com/news/articles/2024-07-01/blackrock...
| dmurray wrote:
| They don't guarantee you zero downside compared to investing
| in the index, though, but compared to putting your money
| under the mattress.
|
| It's relatively easy to achieve a return profile like these
| promise with some combination of Treasuries and index options
| (at least while Treasuries pay 5%!), and the ETFs are doing
| this kind of financial engineering rather than promising to
| beat the market through stock-picking skill.
| ProjectArcturis wrote:
| The point of actively managed funds is not so much to "beat the
| market", it's to provide diversified returns via strategies
| that are uncorrelated with the market.
|
| On average, the S&P500 has returned about 7% annually. If I had
| a strategy that returned 5% on average but was totally
| uncorrelated with the S&P, then you'd get the best overall
| long-term returns (maximize the geometric average of annual
| returns) by investing in a combination of my strategy and the
| S&P.
| dv_dt wrote:
| Well then you could establish a simiar pay critera that beats
| the s&p 500 during recessionary moves of the index. Im
| guessing you wouldn't get many takers
| trpotter72 wrote:
| Uncorrelated returns is the key here, not inverse.
| dv_dt wrote:
| So how would you quantify non-correlation? I mentioned
| recession events because thats a significant movement
| when you most want to avoid correlation.
| daedrdev wrote:
| My impression though i that most of these firms are highly
| correlated with the market despite their attempts at
| otherwise
| dukeofdoom wrote:
| Is the 7% post inflation?
| darkwizard42 wrote:
| No, it is likely the rate of return. There is generally no
| such mention of inflation in investment returns. The
| alternative to investing your dollar is to put it in a
| treasury (inflation tracked), so you can compare the value
| of your money against that as the lowest risk (the US
| defaulting) vs. other forms of risk.
| bityard wrote:
| No need for "likely," it's easy to look up:
| https://www.nerdwallet.com/article/investing/average-
| stock-m...
|
| The average return of the S&P 500 is around 10%, although
| you will see people use 7% as a shortcut to account for
| inflation when estimating the future value of their
| portfolios.
| TeaBrain wrote:
| The citation of 7% as the true return isn't a "shortcut",
| though a nominal return of 10% could be argued to be, but
| an acknowledgement that total returns are not real
| without accounting for inflation. If an hypothetical
| index in a developing country rises by 50%, but inflation
| is 100%, then even though the nominal index returns may
| look impressive, it has actually had a negative real
| return, as the real inflation-adjusted value has
| decreased. The use of nominal terms for market returns is
| money illusion.
|
| For the 50 year period from January 1974 to January 2024,
| the annualized inflation adjusted real return of the S&P
| 500 has been 7.04%, which is not a shortcut, but simply
| correct. The nominal annualized total return has been
| 11.14%, but it is an illusory return of value without
| being inflation adjusted.
| bityard wrote:
| What's the reason for picking January 1974 as the
| starting date?
| bityard wrote:
| I want to agree with you, except that almost all of the
| salescritters for these products promote them as "beating the
| market." They _have_ to sell them this way because if their
| customers had any idea what the whole-market returns actually
| were, they wouldn't pay extra for the privilege of a far
| riskier (and lower-performing, on average) investment.
|
| And the S&P 500 returns more like 10% per year. A bit higher
| if you cherry-pick your start and stop dates. I've only seen
| people use 7% for portfolio value estimation purposes, after
| adjusting for an assumed 3% inflation.
| HFguy wrote:
| SP500 had not returned 10% a year historically. And really
| would want to look at returns above the cash rate.
|
| And the SP500 has had unusually good performance relative
| to other equity indexes. Would not count on that forever.
| TeaBrain wrote:
| Those returns depend on when you invest. The inflation
| adjusted annualized return of the S&P 500 was negative from
| January 2000 to January 2013 at -0.25%. The inflation
| adjusted total annual return from January 2000 to January
| 2024 was 4.5%.
|
| https://ofdollarsanddata.com/sp500-calculator/
| bityard wrote:
| Sure, you can get lower returns as well by cherry-picking
| the start and stop dates, especially for shorter
| intervals.
|
| When economists say things like, "the market returns X on
| average," they always mean over much longer periods of
| time than your example.
| Maxatar wrote:
| This is a kind of revisionism that mostly took off after
| Warren Buffet won his bet that hedge funds would not
| outperform the market over a 10 year time period.
|
| The original goal and selling point of hedge funds was to
| produce consistent results regardless of the market's
| performance by using long and short positions to provide
| absolute returns in any market environment.
|
| With that said, even if you accept the revisionism, it's
| untrue that actively managed funds are uncorrelated with the
| market. What is true is that selection bias makes it seem
| like they are since when interest rates rise and markets go
| through a down swing, the majority (and yes I mean more than
| 50%) of hedge funds go out of business. As such the only
| hedge funds that remain are the ones that happened to weather
| the storm so to speak.
| pipes wrote:
| I find this really hard to believe. I could be wrong but all
| the alpha type funds don't seem to advertise themselves as
| this.
| gosub100 wrote:
| so there are investors who _want_ to lose? I 'll happily lose
| money on their behalf :D
| financltravsty wrote:
| You are not an UHNW individual/institutional investor, so no
| "fund managers" of any note are going to waste their time on
| this wager.
|
| "Beating an index" is really easy. Up to $10MM you can choose
| most any financial instrument class in the U.S markets and have
| a good probability of finding alpha for a long time (that would
| beat the S&P500 18.40% YTD). Many proprietary trading firms, or
| market makers, or quantitative trading shops do this regularly.
| Discretionary and systematic funds? Usually not. If their
| processes worked consistently, they would have no need to take
| outside capital and deal with relationship management. They
| could simply use more leverage (not exactly, but simplified for
| the general reader).
|
| This is also ignoring the fact there are no details in TFA
| about actual portfolio compositions or returns -- i.e. this is
| a PR piece.
|
| If your NW is under <$100MM, you should be focusing on hyper-
| growth strategies -- and not mentally limiting yourself on what
| is basically financial propaganda.
| dkekenflxlf wrote:
| ++1!!
| archagon wrote:
| What are "hyper-growth strategies"?
| financltravsty wrote:
| Anything entrepreneurial where there are outsized rewards
| for amount of risk taken.
|
| I.e. not working a career unless it's necessary to build
| contacts or learn the "secret sauce" that you can leverage
| for the aforementioned
| toomuchtodo wrote:
| https://longbets.org/362/
|
| > "Over a ten-year period commencing on January 1, 2008, and
| ending on December 31, 2017, the S&P 500 will outperform a
| portfolio of funds of hedge funds, when performance is measured
| on a basis net of fees, costs and expenses."
|
| Predictor: Warren Buffett | Challenger: Protege Partners, LLC
|
| https://longnow.org/ideas/warren-buffett-wins-million-dollar...
| ("Warren Buffett Wins Multi-Million Dollar Long Bet")
| KMag wrote:
| Disclaimer, I work for a market-neutral fund, and have close
| friends high up in prop shops.
|
| Presuming all strategies have a curve of diminishing marginal
| returns as assets under management increase, you would not
| expect any fund accepting outside money to have expected
| returns beating the market, but you would expect many of them
| to have a combination of correlation to the market and expected
| returns that would make them an attractive component in a
| basket of broad index ETFs and market-neutral funds. (Assuming
| risk-adjusted returns are the utility function being optimized.
| If variance is their preferred risk metric, this results in
| optimizing Sharpe ratio via mean-variance optimization, MVO.)
|
| It's fair to assume that any fund manager is optimizing the sum
| of returns from their own personal investments in the fund plus
| fees from outside investors. They pick the place on the
| volume/risk-adjusted-returns curve that still keeps their fund
| attractive enough to outside investors, and maximizes their
| personal profits (personal returns plus fund fees).
