macq
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Jul 6, 2019 11:29:26 GMT
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Post by macq on Jul 6, 2019 11:29:26 GMT
No judgement either way and just out of interest only - But i do wonder some times if the people who are sure passive investing is better because the managers will not beat passive results take the same view of P2P and only invest in passive blackbox accounts like LW & RS or do they trust their own managerial skills to pick individual loans to beat the average?
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Post by samford71 on Jul 6, 2019 12:28:45 GMT
I find it amazing that people seem to debate which asset classes are better or worse and even investment styles (active vs. passive) without any reference to the actual point of investing which surely is to hedge your future liabilities. Perhaps everyone on this board is so incredibly wealthy that those future liabilities are so small that they can be ignored.
As a good example, take the UK's largest charitable endowment, the Wellcome Trust link. This portfolio includes everything from single stocks, property to hedge funds and private equity. It has annualized returns of 14%/annum since the mid 80s with very low volatility. I know the investment team rather well. They built a portfolio of assets that fitted their liability structure which required protecting the perpetual endowment, whilst generating consistent returns above inflation with very low drawdowns. Their success is not defined by generating a 14% return or any return. It's defined by meeting the necessary liability objectives. Moreover, the idea they are fools for not being 100% in passive equity trackers is just silly. Such an allocation would clearly not meet their mandate or liability structure.
We all have different liability structures, so it follows we all have different investment objectives and we'll need to use different portfolios to meet those. There is no "right answer".
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gc
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Jul 6, 2019 12:39:34 GMT
Post by gc on Jul 6, 2019 12:39:34 GMT
Bear in mind that even quite a few financial advisers are biased to the products they "help you with".
I feel some much needed clarification is needed here !
You have to distinguish the advisor from their employer.
If you go to a typical large firm. Then the problem you have is not the advisor but their employer.
In a large firm, the spotty oiks in the Compliance Department will "take a view" on risk. Typically that view results in an "approved stocks list" for various grades of risk.
Then, the expectation is, that if you as an advisor are handed an account. As required by the regulator, you will work with the client to assess their risk level and appetite for risk. You will then use that to narrow down your choices from the approved list.
Note that the "approved list" isn't a ready made portfolio. There is scope for discretion. But the investible universe is limited.
What you want to do is look for a decent small or mid-sized firm. Where a financial advisor is allowed a greater amount of discrection, and thus is able to deliver you the definition of Discretionary Portfolio Management (or Advisory Portfolio Management if you want to have a say in matters).
I hear you on that. As an example, I have a friend that got a payout and is severely partially sighted. Between his solicitor and banks financial advisors, just over £340k was invested in shares.. Bad decision in the first place anyway as the guy needs money to get by and they had invested his funds. Obviously, he listened to the advisors instead of me (and so he should) but after 3 years and the banks charges on that money, he made just shy of £4k (I am not joking). In the end, he closed all the fund accounts with the bank and invested it in 2, 2 bedroom properties and now get a decent little bit of money for himself, and the houses are going up in value... (stocks and shares not for everyone, esp short termers) You are right in what you say about financial advisors and some have more agendas than others, though weeding them out isn't easy. Also, I do agree with you, hazellend about a passive investment. Yes, Vanguards is pretty good one. I must admit that I enjoy the play in the market (I am just sad like that) so I like to choose, but one can't really go wrong with a VUSA from Vanguard (just my personal choice) and pray for the market to dive so that one can throw more funds in it during a dip. Personally, I am on the HL platform, I know it is more costly but I am happy with the info available and so far this has served me well.
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r00lish67
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Post by r00lish67 on Jul 6, 2019 13:54:21 GMT
I find it amazing that people seem to debate which asset classes are better or worse and even investment styles (active vs. passive) without any reference to the actual point of investing which surely is to hedge your future liabilities. Perhaps everyone on this board is so incredibly wealthy that those future liabilities are so small that they can be ignored.
