Political ideology and investing

[adios]

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ROOF! ROOF!!! That's right, TREE!!! It's on now.

Hmm. Do you really mean I'm "barking up the wrong tree," or are you saying my assertion is wrong? There's a big difference.

If you really mean barking up the wrong tree, then.. OK? My bad? If you mean you disagree with me, then feel free to let me know what you disagree with and I'll be happy to defend myself.

It doesn't make sense to you that people who think hands on public policies are most productive will also tend to think hands on investment approaches are most productive? And vice versa? Why do you disagree?

Do you just assume you disagree, because the analogy scares you, since index funds can strongly be argued to be objectively more efficient?

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Have you ever read any of my posts in the BFI forum? I haven't posted there much in awhile but I think it's clear from my posts that I strongly advocate indexing for most if not the vast majority of long term investors in the stock market. I had a long post in my original reply that I scrapped because I wasn't sure how much you understood about Portfolio Theory. Didn't want to get into it too much unless you're interested.

When I say you're "barking up the wrong tree" I mean that I have serious doubts about the correlation between people's political views and their investment choices. IMO FWIW you're delving into the area of investor psychology. Again IMO FWIW any discussion of investor psychology must include something about risk aversion. Put another way without a discussion of investor utility functions, discussions regarding investor psychology are basically not very meaningful.

[Zygote]

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I sort of think of the people whose general investment strategy is to pick and choose individual stocks (or who would trust a mutual fund more than an index fund) in the same way I think about politicians (and voters) who think they can fix problems by interfering with the market. People see an idea and think it's a good one, but don't seem to fully realize that their idea is shared by a lot of people and already contributes to the price of the stock.

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i dont get your analogy. the only part i understand is the last sentence - would you mind elaborating on the earlier parts?

Regarding the last part, just because other people realize similar things as you do doesn't mean there isn't opportunity to make money. If the money put down by those who agree with you doesnt out number the money put down by those who dont agree with you than opportunities to make money still exist (assuming you're right).

[Kaj]

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But I'm curious, what's your political persuasion and what's your general approach to investing?

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I used to invest in index funds. Now I don't invest in the market. I don't want to be part owner of the very institutions that I abhor (I'm trying to cut down on the consuming part to, doing much better although Diet Pepsi is till an occasional vice). I know this may cost me and my family, but I can live with that, and there's more to life than increasing my wealth -- we get by well enough, better than most of the world. Besides, I'd rather invest in myself. The few years I played serious poker, I did quite well and didn't have to be part of a government-made-and-protected entity to do it. Maybe I'd invest in a particular company or two in the future whose business plan I supported, but I don't have the resources to want to branch into individual businesses like that right now.

Paradoxically, I work for the government. And enjoy what I do.

[Copernicus]

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But I'm curious, what's your political persuasion and what's your general approach to investing?

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I used to invest in index funds. Now I don't invest in the market. I don't want to be part owner of the very institutions that I abhor (I'm trying to cut down on the consuming part to, doing much better although Diet Pepsi is till an occasional vice). I know this may cost me and my family, but I can live with that, and there's more to life than increasing my wealth -- we get by well enough, better than most of the world. Besides, I'd rather invest in myself. The few years I played serious poker, I did quite well and didn't have to be part of a government-made-and-protected entity to do it. Maybe I'd invest in a particular company or two in the future whose business plan I supported, but I don't have the resources to want to branch into individual businesses like that right now.

Paradoxically, I work for the government. And enjoy what I do.

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Not a paradox at all. It sounds very much like 1/2 the group of government employees I work with. The other half are more goal/wealth oriented and are just in the government to get credentials and then leave and sell themselves to the highest bidder.

[ALawPoker]

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any discussion of investor psychology must include something about risk aversion

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This is a good point.

But what I meant was really more generalized. I'm by no means claiming that anywhere close to "all" libertarians favor indexes (and vice versa for socialists). I'm just saying that in general this is more likely.

Further, it's not as if public policy does not also contain an element of risk aversion. I think the free market is more volatile than a government regulated market. It makes sense that it would be. So still, voter preference contains this aversion, assuming they think about it.

[adios]

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any discussion of investor psychology must include something about risk aversion

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This is a good point.

But what I meant was really more generalized. I'm by no means claiming that anywhere close to "all" libertarians favor indexes (and vice versa for socialists). I'm just saying that in general this is more likely.

Further, it's not as if public policy does not also contain an element of risk aversion. I think the free market is more volatile than a government regulated market. It makes sense that it would be. So still, voter preference contains this aversion, assuming they think about it.

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Out of curiosity, what kind of returns in terms of compounded percentage do you expect on holding an index fund (I'm assuming it's something that tracks the S&P 500) for a 20 year period or so?

[boracay]

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It just seems absurd to me to think you can beat the market with anything short of inside information.

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information is crucial. i have no knowledge of investing but i have couple of good friends who get some information occasionally and have some knowledge. i'm giving them 20% of my profit, but it still leaves me with around 100% of net profit / year (82% in 2005 and 111% last year) after paying taxes. generally in have 20% of my funds constantly in bonds, 40% liquid (movable in between bonds and individual stocks), 20% at bank and available for quick overnight stock investments and 20% at my friend, whose giving me 20% / year for that. at this point i would never accept a guaranteed 20%/year.

[Copernicus]

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any discussion of investor psychology must include something about risk aversion

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This is a good point.

But what I meant was really more generalized. I'm by no means claiming that anywhere close to "all" libertarians favor indexes (and vice versa for socialists). I'm just saying that in general this is more likely.

Further, it's not as if public policy does not also contain an element of risk aversion. I think the free market is more volatile than a government regulated market. It makes sense that it would be. So still, voter preference contains this aversion, assuming they think about it.

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Out of curiosity, what kind of returns in terms of compounded percentage do you expect on holding an index fund (I'm assuming it's something that tracks the S&P 500) for a 20 year period or so?

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Currently large fund managers are assuming 8.5-9% annual returns and 16%-21% standard deviations.

[adios]

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any discussion of investor psychology must include something about risk aversion

[/ QUOTE ]

This is a good point.

But what I meant was really more generalized. I'm by no means claiming that anywhere close to "all" libertarians favor indexes (and vice versa for socialists). I'm just saying that in general this is more likely.

Further, it's not as if public policy does not also contain an element of risk aversion. I think the free market is more volatile than a government regulated market. It makes sense that it would be. So still, voter preference contains this aversion, assuming they think about it.

[/ QUOTE ]


Out of curiosity, what kind of returns in terms of compounded percentage do you expect on holding an index fund (I'm assuming it's something that tracks the S&P 500) for a 20 year period or so?

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Currently large fund managers are assuming 8.5-9% annual returns and 16%-21% standard deviations.

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Over and above about 5.0% on long term govt bonds I assume i.e. the spread between govt bonds of same duration as holding period of stocks is 3.5% to 4.0%. Interesting.