corto
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Post by corto on Dec 20, 2020 11:32:01 GMT
When I looked into the background of these failure rates I thought there are misperceptions that come from the difference between "outperforming the index" and "consistently outperforming the index". The numbers that circulate regarding manager performance seem to be generally for the latter case; some studies measure how many funds outperform in 4 or 5 consecutive years. That number may indeed only be relevant as an indicator for the quality of the manager, but if you want a fund that just outperforms an index you need only be better in one year and be average in the other 4. That is much much easier to reach, something like .5 vs .5^5 probability if you do random choices.
I think this misperception is behind the ongoing debate in the field - some cite the percentages and claim index-outperformance is hardly possible, others see it happen year after year in their own portfolio, without being an expert.
Various studies also require an outperformance by so-and-so-many percent, say as a fraction of one standard deviation. I guess they want to define more clearly what "outperform" means to them. That is again not an entirely relevant criterion, because a fund that outperforms by just .1% is already a winner relative to what the index does.
That said, I do have a good percentage of my pounds in index trackers or similar. It's just convenient, cheap, and relatively safe due to the diversification.
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hazellend
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Dec 20, 2020 11:35:40 GMT
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Post by hazellend on Dec 20, 2020 11:35:40 GMT
I think it is a worth while conversation but requires more information. I'd like to know about percentage by value and similar facts on shares.
What's that old saying ? Lies, damned lies, and statistics.
The trouble with extreme statistics such as the one put forward by hazellend is that the numbers are generally only reproducible if your calculation methodology is biased (either deliberately, accidentally or a mixture of the two).
Beyond pure mathematics, there is also the question of bias in selection (deliberate, accidental or a mixture of the two). Before we get into the realms of mathematics, its already easy to put the active manager at a disadvantage by putting him up against the wrong index (i.e. one that does not reflect his mandate, investment style or portfolio construction (e.g.single class index vs multi class portfolio or vice-versa) ).
You also have to remember that indexes are hypothetical baskets of stocks. They were originally invented as an additional datapoint for institutional investors when reviewing their potfolios objectives going forwards. In the institutional world, you do not get all hell bent on the performance of the portfolio versus the chosen benchmark. There are many points of discussion and consideration when reviewing potfolios and performance vs index is only a tiny part of the big picture.
Indexes also don't take into account proper stock selection methedology such as appetite for risk, construction and management restrictions etc. etc. etc.
Also, blind comparison to an index is just dumb. You're not making a risk-adjusted comparison of the portfolio versus its index. You're not taking into account risk, correlation, beta, alpha, sharpe. You're only looking at the return over time which is just plain idiotic (and is why, for example, Bitcoiners shouting off the rooftops about 1000% returns are such twats).
I could go on. But I fear I would be wasting my time.
Hence, without presentation of detailed and independently reviewed workings of ludicrous statements such as "90% of fund/hedge fund managers underperform their index", I will continue to call bullshit forever more.
Lol. Agree about bitcoin. Here is the evidence that active management underperforms www.spindices.com/spiva/#/reports
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macq
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Dec 20, 2020 11:52:39 GMT
Post by macq on Dec 20, 2020 11:52:39 GMT
while this is round 348 of passive v active and like politics nobody really gives in as somebody with both i would say this - using VWRL etf (mentioned on here a lot) over 5 years which is probably to short a time frame but i was lazy and used the quick figures on Trustnet & Citywire 1.VWRL verses the global trusts used by citywire its about 50/50 in return so not 90/10 2.with the so called own the world idea VWRL has i believe 3000 - 4000 holdings but is beaten over 1,3,5 years and annulised over the same time by L & G global 100 so maybe all the micro holdings make no difference? 3.As most of the people on here have money in p2p or did at One point the merits of active v passive in funds seems a minor issue of risk considering. So if you have had money invested over the last 5 - 10 years you should have made money either passive of active so be happy
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r00lish67
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Dec 20, 2020 11:55:24 GMT
Post by r00lish67 on Dec 20, 2020 11:55:24 GMT
So if you have had money invested over the last 5 - 10 years you should have made money either passive of active so be happy Unless you happened to invest with Neil Woodford at the wrong time, or one of the other ones that looked amazing until they weren't. But then, it was as I understand from previous discussions, obvious that you should have only invested in his funds until the point when they were obviously going to fail
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macq
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Post by macq on Dec 20, 2020 12:12:47 GMT
So if you have had money invested over the last 5 - 10 years you should have made money either passive of active so be happy Unless you happened to invest with Neil Woodford at the wrong time, or one of the other ones that looked amazing until they weren't. But then, it was as I understand from previous discussions, obvious that you should have only invested in his funds until the point when they were obviously going to fail Trust you to pick the One that was mismanaged
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r00lish67
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Dec 20, 2020 12:14:35 GMT
Post by r00lish67 on Dec 20, 2020 12:14:35 GMT
Unless you happened to invest with Neil Woodford at the wrong time, or one of the other ones that looked amazing until they weren't. But then, it was as I understand from previous discussions, obvious that you should have only invested in his funds until the point when they were obviously going to fail Trust you to pick the One that was mismanaged If one of the big passive fund managers manages somehow to screw things up/defraud people, I think I'll just have to log off here for a few months.
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sd2
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Dec 20, 2020 13:02:40 GMT
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Post by sd2 on Dec 20, 2020 13:02:40 GMT
Your Money. Your Portfolio. Your appetite for risk. Do your own homework, make your own decisions. .