|
| If that optimal point on the volume/risk-adjusted returns curve
| for their particular strategy is at a point where risk-adjusted
| returns beat the market, then they maximize their returns by
| either never accepting outside funds (prop shops) or by not
| accepting additional funds and gradually buying out their
| investors (such as RenTech's famous Medallion fund).
|
| So, (assuming diminishing marginal returns) it's not rational
| to simultaneously accept outside investment and beat the market
| on a risk-adjusted basis.
|
| I suspect that many market-neutral funds could reliably beat
| the market on a risk-adjusted basis, but their volume/risk-
| adjusted-returns curve shape and their fee structures make it
| optimal for them to operate at a point on that curve where
| their expected returns are below the market.
|
| Note that this rational self-interest optimization below market
| returns isn't bad for the investors. Under most fee structures,
| it ends up being close to maximizing total investor returns.
| Increasing percentage returns would mean kicking out some
| investors.
|
| RenTech's Medallion Fund and many prop shops, and funds that
| are currently slowly buying out their investors seem to
| indicate there are at least some strategies where the optimal
| volume/returns trade-off is above market returns. You would
| expect all funds that are currently open to more outside
| investment to either be young and lacking capital or else have
| an optimal point on the volume/returns curve that is below
| market returns.
|
| Note that as previously mentioned, a simple mean-variance
| optimization on a basket would allocate funds to both index
| ETFs and market-neutral funds returning a bit under the market
| on average. It's entirely possible that both fund investors and
| fund managers are being perfectly rational.
|
| Of course, there are also plenty of people out there who fool
| themselves into thinking they know what they're doing. The
| world certainly isn't perfectly rational.
|
| I'm just saying that in a perfectly rational world, assuming
| (1) utility function of risk-adjusted-returns (e.g. Sharpe
| ratio, resulting in mean-variance-optimization) (2) declining
| marginal returns on investment, you would expect all funds
| accepting outside investors (except for young funds desperate
| for money) to under-perform the market in expected returns.
|
| Now, everyone talks about Sharpe ratio on the outside, but the
| particular risk models actually used internally by any fund are
| almost certainly not just variance of returns. I presume all
| funds simultaneously apply a mixture of commercially available
| risk models and internally developed risk models. Sharpe ratio
| is far from perfect, but it's a good least-common-denominator
| for discussion, and doesn't give away any secret sauce.
|
| Side note: it would be rational for someone to take you up on
| your proposal and simply use index futures to take a highly
| leveraged position on your benchmark index. As long as they had
| enough money to make you whole in the case of bad tracking
| error and large downturns, their expected returns would be
| large. However, you wouldn't be very smart to take such an
| agreement instead of just getting leverage yourself. This
| demonstrates why risk-adjusted returns are usually more
| important than expected returns.
| HFguy wrote:
| There is a similar but different product (without the downside
| protection).
|
| A fund manager can replicate the index with derivatives and
| overlay their alpha on top of it.
|
| Google "alpha overlay" or "portable alpha" for more info.
|
| These types of products were more popular about 10-15 years
| ago.
|
| Firms typically charge just for the alpha for these strategies.
|
| You are asking for the manager to sell you an option.
| fooker wrote:
| > You are asking for the manager to sell you an option.
|
| For free. This is why no one will agree. But if you price
| this as an option, and pay for the contract I can this
| working out.
| lumb63 wrote:
| Something I don't see talked about enough is the extent to
| which the rise of passive investing increases the extent to
| which passive investing is the best strategy. Passive investing
| is predicated entirely on either freeloading off of the
| decisions of actively managed portfolios, who will adjust the
| market prices of securities efficiently, therefore resulting in
| passively managed funds automatically owning the "best" stocks
| because the bad ones will fall out of the indices; or it is
| predicated on what is effectively a Ponzi scheme wherein if
| everyone passively invests the same, then that form of passive
| investing will yield the best returns.
|
| For analogy, consider school students trying to get all the
| questions right on the test. The first scenario is equivalent
| to one student studying hard to find the right answers. The
| rest of the class copies his answers and benefits from his
| efforts. The other scenario is no student trying hard, them all
| failing, but succeeding because the teacher curves the grades.
|
| Note that both of these scenarios, especially the second
| scenario, results in stock prices which become increasingly
| detached from the economic reality of companies in proportion
| to the extent to which passive investing becomes prevalent.
|
| For instance, assume stock XYZ is a bad investment but is in
| the S&P 500. If 90% of funds are actively managed, maybe they
| can sell a sufficiently large amount of it to push it out of
| the S&P 500 and save the passive investors from owning it. But
| if 90% of funds are passively managed, even if XYZ is hot
| garbage, the 10% of passively managed funds cannot possibly
| sell enough to make up for the fact that 90% of the market
| participants are indiscriminately buying a terrible stock.
|
| Passive investing breaks the market to some extent. The free
| market system is predicated on having rational participants,
| not zombie participants.
| hankchinaski wrote:
| What you describe can be measured with return dispersion, as
| more people invest with passive index more opportunities
| arise for active investors. So they balance each other
| citizen_friend wrote:
| This sounds clever but many funds did exactly that. What's your
| point?
|
| S&P + nvidia was better than just S&P over the last 5 years.
| Dylan16807 wrote:
| The challenge is to beat the market _in the future_ and put
| your money behind that. Not to beat the market _in the past_.
|
| You're giving an example of beating the market in the past,
| which is not useful. You can do that with blind luck.
| citizen_friend wrote:
| Yep I'm just pointing out S&P. Or VTI anre not magic
|
| There are funds that beat them often. Is your claim they
| don't exist? Or that you can't find them.
| Dylan16807 wrote:
| The claim is that there are no funds that can make a
| _convincing_ argument that they _will_ beat S &P.
|
| When you say funds did "exactly that", the "exactly that"
| you're talking about is not the thing OP is asking for.
|
| Taking on 90% of upside and 100% of downside is one way
| to make a convincing argument, and nobody does it.
|
| Let's make the dice analogy. You can't make a convincing
| argument that you _will_ roll a 5, even though people
| roll 5 all the time. Talking about people that rolled 5
| in the past is proving entirely the wrong point.
| Beijinger wrote:
| All this is true, and there are many good comments in the thread
| here. But this "hey dude, stock picking is for idiots and all non
| idiots but index funds" should be treated with caution. Index
| funds are an extremely clever idea but were never meant to be
| used on such a scale.
|
| To give you some ideas:
|
| https://www.forbes.com/sites/chriscarosa/2024/04/02/index-fu...
| tossandthrow wrote:
| There are a lot of unknown for the markets in the future. Also
| the 0 or negative interest rate environments we will probably
| enter (again).
|
| IMHO we need to rethink or tweak the financial system sooner
| rather than later.
| nerdponx wrote:
| On the contrary, that article makes it seem perfectly fine to
| invest in index funds.
| jacobsimon wrote:
| One of my big brain investing ideas is to pick the stocks at
| the top of the index instead of buying the whole index. If
| index funds continue to rise in popularity, the stocks that are
| at the top will benefit most from passive investment volume.
|
| Plus, index funds follow a kind of Pareto principle where the
| top stocks contribute disproportionately to the total return
| anyway.
|
| As I've gotten older though, one of my realizations is that the
| tax-free rebalancing of index ETFs is their most valuable
| property, rather than their actual choice of equities.
| jackcosgrove wrote:
| I had an active manager reach out to me with exactly this
| strategy.
|
| I didn't look at the fees or rebalancing schedule super
| closely, because I didn't want to invest with the guy, but
| IMO his market-beating claims were due to increased
| concentration during a bull market (risk) which could go
| sideways fast if he didn't rebalance at opportune times.
