Index Funds vs Individual Funds
 

Do you believe that someone who is willing to put forth 10 hours per month of research should invest in Individual Stocks or Index Funds?


Personally I think that Individual Stocks can yield a larger return than index funds, but I have read many posts suggesting index funds are the way to go. While there are certainly some people out there who I would highly recommend index funds to, it seems to me that if you can be a winning poker player, you have the potential to be a "winning" stock picker. (meaning beating a portfolio of index funds on a consistent basis). Although I understand the simplicity and attractiveness of a few index funds, I just don't see them as a great place to park your money- especially for such an intelligent segment of the population. With a little effort, I think that anyone can pick stocks that will outperform the market overall.

It just shocks me that many wealthy(it's all relative) poker players, who I presume are fairly good at math, are willing to accept sub-standard returns in an index fund, when the difference between 10% / 12% and 15% annualized returns over 10-20 years is simply enormous.


If you have a long record, ( I would say at least 5 years, 10++ years would be much preferred ) I would encourage you to post it here, especially if you are a reputable poster. I realize that there will be some bias here, as many people may be afraid to post their results if they didn't fare so well compared to an index fund... but I would encourage anyone to share their results in the most honest and accurate method possible.

I'm sure this matter has been discussed before in great length, but it just kind of bothers me that whenever people ask for help, they are automatically referred to index funds. Perhaps they're willing to put in some more effort to get better returns, and index funds really aren't for them. Although they are simple to understand and even to purchase, I feel that telling everyone to buy index funds is truly misleading.

For example, I feel this is sort of like saying- don't play 78s from the SB, it's just a headache to play in certain situations. You can play it when you get better at playing it. But you'll never get better at playing it if you don't limp in! And while it may be a headache to play 78s- it is also +EV to play, and folding that hand over and over will really take away from your winrate!

Re: Index Funds vs Individual Funds
 

To answer your question: index funds.

Re: Index Funds vs Individual Funds
 

10 hours a month is not nearly enough time. You are better off in an index fund. Time isn't the only reason a lot of smart people with analytical minds don't buy individual stocks. There is also a lot more risk. An investor who picks stocks will really need to concentrate his portfolio to maximize the gains. This could mean anywhere from 7-20? positions. There is a lot less risk in holding hundreds of stocks through an index fund. If you pick individual stocks, it only takes one or two flawed ideas to blow your year. I don't gamble with my retirement.

Re: Index Funds vs Individual Funds
 

10 hours a month is enough to ferret out and keep track of a very few stocks. Nothing wrong with putting, say, 70% of your nut into index funds and picking ~3 individual stocks to invest the rest in. You should not try to put 100% of your portfolio into individual stocks on 10 hours a month unless somehow you find yourself capable of beating the market on 2.5 hours a week.

Re: Index Funds vs Individual Funds
 

"... are willing to accept sub-standard returns in an index fund"

index funds by their very nature offer super-standard returns.

Re: Index Funds vs Individual Funds
 

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"... are willing to accept sub-standard returns in an index fund"

index funds by their very nature offer super-standard returns.

[/ QUOTE ]actually the original is true. they trail the benchmarks they are indexing against due to fees. it is necessarily true that you can increase your expectation (though at greater risk) above an etf without doing homework.

Re: Index Funds vs Individual Funds
 

A substantial majority of actively managed mutual funds perform worse than index funds.

Do you really think that by working 10 hours a month, you can do better than professional investment managers who work full time, with a staff, with access to much more/better information than you will be able to get/afford?

Re: Index Funds vs Individual Funds
 

Sorry I meant the title of this to be individual stocks... i'm really not at all interested in managed funds. In fact, I am totally against managed funds in most situations because of their fees and unimpressive performance.

However, I don't believe it is fair to substitute managed funds as a comparison for individuals. These professionals have a lot of restrictions placed on them in terms of what they can invest in- for instance many small caps are under their radars. I'm not gonna sit here and try to come up with excuses for these fund managers- I wish none of them got a higher salary than Buffet, and they invested in their own funds!

So, please try to keep this topic exclusively about individual stocks vs index funds and keep actively managed funds as far out of the picture as possible- we can discuss them in another thread.

Re: Index Funds vs Individual Funds
 

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10 hours a month is enough to ferret out and keep track of a very few stocks. Nothing wrong with putting, say, 70% of your nut into index funds and picking ~3 individual stocks to invest the rest in. You should not try to put 100% of your portfolio into individual stocks on 10 hours a month unless somehow you find yourself capable of beating the market on 2.5 hours a week.

