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#11
12-29-2006, 04:33 PM
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Re: where to stick 50k for 10 years
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In fact, since 1927, there have only been 3 10-year periods out of 71 with a negative return. And all 3 of those came from starting in 1927, 1928, or 1929, right before the great depression. [/ QUOTE ] This doesn't reflect for inflation does it? I have to imagine that if you factor for that, there have been other periods with negative returns? 
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#14
12-30-2006, 08:59 PM
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Re: where to stick 50k for 10 years
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No, these data are not inflation adjusted. [/ QUOTE ] Were they dividend adjusted? Because dividends were higher than inflation for most periods last century.
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#15
12-30-2006, 10:39 PM
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Re: where to stick 50k for 10 years
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Were they dividend adjusted? Because dividends were higher than inflation for most periods last century. [/ QUOTE ] V. good question. Since I feel uncomfortable about current market valuations, and uncomfortable about index performance vs. active management for the next decade, I don't like the idea of recommending someone put 50k into an index and walk away, especially if all 50k are expected in 10 years. If the last dollar from the pool is going to be spent in year 20, then I'd feel better. But one slug, right now, no averaging, in a stock picker's market.... [img]/images/graemlins/confused.gif[/img]
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#16
12-31-2006, 02:47 AM
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Re: where to stick 50k for 10 years
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But one slug, right now, no averaging, in a stock picker's market.... [img]/images/graemlins/confused.gif[/img] [/ QUOTE ] A stock picker's market? From todays wall street journal. [ QUOTE ] The market's surprising run left stock-pickers badly trailing major indexes. Fewer than 20% of U.S. fund managers running diversified stock funds that try to beat the market managed to top the Standard & Poor's-500 this year through Thursday, according to data-tracker Lipper. [/ QUOTE ] Mutual funds are poor vehicles for stock pickers. The vast majority will lose to index funds over time. If this year you had put your money with the most successful stock picker of the last two decades (Bill Miller, beat the S&P 15 years in a row), you'd be trailing the market by almost 10% this year. And due to the (now) huge size of his fund, I'm wondering if Bill will ever beat the market for a prolonged period ever again. And Bill's damn good. But like any successful mutual fund manager, he's running the race weighed down by shackles.
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#17
12-31-2006, 05:52 PM
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Re: where to stick 50k for 10 years
DC- I don't know what you're saying, or that we necessarily disagree. Every one of my funds and sector bets this year is outperforming its respective index (no stockpicking at all). Overall I'm ahead of the S&P500. But so what? Indexes have been a great vehicle for a while. And if you want to take the last 5 year or 10 year period and extrapolate that forward to infinity, that's your right. But I'm choosing to worry about what WILL work in the future, and that has a lot more going into it than what HAS worked up until now.
Ongoing research leads me to believe that - this (index nirvana) is not the most likely outcome for future - that indexes (the big ones) will yield limited returns over the next decade - in general we are in a low return period - that index multiples are high enough to make me quite uncomfortable - i don't believe 'this time it's different' We can check back in 10 years and see how indexes did. Since I believe buying the total market or big parts of the market will provide anemic returns going forward, I'm seeking to find better returns in other places-- astute allocation and asset selection (right managers, and picking stocks myself). It doesn't matter if 80% of managers trail if your money is with the right ones (or in the right places) consistently. Advice for 'most people' is irrelevant. Just b/c we're interested and willing to educate ourselves, that makes us not 'most people'. And outperformance happens all the time. (If you can't tell, I don't think the WSJ/conventional wisdom is where to be taking one's market cues). Oh- if folks are looking for an index-like product that is tweaked and may generate excess returns, I am a big fan of the PRF fundamental weighted index. It's new enough that I want to watch it in different kinds of markets, but I'll do so while using it as a part of my portfolio. Forgot to add: Happy New Year!