| ghaff wrote:
| Which, without looking, probably means NASDAQ today--and
| certainly the top 50 or whatever tech stocks by whatever
| metric. That didn't look so great in late 2001. Certainly
| my T Rowe Price tech fund cratered. Tech has been very
| good, even relatively speaking through the great recession,
| since then.
| jacobsimon wrote:
| The best approximation I've found is S&P has this Top 10
| index[1]. Over the last 10 years it has performed 18%
| annually vs 11% for the overall S&P 500, but that's
| obviously been a historic bull run in large cap growth
| stocks. I can't find data going back to 2000 to see how
| that strategy would have played out, but curious if
| someone else finds it or crunches the numbers.
|
| 1. https://www.spglobal.com/spdji/en/indices/equity/sp-50
| 0-top-...
| ghaff wrote:
| Yeah, for what it's worth, my financial advisor is
| pushing me towards more value stocks and some more bonds.
| (I am somewhat older as well in addition to be in a
| position where being conservative makes sense.) Was just
| doing some research.
| throwaway2037 wrote:
| What do you pay for that advice?
| Mistletoe wrote:
| https://www.aqr.com/Insights/Perspectives/Value-Spreads-
| Back...
|
| I'd be cautious that you are about to get a wicked mean
| reversion.
| jacobsimon wrote:
| Yeah to clarify, I don't necessarily recommend (or even
| follow) this strategy, I still mostly invest in passive
| index funds.
| Mistletoe wrote:
| Ah I see, carry on then!
| WillPostForFood wrote:
| There is an old strategy that is kind of the inverse of this
| this called Dogs of the Dow where. You buy with stocks with
| the highest dividend-to-price ratio (implicitly
| underperforming), looking for the rebound.
|
| https://en.wikipedia.org/wiki/Dogs_of_the_Dow
| jacobsimon wrote:
| I don't know for sure, but I have a hunch this strategy has
| done below-average for the past 10-20 years, because most
| of the above-average returns have been driven by growth
| stocks with low dividends. Stock buybacks have also become
| a really popular way of returning value to shareholders
| instead of dividends.
| Etheryte wrote:
| Hint: this idea has been around for as long as index funds
| have been around, if it actually worked well, everyone would
| be doing it. Alas, a big part of why index funds work well in
| the long term is diversification, and when you cherry pick a
| subset you also lose out on diversification. It's one of
| those strategies that looks clever if you don't delve into
| it, but actually the returns are worse. As an example, if you
| take the SP100 it might outperform the SP500 on single year
| performance every now and then, but in the long term, SP500
| has consistently outperformed it.
| jacobsimon wrote:
| Do you have data to back that up?
| Etheryte wrote:
| You can pull up SP100 and SP500 and look at their
| historical returns. SP100 is an actual index, not
| something I made up for illustration. If you look at the
| last 40ish years, SP100 is up roughly 45 times, SP500 is
| up roughly 50 times.
|
| What might help understand this concept intuitively is if
| you take it to the extreme: what if you always held only
| the very first company of the SP500. Sure, you would have
| a lot of the upside, but you would also be completely
| naked to the downturns. Similarly, you would lose a lot
| of money on commissions whenever the leader changes.
| Taking any other smaller subsection has the same
| problems, it's simply a matter of what tradeoff works
| best for you.
| humansareok1 wrote:
| 100% you're just adding additional volatility for higher
| returns. Backdate the strategy, doubtful you're beating the
| overall index on decade timescales.
| bityard wrote:
| Index funds are not some clever hack, they are just tracking
| the combined productivity of the publicly traded companies that
| make them up. Whole market, or the top 500 as a representative
| slice, whatever. When you buy the whole US market for example
| you are saying, "I strongly believe that the overwhelming
| majority of companies in the US want to make shitloads of money
| and pass it down to themselves and their shareholders."
|
| Index funds will never bring down the market as long as
| individuals and companies are allowed to trade individual
| stocks at prices of their choosing. There will _always_ be
| someone who thinks a particular stock is overvalued or
| undervalued. Those people set the prices.
| dukeyukey wrote:
| Something I've wondered is how index funds effect companies
| entering the index for the first time.
|
| Like, let's say there's a company (TryerCo) that is the 501st
| biggest in the US. Big, but still one step away from being in
| the S&P 500.
|
| Then, one of the S&P 500s collapse. They exit the index, and
| TryerCo enters the index at position 500, despite no material
| change since the day before.
|
| Doesn't this mean a whole _heap_ of index funds will suddenly
| start buying TryerCo stock, sending it up thanks to the
| arbitrary number 500?
| gizajob wrote:
| The ETFs are generally rebalanced once a quarter, so yeah,
| it really is a big deal when a company enters one of the
| main indices, and the price starts to move up in
| anticipation of the listing, then stays up because the
| ETFs, as you intuit, have to start buying it as a component
| of the market. Supermicro entering S&P500 and Arm entering
| Nasdaq 100 being good examples recently.
| Marsymars wrote:
| This is basically priced in based on the odds of entering
| an index in the same way that potential acquisitions get
| priced in based on the odds of the acquisition going
| through.
|
| I swear I've seen actively managed funds that explicitly
| trade based on stocks' potential to enter/leave indexes,
| but it's a terrible batch of terms to try to google.
| throwaway2037 wrote:
| You can search for research that studies this exact index
| effect. Short term: yes, but it wears off quickly.
| TheRoque wrote:
| So in the end, what's the key takeaway regarding global economics
| ? If (some of) the most well-paid people cannot guess the market,
| then doesn't it mean that they are useless ? Then why are we
| paying their services ?
| weard_beard wrote:
| Same reason we pay the TSA.
| yieldcrv wrote:
| In private equity you are employing the managers to create
| opportunities
|
| And during bear markets I've seen some managers create the most
| onerous terms far beyond what I could think of, and that's paid
| excessive dividends for me
|
| I think that's the real hedge that's overlooked here
|
| The performance of private funds is also not a complete picture,
| individual limited partners have different profit and loss than
| whatever metric the whole fund is subject to, someone that joined
| as an LP after any trade doesn't have their capital allocated to
| that prior or existing positions, only the subsequent ones. so
| its not really possible to judge performance of fund managers in
| comparison to indices the way that it is popularly compared.
| Unless LPs are showing their own performance in a scatterplot,
| nobody knows anything. and LPs are typically subject to NDAs.
|
| I just think it's too reductive to say nobody can beat the index,
| then move the goal post to longer and longer time frames. You
| only need to be successful once, in any time frame but
| specifically shorter ones
| Cthulhu_ wrote:
| Alright, how much of this is hard science and how much is just
| survivorship bias?
| deepnotderp wrote:
| Whenever the topic of index funds come up, people should
| remember:
|
| 1. The benchmark for hedge funds is _not_ the sp500, it's the
| bond market
|
| 2. Because the sp500 is inherently a _bet_ , that America's top
| few companies will perform well. This is _not_ a purely risk
| free, hands off bet.
|
| If you bought the Japanese Index fund, the Nikkei, even today it
| hasn't returned to its 1980 peak
|
| You might say "I'll just get a global index"- in which case
| congrats, you've underperformed hedge funds!
|
| 3. There are more factors than just investment returns- ie
| volatility (Sharpe), drawdowns, etc
|
| So despite what HN seems to think, the hedge fund industry is not
| in fact, full of idiots.
| santoshalper wrote:
| I don't think most of us think the hedge fund industry is full
| of idiots. Speaking only for myself, I think it's mostly full
| of grifters.
| kgwgk wrote:
| > 1. The benchmark for hedge funds is not the sp500, it's the
| bond market
|
| There is not _a_ benchmark for "hedge funds" as they are not
| really _a_ thing.