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What's the rationale for having both index funds and individual stocks? Either you expect your picks to beat the market or you don't. I see no strong reason for straddling the fence. Reduction of risk isn't a good argument in this case. Do you see why?

Re: Index Funds vs Individual Funds
 

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What's the rationale for having both index funds and individual stocks? Either you expect your picks to beat the market or you don't. I see no strong reason for straddling the fence. Reduction of risk isn't a good argument in this case. Do you see why?

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I don't see why. And i do think that straddling the fence is a great way to lower risk. I might not be able to handle 100% ind. stocks but if i can do 30% ind and 70% funds with the reasoning of trying to out preform with the 30%. This is alot safer then 100% ind. if u know u cant handle 100%. Bacailly im looking for a reason why it doesnt reduce risk.

Re: Index Funds vs Individual Funds
 

There is no need for a lot of intellectual debate. Try it yourself and see how you do over the long run. You can do a real trial, splitting your money up 50-50 and seeing how you do over 5-10 years.

Or you can index your real money and do paper trading to see how you would have done.

There is no substitute for trying it on your own, for real, as there are trading costs, and fear and greed.

I started out with index funds and probably had about 80K to 100K, built up over 5 years, before I took 12 K and tried to pick my own stocks.

It's hard for anyone to generalize about how you might do. We have no idea about your stock picking abilities, etc.

I have always loved economics and investing. So it's fun for me. And I probably put in more than 10 hours a month. Though how much time I put into it is really hard to guage.

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Do you see why?

[/ QUOTE ]No

Re: Index Funds vs Individual Funds
 

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What's the rationale for having both index funds and individual stocks? Either you expect your picks to beat the market or you don't. I see no strong reason for straddling the fence. Reduction of risk isn't a good argument in this case. Do you see why?

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I agree with your first point to a certain extent... pick whatever you expect to perform best. I don't really understand what you're trying to say about reduction of risk- but I think that if you truly understand the underlying business that you're invested in, and feel as though you own a part of it, it's unlikely that you'll sell if the price drops dramatically. In fact, you might see this as an opportunity to buy more

Re: Index Funds vs Individual Funds
 

Wouldn't you all rather debate this NOW than see how you do over the next 5 or 10 years in index funds? ...and then be hesitant to switch because of capital gains taxes, stubbornness, etc.

I think anyone who spends some time studying the stock market will realize that your highest expected return is certainly not in index funds.

Re: Index Funds vs Individual Funds
 

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What's the rationale for having both index funds and individual stocks? Either you expect your picks to beat the market or you don't. I see no strong reason for straddling the fence. Reduction of risk isn't a good argument in this case. Do you see why?

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If you expect it to take you x hours/week (on average) to do thorough research for a single stock, then it will take you some Cx hours (not necessarily linear) to do research on multiple stocks. Someone may have enough time to cherry pick a stock or two on their own, but not enough to research enough stocks for an entire portfolio, no?

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I think anyone who spends some time studying the stock market will realize that your highest expected return is certainly not in index funds.

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No one is saying this isn't true. The problem isn't that we think index funds are unbeatable. The problem is that you basically want to open up the newspaper a couple times a week and somehow magically beat the market as a result, something that many professionals who work full-time at can't even achieve.

Re: Index Funds vs Individual Funds
 

How many stocks do you need? 90% of my portfolio is in 5 of them.
I don't believe that you need to check on your stocks every day or even every week if you just want a better return than index funds. I check my watch list every other day to see if anything good is on sale, but I certainly don't spend a lot of time running numbers every day, or trying to predict what may or may not happen in the next month or the next year. Once you discover and acquire your target business, it'll keep running itself whether you pay attention to it or not!

I honestly think it can be done in 10-20 hours a month... but only determination and due diligence will help you here- I'm not suggesting you go read the paper, see the picture of the pretty Iphone, and go buy AAPL for $97. That doesn't really count as research.

Re: Index Funds vs Individual Funds
 

Taking some of these theories to the extreme, everyone should invest in one company. Who needs diversity when all it does is reduce risk while also reducing performance? With that perspective, you should thoroughly research things and drop 100% of what you have into the single investment you think has the greatest probability of returning the most. Doing anything else decreases your expected return, after all, since you believe every other investment has a lower expected return.

But I'm not a gambler...I don't play black chip craps or blackjack and I don't dump $thousands into slot machines. I don't believe 5 stocks is nearly enough diversity.