As a good example, take the UK's largest charitable endowment, the Wellcome Trust link. This portfolio includes everything from single stocks, property to hedge funds and private equity. It has annualized returns of 14%/annum since the mid 80s with very low volatility. I know the investment team rather well. They built a portfolio of assets that fitted their liability structure which required protecting the perpetual endowment, whilst generating consistent returns above inflation with very low drawdowns. Their success is not defined by generating a 14% return or any return. It's defined by meeting the necessary liability objectives. Moreover, the idea they are fools for not being 100% in passive equity trackers is just silly. Such an allocation would clearly not meet their mandate or liability structure.
We all have different liability structures, so it follows we all have different investment objectives and we'll need to use different portfolios to meet those. There is no "right answer".
Whilst I'm sure you're right and I know you have plenty more knowledge than I in this arena, isn't that though a rather overcomplicated definition for the humble retail investor? Also, the topic of debate raised by the OP is specifically about going into active equity investing, so I don't see how contrasting that with passive equity investing isn't relevant. The debate wasn't about overall investment policies. As previously mentioned, my previous employer (a very large firm) pension trustees use index funds - specifically operating a lifestyle approach whereby employees are invested in a high amount of equities initially (say 90%) in their 20's/30's which then decreases, balanced with bonds, as time goes by and they approach retirement - to manage the obvious short-term risks of equities. The same applies to my wife's firm. If I've understood you correctly (forgive me if not) the rebalancing of equities towards bonds as retirement approaches serves the small investor's liability management needs in this way, or at least these large firms appear to believe it will. A personal version could be something like switching from vanguard lifestrategy 80 gradually down to 20, or doing it manually. So, not a rhetorical question - if that simple passive blend of equities/bonds is good enough for them (and the hundreds of thousands of pensioners they currently serve), why should we opt for anything more complicated as retail investors in our personal equity investments (assuming we don't have as much knowledge as you?) And if you feel it would be better for average Joe pension to do something different, then where would they start? Invest all of their money with Wellcome trust, or build something themselves? How would they know what good looks like if everyone's needs are different? Would they have to employ an IFA to validate their decisions? Other than that, I also don't think I agree that the active v passive debate is not relevant in terms of liability management. The many investors stuck with a big loss currently with Woodford and paying extra for it must be feeling rather envious of passive investors at the moment. Those active investors have suffered exactly what passive investors point out - you're at the whim of potential bias, hubris etc of the individual fund manager. With active investing, the average investor (probably not you!) might do better in the short term but will almost certainly do worse in the long term, and whatever happens you're going to be taking more risk and paying an awful lot extra for it.
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r00lish67
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Jul 6, 2019 14:03:07 GMT
Post by r00lish67 on Jul 6, 2019 14:03:07 GMT
Perhaps everyone on this board is so incredibly wealthy that those future liabilities are so small that they can be ignored.
I don't know about you samford71 , but surely "rule number one" trumps all other perspectives on the matter of investment.
You know, the rule that goes "never invest more than you can afford to loose".
Relying entirely or substancially on your (or someone else's) investment acumen to fund your future liabilities is perhaps not the wisest idea in the world !
I shoulds stress that the above statement applies on a personal (typical retail investor) basis. I agree wholeheartedly with you that for charities and such like the rules of the game are somewhat different, but then they are (or should be !) well advised on matters (as you say, mandates and liability structures etc. .... the sort of discipline and methodology that your average retail investor who thinks passives are the answer to everything is severely lacking !).