|
| In some cases S&P 500 may be an appropriate benchmark. Unless
| Bill Ackman is not a true hedge fund manager, I guess. "In
| 2023, Pershing Square's 20th year, Pershing Square Holdings
| generated strong NAV performance of 26.7% versus 26.3% for our
| principal benchmark, the S&P 500 index."
| dkekenflxlf wrote:
| So, for SURE it is possible to beat "the market", but:
|
| - strategy is limited up to max 1mio per account (well, maybe 2
| pr 3)
|
| - you need a tailored software, tools like MT/et al wont help you
|
| - with a leverage of 5-10, its possible to achieve gigantic
| returns
|
| - system needs to be capable of going short as well
|
| - your individual application should abstract-away all dauly
| charting&news noise: what counts is statistics and propability
| only, do not check CNN et al
|
| EDIT: - this approach cant be done by ANY institutional corp due
| to regulations, so they are not doing it
| jbs789 wrote:
| Can you elaborate on the regulations preventing corp
| implementation here please?
| dkekenflxlf wrote:
| Sure, thanks for this question!
|
| In case of public funds:
|
| Depending on the jurisdiction, funds are allowed to invest
| only in certain securities, like stocks or bonds. In most
| countries, they are not allowed to use all available
| products; esp all products which offer high leverage (and
| highlosschances) are not allowed for institutionals.
|
| A private prop trading company may do it, though they are not
| managing billions (as the pension fund in the article); and
| those prop traders in reverse can not that easily attract
| "other people money"
| enahs-sf wrote:
| The macroeconomic read between the lines takeaway for me from
| this is, these pension funds are big time LPs in VC firms. If
| that well dries, it has substantial downstream effects for the
| startup ecosystem and raising capital.
| thoughtstheseus wrote:
| Private equity has not, as an asset class, had excess returns
| since around 2006. Prior to that, private market companies were
| systematically undervalued relative to public. Post-2008, an
| accommodative equity market has supportive private equity as a
| volatility dampener for portfolios. Volatility is often used as
| a proxy for "risk". There are still many private market firms
| generating excess returns. It's a competitive market now and
| many players are getting eliminated.
| akira2501 wrote:
| The title was correct yesterday. Why is the title editorialized
| today?
|
| "What Does Nevada's $35 Billion Fund Manager Do All Day? Nothing"
|
| This is the actual title of the article, the page, and the
| printed version. There was no reason to have edited this except
| for optics. If true, that's absurd, dang.
| nick7376182 wrote:
| Because on HN we like titles to have information and not be
| click-bait. The WSJ title is prime click-bait.
| akira2501 wrote:
| So, clickbait is fine, as long as we just editorialize the
| title? That's an unusual standard.
| Thorrez wrote:
| Are you saying the new title is clickbait? How so?
| pvg wrote:
| Pretty much standard for HN, there are endless mod comments
| explaining it. Although they make more sense if you
| distinguish between 'changing' and 'editorializing'.
| Dylan16807 wrote:
| It's an accurate summary with no glaring missing pieces. Your
| definition of "prime click-bait" is way off.
| Thorrez wrote:
| He doesn't literally do nothing, does he? So I don't think it
| was exactly correct. And it was vague because it didn't explain
| what the article was actually about.
| ilamont wrote:
| There most definitely is a reason to edit titles: to reduce
| clickbait or shorten titles.
|
| The system even automatically removes certain clickbait
| elements, for instance "How" is stripped out of submitted
| titles.
| Sparkyte wrote:
| Always better to invest and just let the market over time take
| care of it, the make quick cash never works.
| grepLeigh wrote:
| Disclaimer: I'm not a financial advisor.
|
| Whenever I'm tempted to buy individual high performing tickers
| (e.g. NVDA, TSLA, AMD), I restrict the purchase to no more than
| 2% of my portfolio and I only allow myself to bet on 2-3 "race
| horses" at a time. I think this fulfills the desire to gamble a
| little and see 100-200% YoY returns. NVDA cracked 300% cost basis
| when I finally sold, which is wild.
|
| The reason I can do this is because the rest of my portfolio is a
| boring mix of low-fee ETFs that track major US and international
| indices. As a retail investor, it's good to remind myself that if
| I actually had the skills to invest professionally, someone would
| probably be paying me to do it for them.
| khuey wrote:
| Every share of an S&P 500 index fund you hold is already 6-7%
| NVDA, so a lot of investors already have substantial bets on
| some of these "race horses".
| MobileVet wrote:
| True but this misses the core point about agency. Some of us
| would like too think we know something more and 'gamble' on
| that knowledge.
|
| Having 5% to personally assign can scratch that itch without
| resulting in an overexposed or vulnerable position
| ghaff wrote:
| Yeah, if you have an itch to individually invest, set a
| budget and play without doing anything too stupid. I've
| actually done pretty well with that approach especially
| when I've avoided capital gain with a charitable trust with
| a few relative home runs I have hit.
| ghaff wrote:
| Whenever I kick myself a little about not owning any/enough
| of the "race horses" I content myself that there's probably a
| lot scattered around my portfolio. So you missed out a bit
| but your index funds actually benefited.
| MobileVet wrote:
| This is great advice. You follow the best rule of thumb for
| individuals, ETF w/ dca and set it and forget it, but allow a
| bit of fun to scratch the itch.
|
| I do something similar but honestly allow too much to go
| towards the latter. I need to pair back. I am thankful and
| lucky that my returns have been similar to index funds and not
| far below (thanks NVDA and NET)
| gamepsys wrote:
| > As a retail investor, it's good to remind myself that if I
| actually had the skills to invest professionally, someone would
| probably be paying me to do it for them.
|
| Don't discount the knowledge you have from being deep into an
| industry. The higher quality of the CUDA toolkit compared to
| other SIMD languages, combined with it's increasing relevance
| in compute (gaming, followed by blockchain, followed by ML,
| followed by GPT) would have made this an NVDA an easy pick for
| anyone (of the increasing number of people) that worked in
| parallel computing from 2006-2023.
|
| Sometimes you can see a company is positioning itself for a
| great long term position before the entire wallstreet herd
| takes notice. That's when you add a single stock as part of
| your diverse portfolio. I keep up to 5% of my stock portfolio
| as these single stock picks, judged entirely on the product the
| company sells.
| Terr_ wrote:
| > Don't discount the knowledge you have from being deep into
| an industry. [...] diverse portfolio
|
| It's worth emphasizing that investing in the same sector that
| you are employed-in is actually a kind of anti-
| diversification, and it won't usually show up using "rate my
| portfolio" tools.
|
| The archetypal example that comes to mind--unusually extreme
| but illustrative--would be all those Enron employees who
| invested their 401(k) funds straight into their own employer.
|
| Consider these three scenarios:
|
| 1. If your investments plummet _but_ you keep getting wages
| from you job, you can try riding it out until they recover.
|
| 2. If you become long-term unemployed _but_ your investments
| stay normal, you can sell a little to cover the gap.
|
| 3. But if you can't work _and_ your investments plummet, you
| may be forced to "sell low" quite a lot to cover immediate
| expenses, and the long-term outcome is much worse.
| gamepsys wrote:
| 1. It's normal in the tech industry to own a lot of stock
| in the company you work for. Investing in a vendor (in
| Nvidia's case) or another adjacent company is lower risk.
| You cannot avoid risk in investing, it's a natural part of
| the situation.
|
| 2. You can avoid the sell low situation by having 3-6
| months of expenses saved in an emergency savings account.
| With all the layoffs in the last few years everyone should
| have gotten the message to do this. Even in a large
| downturn six months of expenses in a savings account is
| enough for you to re-skill and find new employment.
| pembrook wrote:
| Just because everybody is doing it, doesn't mean it's
| rational.
|
| The people who held onto their RSUs from being hired at
| Zoom during the height of the pandemic might not be so
| happy they chose to double down on their employment risk
| with investor risk.