If diversity is not what turns your crank, fine. If you're 22yo and you've got found money burning a hole in your pocket, gamble away. But that's not advice that fits very many investors; I'm investing a lifetime of earned income that I've worked my fanny off to get for almost 30 years and I don't like the idea of a single Enron or MCI event wiping out 30% of my networth.

Re: Index Funds vs Individual Funds
 

Meditate,

I think you aren't beating index funds on a risk adjusted basis and are exposing yourself to a large amount of non-systematic risk purely from a lack of knowledge.


gull,

I don't see why either. If you feel you need ~3 hours per week to pick one winning stock, and are only able to spend 10 hours a week... What would be wrong with straddling the fence? And shouldn't we differentiate retirement funds from discretionary income (Of course, but rarely stated on this board)? Why not use your discretionary funds to pick stocks before delving into money that is earmarked?

Re: Index Funds vs Individual Funds
 

Bav, I realize I may be more against diversification than many people- I would rather focus on a few great ideas than spread my money over 10 or 20 stocks- but only 1 probably wouldn't make me very comfortable( unless it was BRK-A =p).
Also I am trying to keep some money liquid for merger/ arbitrage opportunities- if I wasn't doing this I might have a few more long positions.

I'm also young and have more time than you probably do to recuperate if I somehow lost money. However, I think the Sarbanes Oxley act will help to prevent future Enrons from occurring. I think it is also very important to scrutinize the actions of management and make sure the financial statements of a company makes good sense to you before you invest of course. It would be devastating if one of the companies I own went bankrupt... but it's hard for me to calculate the likelihood of this. One in a million? It's not that I believe it's impossible... but do you worry about getting hit by lightning whenever there's a storm? I think that because of my tendency to pick stocks with strong balance sheets, solid earnings, trustworthy and competent management, usually low debt to asset ratio, etc, that it wouldn't be fair to say... for example... there are 10,000 companies, 100 went bankrupt, therefore you have a 1% chance of each of your companies going bankrupt.

Also, I don't think it's fair to compare the stock market to blackjack or slot machines which are -EV games that you can never ever win in the long run. I think everyone can agree that with a larger amount of time to dedicate, anyone can beat an index fund- but I don't know anyone who can beat slow machines or blackjack ( assuming no card counting), no matter how much effort/ time they dedicate

I'd say it's more like this:

Would you rather get all in with AA vs AK for a $1200 pot,
or get in with KK vs AK for a $300 pot, 4 times in a row?

Your expectation is higher with AA vs AK, but your likelihood of having SOME money left at the end is MUCH greater showing down KK four times.

Assuming my bankroll could handle the swings, I would much rather buy the one AA 'stock' than the 4 KK 'stocks'

Re: Index Funds vs Individual Funds
 

thremp- you may or may not be right. I've only held stocks for about 2 years, and right now my record is rather good- hopefully it will remain this good for the next 8+ years so I have a track record worth bragging about.

Could you please explain what you mean by a risk adjusted basis? Stocks are clearly much more risky than index funds, but is there any way you could quantify this risk for me? Are stocks twice as risky as index funds? 1.5 times? 5/10 times?!!? I feel that many of your comments just aren't specific enough to really add much value to the discussion... i'm not trying to call you out or anything, but every post i see of yours seems to be like 2-3 lines long- how can you possibly explain and articulate an important point?

Re: Index Funds vs Individual Funds
 

Meditate,

Are you beating the market on a risk adjusted basis?

Re: Index Funds vs Individual Funds
 

Stocks aren't more risky than index funds. Stocks are in index funds. So it depends on how you are discussing risk. If you own a stock or an index fund, you have the same asset class risk. A lot of the time, especially large caps, the share price of a particular stock will move with the market.
The risk you are talking about is the risk of owning one or a few companies versus owning hundreds through an index. This is hard to quantify. I think you would obviously want to be in more than one position to eliminate the risk of bad information creating a nightmare scenario for you, but if you have about 10 positions across different industries and geographies, you could eliminate most of this risk.

Some people also talk about risk in terms of the daily fluctuations of the price of the asset when compared to another. (Look up Beta) You could probably pick 10 stocks that have less of this kind of risk than the entire S&P 500. It has a lot to do with the type of business. Utility stocks for example don't move around a lot. A lot of them have a virtual monopoly, and inelastic demand for their services. Owning 10 utilities would give you a pretty stable portfolio.

Re: Index Funds vs Individual Funds
 

Maxtower,

Yeah, RoR v variance is an issue as people use "risk" to describe both. You have nonsystematic risk with <20 stocks IIRC. Obviously these would also need to be diversified with reasonable respect to industry as just buying every uranium stock isn't going to cut it.