Ref my other post below also, do we perhaps need to split what we're talking about into two here? On the one side: I, and many hundreds of thousands of others, currently have their company pension (which the vast majority cannot afford to lose) invested almost totally in a blend of bonds and global passive equity funds, at the discretion of the pension trustees. I am therefore relying very substantially on this conventional investment approach. I frankly don't have a choice at this stage! On the other: If I have a spare few grand and want to try my luck with the latest hot fund manager or doing my own research with a funky trust/individual share, then exactly what you say above...don't invest more than you can afford to lose. Agree/disagree? ..going for a swim now, back in a bit
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macq
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Post by macq on Jul 6, 2019 14:39:22 GMT
seeing mention of a pension and maybe the idea of switching with time from Vanguard LS 80% down to VLS20 over time you can if you want with Vanguard use their targeted retirement date range i.e 2025,30,35 etc which does the rebalancing for you using a curve to bonds closer to the date and saves that switching around with VLS
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hazellend
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Post by hazellend on Jul 6, 2019 18:56:58 GMT
Investing is not like sport.
A complete novice embracing the fact they know nothing and investing passively will easily beat almost all the pros.
The evidence is there in black and white. IFAs are not professionals, they are basically leeches. Unfortunately many people are unwilling to take basic steps to educate themselves but once you do then IFAs have no place.
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hazellend
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Jul 6, 2019 19:03:36 GMT
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Post by hazellend on Jul 6, 2019 19:03:36 GMT
No judgement either way and just out of interest only - But i do wonder some times if the people who are sure passive investing is better because the managers will not beat passive results take the same view of P2P and only invest in passive blackbox accounts like LW & RS or do they trust their own managerial skills to pick individual loans to beat the average? I’m purely passive with stocks but purely active with P2P . P2P is very inefficient compared to stocks.
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hazellend
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Jul 6, 2019 19:06:39 GMT
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Post by hazellend on Jul 6, 2019 19:06:39 GMT
Have you considered splitting that? Obviously I don't think Vanguard are anything like Equitable Life, Lehmans, GFI...., and the chance of a problem is very small, but the cost of splitting is also very small and you might be able to sell £12k of capital gains worth each year for the next couple of years, a bit more if you have losses elsewhere,... Considered replicating the all world with individual ETFs to reduce the expenses slightly but too lazy to rebalance with new money
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Post by samford71 on Jul 6, 2019 19:16:45 GMT
r00lish67 . I have nothing against equity index funds. The majority of my equity exposure is in them. Nonetheless, I think the liking for of passive trackers is moving from perfectly reasonable to verging on something like fanaticism. 1. The theoretical argument that active investment is a zero net sum game and therefore, in aggregate, active managers cannot outperform passive managers is based upon William Sharpe's paper "The Arithmetic of Active Management", 1991. Unfortunately, this theoretical justification comes with a number of assumptions the biggest of which are that there is no primary market, the index is never reconstituted and that their are no non-economic agents. Practically, none of these assumptions is valid.
2. While evidence against the value of active management for S&P500 managers has existed for over 20 years, you need to be careful not to extrapolate this to all other equity markets and asset classes. In particular, there is relatively strong evidence in favour of the idea that active bond managers do outperform passive managers link. Academic work by the likes of Pedersen has shown that bond markets have persistent forms of risk premia that can be exploited by active managers. Moreover, the impact of primary issuance concessions, index reconstitution and activity by non-economic agents (central banks, reserve managers etc) is much larger in bond markets than equity markets.
3. The trend for lower and lower cost passive funds has now tipped from a positive to being a negative in my view. To keep cutting costs, funds are cutting corners. They use cheaper or lower performing indices to hide their costs. They cuts costs through using lower credit quality custodial banks and fund administrators. The do excessive amounts of stock or bond lending, creating substantial counterparty risk. This is all done to shave 5-10bp off the costs and protect their margins, which are under enormous pressure.
4. The issue of active vs. passive management does not solve the issue of the correct asset allocation. You still need to decide what proportion of different assets to hold, geographical distribution etc. The recent tendency toward targetting global market-cap weighted index funds has little justification in liability driven terms. In debt terms, market cap weighting is clearly dumb. You really want to hold more Italian government debt because they issue more? Or hold more junk debt of a company just because it's issuing more just to survive? Perhaps it's completely valid to have a home bias in your assets if your liabilties are in GBP, yet a global market-cap weighted fund will not do this. Asset allocation needs to be driven by the objective of hedging future liabilities. Anything else is speculation.