| Terr_ wrote:
| > Just because everybody is doing it, doesn't mean it's
| rational.
|
| Also, an agenda that is rational for one party may be
| irrational for the other.
|
| Many employers would be _overjoyed_ if their workers
| agreed to be paid 100% in deferred-vesting RSUs and
| converted all their private savings into pure company
| stock. It would both drive the price up and shackle
| workers to certain company interests.
|
| But if an employee sought the same outcome, we'd question
| their sanity.
| Terr_ wrote:
| > It's normal in the tech industry to own a lot of stock
| in the company you work for.
|
| For certain companies, but misleading: Most of that is
| stock which their employer structured into compensation,
| and sometimes they only kinda-maybe-potentially own it
| because it's an unvested RSU or un-exercised stock-option
| etc.
|
| That's not the same as taking your paycheck and then
| choosing to spend part of it on shares from the open
| market.
| bigstrat2003 wrote:
| > It's normal in the tech industry to own a lot of stock
| in the company you work for.
|
| It's actually not. The tech industry is much bigger than
| startups and the like, and outside of that environment
| it's not normal to own a lot of stock in your employer.
| ghaff wrote:
| I would have said it's larger tech companies where it's
| fairly common to own (some) stock that's actually worth
| something. (So maybe not a _lot_ in the scheme of
| things.)
| throwaway2037 wrote:
| > You can avoid the sell low situation by having 3-6
| months of expenses saved in an emergency savings account.
|
| I see this (3-6 mos savings) constantly quoted in basic
| personal mgmt blog posts, but it seems unrealistic for
| most. Seriously, what percentage of people in OECD can do
| this? Surely, less than 5%. I am not sure it is great
| advice because it is discouragingly unrealistic for most.
| The average person has out of control expenses and 632
| reasons why they cannot change anything. If you read any
| personal finance Q&A, they all eventually descend into
| this pattern. It gets boring. And most people who do save
| a lot have a much higher income than is average in their
| area.
| mkerrigan wrote:
| Check out https://earlyretirementnow.com/2021/05/26/the-
| emergency-fund... from Early Retirement Now. He also
| links to other posts debunking the need for emergency
| savings.
| IanCal wrote:
| Worth noting that they're not saying you don't need that
| kind of value on assets available to you. They are simply
| advocating for keeping that money invested rather than as
| cash _and_ they have access to immediate fairly large
| loans (via credit cards and something about their
| mortgage).
| pm215 wrote:
| It may be unrealistic for many people, but it should not
| be unrealistic for the subset of people who have
| available funds to invest in the stock market, which is
| who the GP's advice is for. Putting money into stocks
| before you have an emergency fund is bad prioritisation.
| abyssin wrote:
| Coming from a family that has a frugal culture, it's
| always been easy for me to save a substantial part of my
| income, even when I had to downsize my lifestyle after
| losing a relatively high paying job. Looking at how
| people around me spend their money, it can feel they're
| actively trying to get rid of their entire salary.
| roenxi wrote:
| > it can feel they're actively trying to get rid of their
| entire salary.
|
| They probably are, in a literal sense. Most people play
| status games and identify that money is a resource that
| can be used to buy higher status. They then work out how
| to spend all their money on status-boosting activities
| because they don't _want_ money. They want status. And
| they want it ASAP because their instincts are confident
| that status now is more important than later.
|
| It is a bit sad because it means they are less
| comfortable and prosperous later on, but there is not
| much that can be done. Human nature is a real obstacle;
| it isn't calibrated to understand exponential returns or
| capital investment.
| JamesBarney wrote:
| It's unrealistic for people who have no money to invest.
|
| But the top 5% in the US make 300k+. If you can't save
| anything making 300k you have a spending problem.
| Honestly I'd you're making 100k can can't save you have a
| spending problem.
| IanCal wrote:
| More than currently do. Rates are low in higher income
| countries.
|
| We never really teach these things, which is a shame
| because I think they have such value over time.
|
| I've spent a lot of time helping people with budgets and
| I've found a few things to be common. To make this easier
| I'll just say "people" as a general thing of those coming
| for help.
|
| 1. People don't get why they're running out of money
|
| 2. They don't know what they're spending
|
| 3. They've not connected the idea that knowing what
| they're spending money on is important to figuring out
| where their money is going
|
| This isn't a slight, it's just interesting to see that
| this connection has never really been made. Money is
| treated as an _emotional_ thing rather than a
| _mathematical_ thing.
|
| And this is those who get to the point of seeking help -
| they're actively asking for help and have never tried
| just tracking their spending. It's an entirely new
| concept.
|
| The next big thing is that people talk about unexpected
| costs coming up and have never stepped back to look at
| the issue more broadly.
|
| Some find birthdays an "unexpected cost" but they're not
| actually a surprise if you are able to look ahead more.
|
| More unexpected are repairs and replacements. But
| stepping back although your tires were a surprise this
| year and your brakes a surprise last year, the idea that
| _something_ would need dealing with on your car isn 't.
|
| The 3-6 mo savings is really a goal before suggesting
| moving on to riskier investments rather than "oh just
| have this". One day of spending is better than none. A
| week is better, a month better and 3-6 is better still.
| Beyond that the benefit drops massively, so you can start
| putting away money for much further in the future.
|
| It's boring but that's imo because there's not much to
| basic personal finance.
|
| If you spend more than you earn you are screwed.
|
| If you earn more than you spend, you can build up
| savings.
|
| If you are right on the line, you're either statistically
| shocking or your spending should move one way or the
| other.
| sofixa wrote:
| > I see this (3-6 mos savings) constantly quoted in basic
| personal mgmt blog posts, but it seems unrealistic for
| most. Seriously, what percentage of people in OECD can do
| this
|
| Also worth noting that in most of the OECD, 3+ and even
| _maybe_ 3 months depending on the situation is quite
| high, bordering on the wasteful. Americans have to worry
| about healthcare and crappy if present unemployment
| payments if they lose their jobs; in most other developed
| countries (of course your mileage will vary), you cannot
| be fired on the spot with no notice without compensation.
| And if you do, you don 't lose your healthcare. Also, you
| can't be fired for being sick/unavailable to work for
| medical reasons, and at least some countries have medical
| provisions for burnout too (you get months of paid sick
| leave to recuperate, while your job is being kept).
|
| Therefore, in most of the OECD (at the very least the EEA
| + UK + Australia and NZ), there are very few, if any,
| situations which can leave you with zero income with no
| notice. Therefore the safety cushion you need is much
| lower than an American that might lose their job tomorrow
| and then need to pay tens of thousands in medical bills.
| throwaway2037 wrote:
| Why is this being downvoted? There are lots of great
| points in this post. I never considered that most of the
| advice that I am reading is aimed toward US people, where
| the labour laws and social safety net for working people
| is awful, compared to the rest of OECD.
| ghaff wrote:
| Probably because of the narrative that people are
| routinely fired out of the blue and that there is no
| recourse to also suddenly having tens of thousands of
| dollars in medical expenses also out of the blue.
| sofixa wrote:
| It doesn't really matter how regularly it happens, only
| that it does happen and that there is zero recourse in
| that case. So people need to build their own safety nets
| in the US.
|
| I know it happens less frequently in tech, where people
| get compensation, but what % of workers are in tech? The
| median worker has no such luck.
| ghaff wrote:
| And how comfortable are people in Europe and elsewhere
| when they don't have an income coming in?
| sofixa wrote:
| As discussed, there is much less of a chance that you'll
| suddently find yourself with no income when you live in
| most of the EU+UK+Aus+NZ.
|
| And if you do, you're still less uncomfortable because
| your healthcare is not tied to your employer.
| Unemployment and other related aids/insurances/benefits
| will vary wildly between countries, but I'd still bet the
| majority do it easier than in most US states.