Beating the market isn't very hard in a given time frame. Beating it on a risk adjusted basis is much more difficult.

Re: Index Funds vs Individual Funds
 

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Meditate,

Are you beating the market on a risk adjusted basis?

[/ QUOTE ]

I already asked if you could explain what exactly you mean by this, do you even read my posts?

I also ALREADY STATED that I don't really want to comment on whether or not I'm capable of beating the market or not based on two years of results.

Re: Index Funds vs Individual Funds
 

Hrm, I read the long one and it sneaked in there I guess in between my responses. Though stocks hold a different type of risk than index funds. I'm asking about a variance measure. Like how a stock is riskier than a bond, which is riskier than a T-bill etc.

Beta will work.

Re: Index Funds vs Individual Funds
 

Do you guys get together and conspire to put up threads like this just to jerk my chain and get me foaming at the mouth? Ok, for the last time

1) Beta isn't risk for a long term investor. True risk is business risk. Your risk isn't how often the stock flunctuates, it's whether it's another Enron, or whether it's business will go bad.

2) If you know how to value companies well, and you are a long term investor, diversification will not only hurt your results, it will create more risk than it solves. Essentially Buffett will tell you it's better to own fewer companies that you can know well, than too many stocks to know any deeply.

3) As proof of this, look at Buffett's results. Not only has he beaten the market by over 2x for a very long time, he actually has only one down year in 50. He's done this by running a very concentrated portfolio for most of his career.

Now that I've said all that, I still don't recommend individual stock picking to most people. It's not the amount of time you spend, Buffett could spend ten hours a month and still crush the market (with the right size portfolio). But he's a freak in terms of capabilities (50 years of reading thousands of annual reports, photographic memory, perfect disposition for the job).

The first problem is that most people don't understand how to value companies. Even for those that do, most don't have the psychological temperament to commit to buying cheap and selling dear. The ability to wake up one morning and see your biggest position down 35% and immediately think about buying more instead of running for the exits. The ability to ignore "price trends". To focus on what you know and ignore what you can't predict. And utter patience to wait with all your money in cash when you can't find anything attractive and keep yourself from buying something that looks sortof cheap just to do something.

Most people trade too much, they can't even hold an index fund for the long term. They'd be better off accepting "average" results from holding a single index fund forever because instead they buy and sell hot funds and stocks and sectors and trade until their results are way worse than that "average return" index fund produces.

Re: Index Funds vs Individual Funds
 

DC,

For #2 what do your recommend? I've always heard that ~20 is a golden zone. Too few and you have greater risk, too many and as you said you dilute yourself needlessly.

Re: Index Funds vs Individual Funds
 

I would never buy a uranium stock- i have absolutely no idea how much the stocks or uranium is worth. Just because there are many people on here who have gold, uranium, timber, penny stocks, poker stocks( I do own CRYP actually), 50 PE growth stocks, etc as 1/2 of their portfolio doesn't mean that I'm one of those people.

I don't really understand your point about RoR- unless every company I own goes bankrupt, how can i possibly be ruined? If my stocks tank in price, I'm very likely to buy more of them- I don't see the risk here. After all, their intrinsic value has nothing to do with current market prices.

I assume we're all talking about long term holdings here- short term price fluctuations should be seen as nothing but buying opportunities. I have only made about 8-9 trades so far in the two years i've had my brokerage account open- and I currently have about 7 long positions that I can't see closing out any time in the next 20(+++) years.

Re: Index Funds vs Individual Funds
 

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DC,

For #2 what do your recommend? I've always heard that ~20 is a golden zone. Too few and you have greater risk, too many and as you said you dilute yourself needlessly.

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My goal is 5. Reality is I end up with 10 since I can't control how much I can buy of some positions or when I can sell some others, but if I really love a single position I'll make it up to 25% of my portfolio. I've had half my portfolio in two positions before.

There is some good discussion in "You can be a stock market genius" (goofy title, great book) where Joel Greenblatt discusses how little extra protection you get from volatility in a larger portfolio. He estimates the markets standard deviation is around 18%, i.e. it's average return is 10% two thirds of the time it will be between -8% and 28%. He then estimates that a portfolio of 5 stocks will have a standard deviation of 21%, i.e. between -11% and +31%. Not much difference in volatility range between one of the least diversified portfolios possible and the most diversified portfolios (the market).