5. Furthermore, this idea that you should reduce equity exposure and increase bond exposure as you age is not really supported by the evidence. What matters most is sequence of return risk vs. your forward liability curve. If anything, the evidence points that once you are in retirement you should start with a decent chunk of less risky assets (bonds and cash) but then increase equity exposure; this is termed a reverse equity glidepath.
With regard to Woodford. He essentially gave his UK clients what they wanted: an income fund that paid above index dividends. The corollary is that these companies are not necessarily ones that hold their capital value. To offset that issue he then proceeded to buy illiquid private equity in the hope it would generate growth. This was clear mandate drift. The clients wanted a flawed investment proposition and hence the product was flawed from day one. Nonetheless, it's just one small fund of a few £ billion. Let's not overemphasize it's importance.
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carolus
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Post by carolus on Jul 7, 2019 6:38:21 GMT
IMO the story that some people won at Blackjack by counting cards was probably spread by casino operators. The margin to the house from Blackjack is far higher than Roulette for example, and any possible improvement in the punter's chances by counting cards will be slight in comparison, spasmodic in occurrence and easily detected if the casino was worried about it. I'm aware this is at risk of diverging from the actual purpose of the thread, but what you've said isn't true. The house edge on standard (European) roulette is 1/37, or roughly 2.7%. The house edge on Blackjack varies a littel depending on the exact rules in use, but is normally about 0.5% (assuming you play with correct strategy). It's certainly believable that counting cards (was) a method of play that would give you positive expected value. The major problem nowadays, I believe, is that most casinos will shuffle a large number of decks together, and will reshuffle very frequently, making it difficult to get enough penetration into the deck to get a big edge.
As it is, there are better ways to beat the house edge at casinos and bookmakers, so I don't think the decline of card counting is really a problem.
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littleoldlady
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Jul 7, 2019 7:23:22 GMT
Post by littleoldlady on Jul 7, 2019 7:23:22 GMT
IMO the story that some people won at Blackjack by counting cards was probably spread by casino operators. The margin to the house from Blackjack is far higher than Roulette for example, and any possible improvement in the punter's chances by counting cards will be slight in comparison, spasmodic in occurrence and easily detected if the casino was worried about it. I'm aware this is at risk of diverging from the actual purpose of the thread, but what you've said isn't true. The house edge on standard (European) roulette is 1/37, or roughly 2.7%. The house edge on Blackjack varies a littel depending on the exact rules in use, but is normally about 0.5% (assuming you play with correct strategy). It's certainly believable that counting cards (was) a method of play that would give you positive expected value. The major problem nowadays, I believe, is that most casinos will shuffle a large number of decks together, and will reshuffle very frequently, making it difficult to get enough penetration into the deck to get a big edge.
As it is, there are better ways to beat the house edge at casinos and bookmakers, so I don't think the decline of card counting is really a problem.
Your assumption is an easy get out. If you play using the same strategy as the dealer is forced to the edge will be about 5%, but of course it's not difficult to improve on that a little. If you can ever manage to see a casino's internal accounts of profit per game you will probably see that they make more on BJ than R because players in general cannot beat the edge. Casinos generally have plenty of BJ tables, more than R, and they are not there for any other reason than to make money for the casino. There are plenty of books claiming to know "the correct strategy" which to my cynical mind suggests that there is more money to be made out of writing books for gullible punters than in playing BJ. If there were a sure winning strategy anyone who knew it would make a living out out of it and would be most anxious that knowledge of it did not leak out causing casinos to change the rules back in their favour. The last thing they would do is publish it. On the other hand, suggesting that there is one, known only to a few, is a good way for casinos to encourage play.