| ghaff wrote:
| Possibly. As you say there's a lot of variance. I don't
| generally assume that you can get quality healthcare,
| housing, and food in Europe with no source of income
| outside of government programs.
|
| And certainly many countries have lower salaries and
| higher unemployment that the US does in general.
| sofixa wrote:
| > I don't generally assume that you can get quality
| healthcare, housing, and food in Europe with no source of
| income outside of government programs.
|
| And what's the issue with government programs? If someone
| without employment or revenues can get healthcare or
| food, that's good.
|
| > And certainly many countries have lower salaries and
| higher unemployment that the US does in general
|
| Higher unemployment yes, absolutely. Lower salaries you
| can't really compare because you need to adjust for a lot
| of things (quality of life, cost of living, things like
| the safety cushion one needs, etc.)
| reginald78 wrote:
| I remember reading about a woman working at Amazon that
| was put on a PIP because she was missing to much work for
| her cancer treatments.
| roenxi wrote:
| Most people can without much trouble. Income follows a
| statistical distribution. It follows that most people
| could choose to live the lifestyle of someone earning 10%
| less than them and save 10% of their income per month,
| building a buffer that grows by about one month per year.
|
| You are right in that they have 632 reasons they couldn't
| possibly do that, but they are clearly wrong since other
| people are. The correct thing to do is to realise that
| having a little bit of financial stability is a higher
| priority than those reasons in the majority of cases.
|
| Or option B, which is figure out a way to earn more and
| keep lifestyle inflation in check. In theory, everyone
| should be able to take that path.
|
| > And most people who do save a lot have a much higher
| income than is average in their area.
|
| Cause or effect? Because if you save consistently you are
| going to automatically have a higher income than your
| more average peers. You all have the same average income
| but savers supplement that with passive income.
| triceratops wrote:
| > Seriously, what percentage of people in OECD can do
| this?
|
| Far more than those that actually do.
| IneffablePigeon wrote:
| Owning a lot of stock in the company you work for is
| another good reason not to concentrate more of your
| portfolio in the same industry.
| graemep wrote:
| > You cannot avoid risk in investing, it's a natural part
| of the situation.
|
| You can, and should, diversify risk. You should invest
| outside the industry.
| cmrdporcupine wrote:
| Man, I'd be comfortably retired now if I had held my GOOG
| GSUs and sold (at peak) when I quit rather than selling
| them as I got them.
|
| Same, my wife, worked for Apple from 2003-2010. We had
| Apple stock back in 2004/2005, for just a few $ a
| share... oh man.
|
| But that went against most most financial advice, and we
| needed the money as it came.
| ghaff wrote:
| > You can avoid the sell low situation by having 3-6
| months of expenses saved in an emergency savings account.
|
| Maybe. You can also just be trying to catch a falling
| knife. Sometimes it's sensible to cut your losses but, of
| course, it's often not clear when (or if) that's the
| case.
| spacebanana7 wrote:
| > investing in the same sector that you are employed-in is
| actually a kind of anti-diversification
|
| You can reduce your microeconomic risks by making
| investments in and around your sector of occupation.
| Especially when betting against yourself.
|
| For example, someone who works in the electric vehicle
| space could reduce their risk by making personal
| investments in ICE companies, just in case EV adoption is
| slower than expected. A person who works in a payment
| processor could invest in visa/mastercard, to protect from
| the risk of fee rises. A privacy tech investor could put
| money into adtech, so they can make money whoever wins.
| UncleMeat wrote:
| > For example, someone who works in the electric vehicle
| space could reduce their risk by making personal
| investments in ICE companies, just in case EV adoption is
| slower than expected.
|
| This works well if the EV industry slows and ICEs are
| poised to dominate the future. This works very very badly
| if the vehicle industry as a whole slows and the entire
| sector tanks.
| mattmaroon wrote:
| It may work in the actual case: EVs are the future, but
| the longer term future, and the market irrationally
| decides a company that makes 1% of the cars is worth 50%
| of the industry because they greatly overestimate how
| fast the transition will occur and the legacy auto makers
| (whose stocks have underperformed due to the same bad
| prediction) have plenty of time to use their substantial
| advantages to compete.
| spacebanana7 wrote:
| Yeah it only works well for narrowly defined
| microeconomic risks.
|
| However, in sectors like vehicles there's a relatively
| low risk people will stop car purchases altogether but a
| very very high risk they'll buy from another manufacturer
| instead of yours.
| orojackson wrote:
| > You can reduce your microeconomic risks by making
| investments in and around your sector of occupation.
| Especially when betting against yourself.
|
| Or I can just put my money in something like VTI (total
| US stock market) or VT (total world stock). Effectively
| does the same thing with almost zero effort. One thing I
| don't really like about the comments here is how
| insistent people are in doing something specific as
| opposed to picking the simplest thing and then sticking
| to it. Most of the power of investing comes from time.
|
| Admittedly, though, I have been putting new money into a
| leveraged ETF, RSSB, which is a 2x leveraged 50/50 global
| stocks and bonds fund (so 100/100). Existing money is
| still in VT. The only reason why I'm pursuing this is
| because of Cliff Asness's great article [1], which argues
| against going 100% stocks (which I used to do) and
| instead prefers using something like leverage on a 60/40
| portfolio.
|
| [1] https://www.aqr.com/Insights/Perspectives/Why-
| Not-100-Equiti...
| bell-cot wrote:
| > Don't discount the knowledge you have from being deep into
| an industry.
|
| True...but especially when it comes to _investing_ - the
| market can stay irrational longer than you can stay solvent.
| njarboe wrote:
| If you are shorting stocks or buying on margin, this may be
| true, but if you buy and hold, no additional funds are
| needed (ie. you will stay solvent).
| wslh wrote:
| 1000% but when it is the right time (per fundamental
| analysis). For example around the subprime crisis companies
| such as Microsoft had a low PE ratio and the average person
| thought that Microsoft was a loser vs. Apple and Google.
| Microsoft has a resilience track record that would be the
| envy of most companies and .NET was a real thing.
|
| I also remember other companies such as Globant that has a
| lower PE price vs. similar companies after their IPO. It is
| incredible that some investors try to build very complex
| models instead of waiting for the right opportunity.
|
| Not against speculation but you should know when you are
| doing it or fundamental investing.
| ghaff wrote:
| Microsoft has actually been a nice investment if you bought
| in the latter 2010s. I don't remember why I did. Probably I
| liked what Nadella was doing.
| gamepsys wrote:
| Rule of thumb, the more people are talking about a stock
| the more weary you should be that your insight is ahead of
| the curve.
| cinntaile wrote:
| This sounds a lot like hindsight bias. Nvidia is a great
| company but they lucked out on two unpredictable hypes,
| crypto and AI, that happened in close sequence to each other.
| mihaaly wrote:
| We tend to underestimate the fortune component of success
| when we succeed. And other aspects, like ruthlessness.
| Also, having a self satisfaction in the wise (but cautious,
| or even silent) past forecasting of success for those that
| coincidentally succeeded eventually (forgetting the others
| we were wrong about).
|
| We seen good and promising products targetting growing
| markets fail while competing half crap craps sell wild with
| the broad public and win, go large.
| mianos wrote:
| Considering just before the AI hype came along they were in
| trouble according to Jensen on the Acquired podcast.
| ghaff wrote:
| Without predicting the future of the AI cycle, the crypto
| bubble basically burst and the high end gamer market is a
| pimple on a pimple. And, certainly, the fact that the AI
| hype came along when it did was hardly ordained--though
| the availability of GPU hardware had something to do with
| it.
|
| Nvidia's recent success was in no way pre-ordained to
| anyone who had two brain cells to rub against each other
| as various people here seem to think.