Of course if you are -EV at picking stocks, then concentration into a smaller portfolio is likely to help you lose money faster. It only works if you are skilled at valuing businesses and if you pay attention to what you have. Otherwise I've given you very bad advice.

Re: Index Funds vs Individual Funds
 

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...unless it was BRK-A =p).

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BRK is almost just another sort of mutual fund.

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It would be devastating if one of the companies I own went bankrupt... but it's hard for me to calculate the likelihood of this. One in a million?

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Give yourself a few more years and a few more investments and you'll get stomped by one. The company doesn't have to go bankrupt...there are probably twenty companies that drop to 1% of their former value and then get bought in a firesale and avoid bankruptcy for every company that actually drops to 0.

My sis-in-law years ago took her IRA money and basically handed it to a full-service stock broker. She didn't know any better. She told the guy "buy some Microsoft and buy some Starbucks and do whatever you think is best with the rest". So she got 10% into MSFT, 10% into SBUX, and 80% into Lucent. She made a little with MSFT, made a lot on SBUX, and lost 90% of her 80% on LU. (I told her ages ago she shoulda sued the bastards... no way in Hades a rational investment professional could possibly think 80% into Lucent was an appropriate retirement choice.) LU isn't bankrupt, but it fell to almost nothing before Alcatel bought 'em. Who coulda thunk a piece of the former-glory that was the pre-breakup AT&T could do this?

And how often do banks and S&L's and Credit Unions go bankrupt and have to be saved by FDIC and FSLIC and whatnot? What're the odds? Somehow I've had money in two of these. Fortunately, not >$100K or I woulda lost it. I mean, really, how could lightning strike twice?

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Would you rather get all in with AA vs AK for a $1200 pot, or get in with KK vs AK for a $300 pot, 4 times in a row?

Your expectation is higher with AA vs AK, but your likelihood of having SOME money left at the end is MUCH greater showing down KK four times.

Assuming my bankroll could handle the swings, I would much rather buy the one AA 'stock' than the 4 KK 'stocks'

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ok... so you're 70 years old, disabled, and living on $1200/mo of social security and $1M invested generating $5000/mo of retirement income. If someone offered you 50:50 odds on a coinflip for your entire retirement, would you accept it? 3:2 odds? 2:1? 3:1? 10:1? At what point is the chance of eating dogfood and having no way to pay for your prescriptions worth it?

Now roll the clock back and you're 22yo with $50K and 50 years of earnings potential ahead. Where would you draw the line? Different sorta question.

Which is why one size will never fit everyone. Diversify or concentrate? Buy&Hold or Buy&Homework? Individual stocks or ETFs/MutualFunds? Leverage or not? Daytrade or Blackjack?

Re: Index Funds vs Individual Funds
 

DC,

I have not read it personally, but the academic research I have read disagrees. Not to mention a good bit of the risk comes from increased exposure to business risk. If you have a major innovation or etc that crushes one of your 2 50% companies... You're effed. When you're young and with discretionary income and taking a shot, I don't mind this idea at all. Another bigger downside is the years spent recouping where you were originally from the misstep.

I ideally would like to keep my retirement money apart from my discretionary stock-picking money as I get older and develop this ability.

Also I think conversely as you become very wealthy then it becomes silly to keep your retirement apart from stock picking monies if you are clearly +EV. Since the difference in lifestyle from 19-20 mil isn't as pronounced. Also I'd imagine your talent level become vastly different unless you lucksack your way into the monies.

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DC,

I have not read it personally, but the academic research I have read disagrees. Not to mention a good bit of the risk comes from increased exposure to business risk. If you have a major innovation or etc that crushes one of your 2 50% companies... You're effed. When you're young and with discretionary income and taking a shot, I don't mind this idea at all. Another bigger downside is the years spent recouping where you were originally from the misstep.


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This is true. But in my case I was very certain about those two companies. The Mark Twain quote is "put all your eggs in one basket and watch that basket!". Academics have trouble explaining how Buffett can beat the market at all, let alone by such a large margin and with low variance over a long period with such focused portfolio.

Both of my picks I felt offered very high returns, as well as they had a "margin of safety" provided by their assets and earning power. On one I paid about 3x earnings for example. So I felt my worse case scenario was losing about 20% of my portfolio which I could recover from, and that would happen very infrequently. And I monitored these companies extremely closely.

Once again, that level of risk is foolhardy unless you have some real evidence that you understand how to value a company and assess it's business risks. I'm not arguing the average joe should focus their portfolio, in fact I'll repeat that almost everyone should just buy an index fund.