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#19
01-01-2007, 02:49 PM
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Re: where to stick 50k for 10 years
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DC, Keep in mind, Bill's not really running in another more important race. He's already won. [/ QUOTE ] And his super-yacht has already been paid for  [ QUOTE ] This summer, Miller bought a huge yacht in Europe to vacation on and put out for charter. According to the rumor mill, the boat is nearly 280 feet long, close to the length of a football field. Miller initially declined to discuss the boat, or any other aspect of his personal life. Then he offered that the vessel was bigger than a row boat but smaller than 280 feet. In fact, it's about 190 feet long, according to a person at Legg Mason. The purchase might have given Miller solace during his summer of discontent. But where, these days, are his customers' yachts? [/ QUOTE ]
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#20
01-01-2007, 03:19 PM
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Re: where to stick 50k for 10 years
[ QUOTE ]
DC- I don't know what you're saying, or that we necessarily disagree. Every one of my funds and sector bets this year is outperforming its respective index (no stockpicking at all). Overall I'm ahead of the S&P500. But so what? Indexes have been a great vehicle for a while. And if you want to take the last 5 year or 10 year period and extrapolate that forward to infinity, that's your right. But I'm choosing to worry about what WILL work in the future, and that has a lot more going into it than what HAS worked up until now. [/ QUOTE ] I make a living as an active stock picker. I beat the S&P 500 last year, as well as the four years before (I had to or I wouldn't have food on my table). But what I do is hard, full time work, and I can't recommend it to anyone else. I certainly can't recommend it to OP. The fact that you are ahead of the S&P500 means you are either good, or lucky, and I don't have enough information to tell either way (though your reliance on funds and sector bets would lead me to lucky). Index funds have beaten actively managed mutual funds over long periods, since practically forever. Buffett has some nice comparisons in his partners letters from the late 1950s that show how the big mutual funds of his day were trailing index funds. They don't beat active managers every day of every year, but over three years, five years, ten years, their advantages take them past most active managers. [ QUOTE ] Ongoing research leads me to believe that - this (index nirvana) is not the most likely outcome for future - that indexes (the big ones) will yield limited returns over the next decade - in general we are in a low return period - that index multiples are high enough to make me quite uncomfortable - i don't believe 'this time it's different' [/ QUOTE ] Please share why you believe these things. Even if we are in a low return period, the index funds are likely to still beat the active managers. Effectively, index funds + active managers are the market, so overall they'll return the market returns minus fees/expenses. Active funds have higher fees/expenses, and if history is any guide, that is enough of a hurdle to ensure most active managers will fail to beat the indexes. [ QUOTE ] We can check back in 10 years and see how indexes did. Since I believe buying the total market or big parts of the market will provide anemic returns going forward, I'm seeking to find better returns in other places-- astute allocation and asset selection (right managers, and picking stocks myself). [/ QUOTE ] I'm a big believer a small investor can beat the market through smart stock picks, but as I said, it's a ton of work. I believe this because the small investor has many more stocks than the typical fund manager to choose from, and fewer disincentives and hurdles. I have little belief you can beat it through "astute allocation and asset selection". There is literally a trillion dollars on wall street being run by 150 IQ types trying to figure out which asset classes are going to outperform in the future, you certainly are at a disadvantage to these guys. [ QUOTE ] It doesn't matter if 80% of managers trail if your money is with the right ones (or in the right places) consistently. Advice for 'most people' is irrelevant. Just b/c we're interested and willing to educate ourselves, that makes us not 'most people'. And outperformance happens all the time. [/ QUOTE ] Predicting future fund manager outperformance is very hard. You need to find a manager who's done it for at least 10 years. This ensure they weren't lucky, or that their style (momentum, value, technology, growth, GARP, etc) hasn't just been hot for a couple years. And if it's someone who beats the market by 1/2% a year for ten years, that's not much evidence of skill. You really want someone who's shown a big edge for a prolonged period. Once you've found a fund that shows real skill at work, then you need to establish they will continue to succeed in the future. Has the mgmt team stayed intact? Has the fund grown significantly in size (this will absolutely hurt future returns)? Has the manager recently bought a super yacht or decided to take more time off because he's burnt out? And if this manager is so great, why didn't they open a hedge fund where they can get performance fees that will dwarf their mutual fund pay? These are all the factors that makes it difficult to find a good mutual fund manager. You aren't looking for the 20%, since some proportion has just been lucky, others have gotten too big, and some have lost key managers or their managers are now burnt out. In reality you are looking for the 1% of mutual fund managers if you want to have a high expectation of beating the market through that vehicle. But the great news is that an index fund won't trail the market. So it's a safe choice. Looking for an actively manged fund with only a 20% chance beat the market and an 80% chance of trailing, is a bet with misplaced risk reward ratios. [ QUOTE ] Oh- if folks are looking for an index-like product that is tweaked and may generate excess returns, I am a big fan of the PRF fundamental weighted index. It's new enough that I want to watch it in different kinds of markets, but I'll do so while using it as a part of my portfolio. [/ QUOTE ] This is a very interesting product. Bogle had some criticisms of it, I think revolving around excess costs. He might have some emotional attachment to "dumb" index funds, but he's been a pretty straight shooter in the past. My opinion as a value investor is that these academic definitions of "value" and fundamentals are pretty silly, you can't find true value with a computer. But it does seem like a fundamentally weighted fund would be closer to optimal than a regular index fund. It will be interesting to see how their funds do going forward. Happy New Year!
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