| graemep wrote:
| > Don't discount the knowledge you have from being deep into
| an industry. The higher quality of the CUDA toolkit compared
| to other SIMD languages
|
| Analysts do follow what is happening in an industry and talk
| to people in an industry. SOme have worked in the industry
| they follow.
|
| If you want to get ahead of them you need to focus on
| something ahead of them - something small or specialist at
| the time.
| ghaff wrote:
| I might argue that financial analysts are too focused on
| their models and this quarter's numbers but most of the
| better ones are actually pretty savvy about the trends and
| other happenings in the industry that they follow. They're
| as susceptible to the hype du jour as most people are but
| they're not actually stupid for the most part.
| graemep wrote:
| Yes, but remember there are multiple layers to that. I
| have worked as a buy side analyst in a small team (in my
| former career) and did much less detailed modelling.
|
| There is an incentive structure that pushes fund managers
| to look at their rankings this year: there is no point in
| aiming at outperforming over a decade if you got fired
| two years in for underperforming. It has happened to
| people who have not bought into booms.
|
| I actually think avoiding the "hype de jour" is one place
| where small investors have a chance to do well. Avoid the
| overhyped, pick up the neglected and you can outperform.
| ghaff wrote:
| No argument. Incentives matter. There's one company I
| looked at for a modest investment and I was like "This is
| the only company in the world that can do something that
| is obviously needed in semiconductors but has long
| cycles" and it stagnated for a year or two. (And then
| went up considerably.)
|
| As a financial analyst I might very well have logically
| held off for a bit.
| bregma wrote:
| > Sometimes you can see a company is positioning itself for a
| great long term position before the entire wallstreet herd
| takes notice.
|
| Well, the investment landscape is littered with the rotting
| husks of companies with great products. Wonderful, amazing
| products. They had incompetent management. Or the market for
| their amazing product never took off. Or there was a general
| downturn in the economy and they couldn't get cash when they
| needed it.
|
| If the company has demonstrated itself a good investment, you
| can rest assured the wolves of Wall Street have already
| picked the carcass clean before you as a retail investor even
| get a whiff. They run analyses on factors you don't even know
| about to make their picks, and they do it in large number
| like you're never likely to see.
|
| Even if you make the right picks, it's often the wrong pick.
| Consider if you had invested in Oxycodone a few years ago. It
| was a great product, brought simple, accessible, effective
| pain relief to the masses. Prescriptions were flying off the
| shelves like no other drug before it that wasn't a statin.
| I'm sure a handful of retail investors are smugly crying
| "inb4" but most of them are left holding the bag on that one.
| Hindsight investing is mostly a bitter strategy.
| hoseja wrote:
| That comparative is doing a lot of work.
| vitus wrote:
| So you've been invested in NVDA for 15 years? Because that's
| how long AMD's been trying unsuccessfully to crack CUDA's
| secret (OpenCL was initially released in 2009 when it was
| already clear that nobody wanted to use AMD cards for HPC).
|
| Or how about 5-10 years, when it was clear that everyone was
| using Nvidia for crypto-related purposes? Heck, even start-
| of-pandemic when high-end graphics cards were nigh impossible
| to buy without a 3x markup? (A cool 1500% ROI to date)
|
| This is the sort of thing that's obvious to everyone in
| hindsight, but it's not always clear in the moment, nor is it
| clear when the stock has peaked (how many people sold in Nov
| 2021 as the GPU shortage was starting to ease?).
|
| If you bought NVDA on Jan 1 2006 and held it for 10 years,
| then you'd have about +100% ROI, or about 7% per year. Not
| terrible (S&P 500 was closer to +50% ROI over that
| timeframe), but not amazing (compare this to GOOGL which had
| a +250% ROI, or AMZN which grew 10x over the same timeframe).
| Amazon was also an obvious winner in that timeframe due to
| AWS, right? What about Google / Alphabet? What was unique
| about its circumstances that warranted it growing twice as
| fast as Nvidia in that timeframe? Google Plus? Android (it
| didn't grow 10x like Apple did)? YouTube?
|
| It wasn't clear then that NVDA would have been the winner
| that it is today, and it's similarly not clear today if NVDA
| has another 10x gains ahead of it, or if it's already peaked.
| Or, for that matter, what the next big tech winner will be.
| (I bet it already exists. It might even already be publicly
| traded.)
|
| edit: also, if I had perfect predictive knowledge of the
| financial markets, I'd have put $1000 on BTC back in 2011
| when it was about $2 a pop, and sold at any of the recent
| peaks for $3+ million. There is literally no technical
| justification for those returns other than market
| speculation.
| zug_zug wrote:
| I agree with the first paragraph, but I think your math is
| wrong.
|
| If you invested in Nvidia in 2006 it'd be up 46% a year
| every year on that investment.
| computerliker69 wrote:
| They mentioned the timeframe as 2006-2016. I think they
| were purposely omitting the recent gains to highlight
| their point about the unexpectedness of NVDA's stock
| jump.
| vitus wrote:
| Exactly. NVDA wasn't clearly a winner until the past 2
| years or so. From Jan 1 2016 to Jan 1 2020, it grew by 8x
| -- certainly impressive (70% year-over-year growth). From
| there until the ChatGPT announcement in Nov 2022, it
| maybe doubled once more (peaked from the crypto-induced
| GPU shortage, then was falling). But from there on out,
| in the course of 20 months, it's skyrocketed 8x (an
| absurd 250% year-over-year growth).
|
| So sure, if you correctly guessed that ChatGPT was going
| to spur a ton of interest in Nvidia hardware, then you
| could have made lots of money in not very much time.
| Meanwhile, to me at the time, this seemed like an
| incremental release on top of OpenAI's prior GPT models,
| none of which were earth-shattering paradigm shifts. I
| certainly did not anticipate the surge of all these AI
| startups that wanted to build on top of it, or the
| industry shift to try to use GenAI to solve all of the
| world's problems.
|
| --
|
| If I got the math wrong anywhere, it was the magnitude of
| investing that $1k in BTC back in 2011 -- I'd have $30-35
| million to my name, minus taxes for long term capital
| gains. Even then, it wouldn't have been clear to me at
| what point I should sell -- mid 2017, when that
| investment would have grown to $1 million? After it
| peaked in December 2017 at $20k, it lost 80% of its value
| -- what reason would I have to expect that it'd grow to
| more than 3x its previous peak, just a couple years
| later?
| gamepsys wrote:
| The bet I described was that GPUs would be more and more
| relevant in modern computation, and that Nvidia sells the
| best GPUs and the best toolkit for writing general
| purpose code on GPUs. GPT is just the latest on a large
| chain of applications.
| UncleMeat wrote:
| An extended family member is a software engineer who has
| worked in wireless networking for decades and decades,
| including being personally involved in the development of key
| parts of 5g.
|
| In the 00s there was some company that had great tech. Surely
| useful for the future. He put a shitload of money in there.
| On each paycheck he put in more and more. But although the
| company had great tech, it didn't end up being the market
| winner for whatever reason. As the stock dropped and dropped
| he bought more and more. After all, it was the best tech.
|
| He lost a fortune.
|
| It is probably easy to look back and say "well, I knew that
| CUDA was easier to use than OpenMPI ages ago, it was obvious
| that nvidia would blow up."
| mrb wrote:
| You extended family member's story is a classic error of
| "putting all your eggs in one basket."
| UncleMeat wrote:
| Of course. But it is still relevant when discussing why
| one should not discount the knowledge you have by being
| deep in an industry.
|
| Yes, he would have lost less money if he hadn't gone so
| deep here. But he still would have lost his investment
| had he put 5% in or whatever. The point is that even deep
| knowledge about an industry isn't going to ensure winning
| picks.
| gamepsys wrote:
| I clearly said "up to 5%". If I lose 5% of my stock
| portfolio on a single stock in a year, but the rest of my
| portfolio goes up the expected annual return of 8%, I still
| made money that year.