Re: Index Funds vs Individual Funds
 

DesertCat,

I'll go with that. I almost expected the answer, but wanted to make certain. Like someone with a couple utility companies for their whole portfolio isn't going to flip out unless cold fusion is invented. But I think a lot of people will be more speculative with a smaller number of stocks.

And on the Buffett comment. Thats why he has the monies and the rest of us don't. It's also interesting since teachers ridicule technical analysts and other people, while they grind out 80-130k a year.

Do you think most people can learn to pick stocks well? Are 90+% of the people picking stocks either extensively trained by a professional or were a professional themselves? Do you think people can pick this up just reading?

Re: Index Funds vs Individual Funds
 

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Do you think most people can learn to pick stocks well?

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No. Not even most 2+2ers. The basics of how to value a company are pretty easy, but the uniqueness of each individual business are what makes it hard. But on top of that you have psychology. A value investor struggles to separate the noise of the market from what they factually know about the value of a stock. It's not easy, it requires a strong constitution and utter conviction in your approach.

For example during the crash of 87, Buffett went on a buying spree. Right now that might not seem like a brave act, but many people thought it was the end of the world, that a new great depression was starting and that the market would tank for years.

Robert Cialdini wrote a very good book called "influence" that describes how we all make sub optimal decisions due to psychological factors, and everything he wrote is applicable to the investor. There are many bad behaviors that reduce your effectiveness as an investor. One classic is holding on to a stock that you know know was a mistake to buy, hoping it will go back up so you can sell it a small profit to validate your own ego.

So essentially, you have to be above average in smarts, have the right training, but you absolutely need the right disposition.

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Are 90+% of the people picking stocks either extensively trained by a professional or were a professional themselves? Do you think people can pick this up just reading?

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I'm a self employed "professional" so I can't comment extensively on real professionals. I picked it all up reading Graham, Buffett, Joel Greenblatt, Philip Fisher, & Peter Lynch.

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Could you please explain what you mean by a risk adjusted basis? Stocks are clearly much more risky than index funds, but is there any way you could quantify this risk for me? Are stocks twice as risky as index funds? 1.5 times? 5/10 times?!!?

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Annual standard deviation is one way to gauge risk. DC said the SD for the market is about 18%. I agree. The S&P 500 from 1973-2005 had a SD of 17.7%.

How about AAPL? From 1997-2006, Apple stock had an annual SD of 101%. (1997 -37.1%, 1998 +211.9%, 1999 +151.1%, 2000 -71.1% etc.)

BRK stock 1997-2006 SD is 22%.

Utility stocks are safer? ED (Con Ed) SD is 21%, KSE (Keyspan) SD is 32.9%, DUK (Duke Energy) SD is 33.8%, T (AT&T) SD is 28.8%. (These are all from 1997-2006.)

In terms of risk-adjusted returns, here is an article on Sharpe Ratio.

Not going into all the details, if the index returns 10%, and your account returns 12%, you may or may not have outperformed on a risk-adjusted basis. If your standard deviation is twice as high as the index, you didn't. If yours was the same as the index, you did.

If you only have 2 years of data, you might look at monthly standard deviation instead so you have a few more data points.

-Tom

Re: Index Funds vs Individual Funds
 

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Also, I don't think it's fair to compare the stock market to blackjack or slot machines which are -EV games that you can never ever win in the long run. I think everyone can agree that with a larger amount of time to dedicate, anyone can beat an index fund- but I don't know anyone who can beat slow machines or blackjack ( assuming no card counting), no matter how much effort/ time they dedicate

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I just read the whole thread and didn't want to let this go by. I totally disagree that anyone can learn to beat the index just by putting time in. I think even Desertcat agrees. In addition to just doing incorrect analysis, the fear and greed factors are just huge.

In fact, even passive and asset allocation investors can underperform due to fear and greed. Here is a good article from William Bernstein from the winter of 2003 on what it takes to have a very successful investing experience using passive asset allocation.

-Tom

Re: Index Funds vs Individual Funds
 

What is the SD on Southern (SO)?

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What is the SD on Southern (SO)?

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http://finance.google.com/finance?q=SO

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Why would successful investors like Peter Lynch and Warren Buffet suggest individual investors can outperform the market over an extended period of time?

Re: Index Funds vs Individual Funds
 

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Why would successful investors like Peter Lynch and Warren Buffet suggest individual investors can outperform the market over an extended period of time?

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Probably the same reason that DS and MM write books saying you can beat poker too.