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r00lish67
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Jul 7, 2019 7:48:54 GMT
Post by r00lish67 on Jul 7, 2019 7:48:54 GMT
5. Furthermore, this idea that you should reduce equity exposure and increase bond exposure as you age is not really supported by the evidence. What matters most is sequence of return risk vs. your forward liability curve. If anything, the evidence points that once you are in retirement you should start with a decent chunk of less risky assets (bonds and cash) but then increase equity exposure; this is termed a reverse equity glidepath.
Some interesting food for thought, thanks. Just as your point 5. chimes with something else I read recently (and if we can divert to casinos then we can certainly divert to this ) then there's an excellent blog called Early Retirement Now, which ran a very comprehensive study of safe withdrawal rates for early retirees. I've linked to part 19 below just as it touches on the same, but it really covers every aspect. earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/This made me feel much better about my 50% equity allocation, as I can now pretend all along that I'm following a reverse equity glidepath instead of being hideously underweight in equities for my age!
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bigfoot12
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Jul 7, 2019 8:32:54 GMT
Post by bigfoot12 on Jul 7, 2019 8:32:54 GMT
IMO the story that some people won at Blackjack by counting cards was probably spread by casino operators. The margin to the house from Blackjack is far higher than Roulette for example, and any possible improvement in the punter's chances by counting cards will be slight in comparison, spasmodic in occurrence and easily detected if the casino was worried about it. I'm aware this is at risk of diverging from the actual purpose of the thread, but what you've said isn't true. The house edge on standard (European) roulette is 1/37, or roughly 2.7%. The house edge on Blackjack varies a littel depending on the exact rules in use, but is normally about 0.5% (assuming you play with correct strategy). It's certainly believable that counting cards (was) a method of play that would give you positive expected value. The major problem nowadays, I believe, is that most casinos will shuffle a large number of decks together, and will reshuffle very frequently, making it difficult to get enough penetration into the deck to get a big edge.
As it is, there are better ways to beat the house edge at casinos and bookmakers, so I don't think the decline of card counting is really a problem.
I fully believe Ed Thorp's accounts of his blackjack system. But it is hard to do well. When the early papers emerged the casino increased the number of packs (and discarded a large proportion), but it turned out that (just as with P2P on this forum) many are over confident of their own abilities. And so the casinos reduced the number of packs again. Blackjack became more popular, but most people were bad at counting cards. Some could do the maths and vary their betting, but they were obvious and so the casinos could easily exclude them.
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Greenwood2
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Post by Greenwood2 on Jul 7, 2019 9:14:08 GMT
I'm aware this is at risk of diverging from the actual purpose of the thread, but what you've said isn't true. The house edge on standard (European) roulette is 1/37, or roughly 2.7%. The house edge on Blackjack varies a littel depending on the exact rules in use, but is normally about 0.5% (assuming you play with correct strategy). It's certainly believable that counting cards (was) a method of play that would give you positive expected value. The major problem nowadays, I believe, is that most casinos will shuffle a large number of decks together, and will reshuffle very frequently, making it difficult to get enough penetration into the deck to get a big edge.
As it is, there are better ways to beat the house edge at casinos and bookmakers, so I don't think the decline of card counting is really a problem.
I fully believe Ed Thorp's accounts of his blackjack system. But it is hard to do well. When the early papers emerged the casino increased the number of packs (and discarded a large proportion), but it turned out that (just as with P2P on this forum) many are over confident of their own abilities. And so the casinos reduced the number of packs again. Blackjack became more popular, but most people were bad at counting cards. Some could do the maths and vary their betting, but they were obvious and so the casinos could easily exclude them. I used to have a neighbour who was a pit boss in a casino, part of his job was to spot people using systems so he knew them all and was extremely good at counting cards etc. He wasn't allowed to gamble in casinos in this country, but reckoned he could easily win his holiday spending money from casinos when he was on holiday abroad (without being too obvious).
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