| humansareok1 wrote:
| >The higher quality of the CUDA toolkit compared to other
| SIMD languages, combined with it's increasing relevance in
| compute (gaming, followed by blockchain, followed by ML,
| followed by GPT) would have made this an NVDA an easy pick
| for anyone (of the increasing number of people) that worked
| in parallel computing from 2006-2023.
|
| Hindsight is 20/20. I highly doubt people in parallel
| computing, unless they already worked at Nvidia, have done
| better than anyone else with their portfolios. Other than the
| standard delta you'd assume since those people are probably
| savvier investors in general.
| csomar wrote:
| > NVDA cracked 300% cost basis when I finally sold, which is
| wild.
|
| It's not if you consider the volatility of the stock. It
| appreciated x10 in less than 2 years and 20-30 times since the
| pandemic. Volatile stocks have high returns because they have
| high risks for losses.
| throwaway2037 wrote:
| This is totally reasonable and I support it. When (usually
| young) people are bored with my advice about index funds, I
| tell them that it ok to "gamble" with a tiny fraction of their
| portfolio, but be prepared to lose what you bet!
| snarf21 wrote:
| I also think that if you look at the regulatory environment in
| the last 20 years and the lack of monopoly oversight from the
| SEC and FTC, you can just ride the regulatory capture. I can't
| see anything beating S&P500 + N100 over any 5 year period
| unless new laws are passed.
| UniverseHacker wrote:
| It's not just a matter of skill but of time. Value investing a
| la Warren Buffet works extremely well, but choosing a single
| stock with the deep research required for that method is so
| much work it is a full time job. It's not worth it unless it is
| in fact your full time job.
| humansareok1 wrote:
| I like this approach too. My primary investments in index funds
| continue to grow and I get just enough of a dopamine hit from
| smaller bets on Nvidia and Crypto that I don't get crushed by
| fomo and end up betting my mortgage on some far otm call
| options or some shitcoin.
| rybosworld wrote:
| > As a retail investor, it's good to remind myself that if I
| actually had the skills to invest professionally, someone would
| probably be paying me to do it for them.
|
| The majority of supposed "experts" are not beating the market.
| Its probable that the only difference between them and you is
| the belief/confidence in their skillset.
| twoodfin wrote:
| Or you can just make the right friends in high places and get
| bailed out from poor fund management:
|
| https://www.nbcnews.com/news/amp/ncna1261125
| noveltyaccount wrote:
| Are the actual holdings of the pension public? Seems like
| something is like to follow!
| bell-cot wrote:
| Interesting analogy -
|
| - A casino's winning business model (at least behind the facade
| of marketing glitz and amenities) is to set odds that favor the
| house, make sure its rules are followed, then essentially do
| nothing as it gets rich on the long-term consequences of those
| odds.
|
| - It's the inevitible-net-loosers...er, customers, who are the
| think-they're-smarter and think-they're-luckier busybodies. And
| always trying new strategies, to build some sort of success out
| of their occasional sort-term wins.
|
| I suspect that local awareness of this dynamic is why Nevada's
| business leaders and government tolerate such a boring, passive
| pension investment strategy.
| jl2718 wrote:
| The original idea behind passive investing was to use the pooled
| intelligence of many traders guessing the value of cr I think
| we're beyond that. Most traders are just trying to get a timing
| edge over the indices. This introduces the modern concept of
| passive investing as a positive feedback loop force-fed by
| monetary supply. The market seems to hate dividends and buybacks,
| preferring expansion or acquisition, but then what gives it
| value? It has to be its memetic ability to attract investment,
| and this can easily eclipse anything on the earnings statement.
| I'm not sure this can go on forever.
| TacticalCoder wrote:
| Yeah. Some are saying passive investment is the biggest bubble
| of all times. The P/E of so many companies, not just tech ones,
| makes zero sense.
|
| Mandatory pension funds are a ponzi. And btw the EU is hard at
| work working on one atm: they re currently thinking hard as to
| how to capture the wealth of EU citizens and the latest
| iteration would be a mandatory fund to invest in... State
| sponsored companies. They ll oc course not be presenting it
| that way but that s what it is. Then they ll kick the can down
| the road for years or decades by forcing mandatory contribution
| from new taxpayers.
|
| Ponzi / pyramidal / state-mandated shenanigans never end well.
|
| FWIW that mandatory fund in the EU shall be used to finance the
| army, digital transition (supposedly to counter the US but
| actually to siphon taxpayers money into friends of politicians
| creating companies that ll never compete with SV) and...
| Ecology.
|
| I'm not thrilled that in a few months I ll be forced to invest
| in that.
| Rinzler89 wrote:
| Which EU countries do that?
| exclusiv wrote:
| I agree and Michael Burry has warned about it. There's no
| real price discovery on these index funds. Money comes in -
| buy all in the fund regardless of any fundamental. And many
| of those stocks aren't that liquid so in an exit and a dump,
| they will get destroyed.
| humansareok1 wrote:
| Can you explain how it's fundamentally any different from
| retail investors just buying and holding the SP500 Index
| Companies' stocks individually?
| floundy wrote:
| >The market seems to hate dividends and buybacks, preferring
| expansion or acquisition, but then what gives it value?
|
| I've always thought of a stock as a claim on future dividends,
| but for most of a company's lifecycle they should have a better
| idea how to invest funds than returning them to shareholders.
| So ideally only mature large cap companies should pay
| dividends.
|
| As far as valuations go, international stocks are far more
| attractive than US stocks right now.
|
| Total US stock fund (VTI): 1.33% dividend yield, 25.1 P/E
|
| Total international stock (VXUS): 2.94% dividend yield, 15.4
| P/E
|
| It's been my experience discussing with many US investors that
| they are loathe to hold any international stocks for a variety
| of reasons. Personally I think they will have their decade
| soon. The US market cannot continue eating the world market
| capitalization without commensurate outsized earnings growth to
| back it.
| opjjf wrote:
| The value of the fund is now up to $63B. Here is the latest
| overview:
| https://www.nvpers.org/sites/default/files/2024-05/PERS-Inve...
| sjducb wrote:
| This is incredible from a stakeholder management perspective.
|
| Normally non finance people in the organisation get hoodwinked by
| investment sales people. Then they pressure the finance guys into
| perusing a complex high fee strategy.
| ProllyInfamous wrote:
| >Normally non finance people in the organisation get hoodwinked
| by investment sales people.
|
| Some benefits salesman came to my blue collar office and tried
| to _hoodwink_ [great wordchoice] our boss into buying employee
| insurance policies (health, whole life)... but would not allow
| employees to read the contractual terms until after bossman
| signed-up.
|
| It was left to employee vote, and I was grateful when my peers
| listened to my concerns [slick sales guy was out-voted, left
| frustrated with me about his lack of commission]. Why not just
| let us see the terms & conditions.?. are you really offering
| _that shitty of a product_?! +
|
| +: insurance company's mascot was _some waterfowl with a loud
| two-syllable mouth_...
| peterldowns wrote:
| See: calpers, where everyone in the organization is both non-
| finance and getting hoodwinked, often by their coworkers, often
| by their board! Notable for many things, including selling out
| of their hedge fund positions shortly before the pandemic, as
| well as becoming an extremely large owner of timber companies
| across the US for absolutely no good reason.
|
| https://www.nakedcapitalism.com/category/calpers
|
| edit: here's a more specific article that's very related to the
| OP https://www.nakedcapitalism.com/2023/11/should-calpers-
| fire-...
| jonahbenton wrote:
| He is still in charge. I was expecting him to have been forced
| out. Very hard to fight shiny.
|
| https://www.pionline.com/pension-funds/nevada-public-employe...
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