Evaluating Managed Funds

[buffett]

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there is no one that can pick stocks and beat the benchmark over a long period of time

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Oh, please.*

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Take 1000 fund managers and put them in a room. Ask them to flip a coin and try to get heads....

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Have you read The Superinvestors speech?




* I'm not saying it's easy, I'm just saying that all tautologies are false [img]/images/graemlins/wink.gif[/img] and there's a lot of data that contradict you/Fama/French/Malkiel/Samuelson/.....

[BadBoyBenny]

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And, what do I or you or any individual know that is better information than the millions of people that trade that stock every day? Inside information, is of course, illegal. And all other information is basically made available to everyone at the same time. All "news" that is basically unpredictable.

I believe that, because millions of people are researching and buying and selling all of the stocks every day, there is no one that can pick stocks and beat the benchmark over a long period of time

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It is not having extra information that gives the best investors the advantage it is how that information is used.

[Ed Miller]

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* I'm not saying it's easy, I'm just saying that all tautologies are false [img]/images/graemlins/wink.gif[/img] and there's a lot of data that contradict you/Fama/French/Malkiel/Samuelson/.....

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Honestly, I don't understand how people who lived through 1998-2001 could claim that the stock market is too efficient to beat.

BTW, I definitely appreciate your advice, jively. And I agree 100% that index funds are an excellent investment vehicle. But I don't believe that the market is always priced too efficiently to exploit.

Though, I certainly agree with you that you can't look at a managed fund's return for the past X years and draw a conclusion about its ability to pick stocks well.

[Ed Miller]

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Take any stock - Altria was mentioned in this thread. 11 million shares of Altria traded today. So, pensions, mutual funds, and individuals bought 11 million shares of it today - and all of those buyers think the stock is going up. But other pensions, mutual funds and individuals sold it today - the same 11 million shares worth! - and all those sellers think it is going down, or there is someplace better for their money. So, who is right?

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This line would also argue that no one can beat a sportsbook over the longterm. After all, someone is always taking the other side of your bet.

[AceHigh]

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I am in investment advisor, and as I mentioned in another thread, I feel strongly about passive, non-forecasting investments strategies.

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It may be your job to convince people of this, that doesn't make it true. It's only difficult to beat the S&P because you guys are too busy charging fees.

[Uglyowl]

I have started to learn from the very intelligent people on this board and based on their recommendations have started to read "The Intelligent Investor". So far I am through about only about 10% of the book and am thouroughly enjoying it so far. Here is a passage that is very well stated:

"The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists." - Benjamin Graham

[krishan]

I'm currently investing in a bunch of American Funds. They are front loaded but seem to have beat the market for a long while by a significant margin. Take a look at them if you like.

Krishan

[rockrock]

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Fairholme - 40%
Vanguard 500 Index Fund Investor Shares (VFINX) - 20%
Vanguard Small-Cap Index Fund Investor Shares (NAESX) - 20%
Vanguard Total International Stock Index Fund (VGTSX) - 20%

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Do yourself a favor and read the latest books by Larry Swedroe and Rick Ferri. The evidence for asset allocation via indexing with small cap, value tilt (and equal amts of international) is compelling.

Since I am only active with a small part of my portfolio, these 2 authors have radically changed (for the better) my passive investment decisions.

I wouldn't buy a single fund until I read at least 1 of those 2 authors latest books.

Also see the Vanguard Diehards forum at morningstar.com (its free).

Great stuff you won't hear from anyone working sell-side wall street (i.e. every breathing human on tv and 99.9% of the other authors out there).

Good luck

[rockrock]

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20% Total Stock Market Index
20% Value Index
10% Small Cap Index
10% Small-Cap Value Index
10% REIT Index
10% European Stock Index
10% Pacific Stock Index
10% Emerging Markets Stock Index

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Great start but I'd say small cap intl (no index available but VINEX is good alt) and 5-10% commodities (pcrix) to make this the perfect (but very aggressive portfolio)

I'll help with some symbols

VTI - 20% Total Stock Market Index
IJJ - 20% Value Index
IJR - 10% Small Cap Index
IJS - 10% Small-Cap Value Index
VNQ - 10% REIT Index
VGK - 10% European Stock Index
VPL - 10% Pacific Stock Index
VWO/EMM - 10% Emerging Markets Stock Index

Your expense ratio on the above funds will be tiny (especially the Vanguard Vipers) and you will have a very diversified portfolio across different asset classes. Throw in some VINEX or PISRX and some PCRIX and you are good to go.

[rockrock]

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I'm currently investing in a bunch of American Funds. They are front loaded but seem to have beat the market for a long while by a significant margin. Take a look at them if you like.

Krishan

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I'd strongly consider not doing this. Read Bernstein, Bogle, Swedroe and Ferri for more info.