Apologies if that is slightly out of context but I think I'm right in saying you'd stand by that generally speaking? What I've never understood is whether I spend an hour, a day or a month investigating a particular fund or company it is surely of less quantity and quality than the market will have already done and so is pointless? Anything I find is known about and no matter how much research I do, how could I ever believe this stock is going to rise since if it is, the market would know about it and its price would be set accordingly. Prices are a product of supply and demand. Your statement that it is pointless because all the research has been done is wrong. As you are clearly implying that the market is somehow perfect it's not. Share prices can fall despite no changes in the companies profits expected or otherwise. Investment trusts on average trade on 3% discount there alone is proof the market far from perfect. Example Two North American income investment trusts NAIT pays a 3.9% dividend. BRNA pays 4.8% NAIT trades on a discount of 9% BRNA on 6% NAIT share price has increased by 50% over 5 years BRNA by 47% NAIT dividend has increased ever year for the last 5 years BRNA hasn't increased its dividend for 3 years. NAIT has covered it's dividend every year with ease. BRNA hasn't covered it's dividend for the last 3 years.[/quote] NAIT has 1.5years of dividend reserve BRNA has 0.5 years of dividend reserve In my opinion NAIT should be on a lower discount than BRNA. BRNA's superior dividend is not sustainable. Therefore research will gain you valuable information.
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hazellend
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Dec 20, 2020 13:47:50 GMT
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Post by hazellend on Dec 20, 2020 13:47:50 GMT
I don't see much detailed evidence there. Infact you're just presenting me with the dumb time-based comparison I warned about in my original post.
Don't waste my time. What? Lol, there’s literally direct evidence there. You can choose your time frame. Active does okay against passive in the short term but as you extend out to longer periods the evidence is black and white. Once you also take into account that passive investors (people that buy and hold a global equity tracker and cash/bonds in a fixed allocation) don’t have to waste their time on investing and just live off the failures of active. I’m seeing my stash stakin’ to the sky so it’s all good. This investing thing is easy.
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IFISAcava
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Post by IFISAcava on Dec 20, 2020 14:13:38 GMT
I don't see much detailed evidence there. Infact you're just presenting me with the dumb time-based comparison I warned about in my original post.
Don't waste my time. What? Lol, there’s literally direct evidence there. You can choose your time frame. Active does okay against passive in the short term but as you extend out to longer periods the evidence is black and white. Once you also take into account that passive investors (people that buy and hold a global equity tracker and cash/bonds in a fixed allocation) don’t have to waste their time on investing and just live off the failures of active. I’m seeing my stash stakin’ to the sky so it’s all good. This investing thing is easy. But won't 100% of passive funds underperform their index due to fees?
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Dec 20, 2020 14:48:16 GMT
Post by Deleted on Dec 20, 2020 14:48:16 GMT
The methodology explanation (see hazelend's link) is fascinating and would put me off indices as core wealth driver.
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hazellend
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Dec 20, 2020 15:22:15 GMT
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Post by hazellend on Dec 20, 2020 15:22:15 GMT
What? Lol, there’s literally direct evidence there. You can choose your time frame. Active does okay against passive in the short term but as you extend out to longer periods the evidence is black and white. Once you also take into account that passive investors (people that buy and hold a global equity tracker and cash/bonds in a fixed allocation) don’t have to waste their time on investing and just live off the failures of active. I’m seeing my stash stakin’ to the sky so it’s all good. This investing thing is easy. But won't 100% of passive funds underperform their index due to fees? Correct. Index trackers will underperform their index by their fee amount. So if you buy a SP500 tracker you will get the SP500 return minus 0.07%. The costs of active management are eye watering though. I believe there are some index trackers in US that are fee free but they make their money in more opaque ways. If you want to double up the extortion, use a financial advisor that charges an AUM% fee and uses active funds. Tracking error is minimal to zero with the well known index trackers.
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hazellend
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Dec 20, 2020 15:25:26 GMT
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Post by hazellend on Dec 20, 2020 15:25:26 GMT
The methodology explanation (see hazelend's link) is fascinating and would put me off indices as core wealth driver. Unusual conclusion. The methodology seems sound to me.
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hazellend
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Dec 20, 2020 15:27:10 GMT
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Post by hazellend on Dec 20, 2020 15:27:10 GMT
But won't 100% of passive funds underperform their index due to fees?
and tracking error and and and ....
Since an index is hypothetical and you cannot buy the index, short of buying all the individual shares in an index, the passive fund is forced to use derivatives to achieve the same.
Thus 100% like-for-like performance matching is a pipe dream. There will always be a discrepancy.
Wow, you really don’t know what you are talking about. Many passive trackers do not use derivatives. In fact, I avoid those that do.
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registerme
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Post by registerme on Dec 20, 2020 15:47:50 GMT
Chill guys. There's enough in the world at the moment without you two bickering .
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hazellend
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Post by hazellend on Dec 20, 2020 16:06:58 GMT
Wow, you really don’t know what you are talking about. Many passive trackers do not use derivatives. In fact, I avoid those that do.
I don't need to justify myself to you.
Unlike you who deals in rose-tinted bullshit, I deal in hard facts.
Just to humor you, out of interest I looked at the last 5 years of my portfolios.
I have outperformed, by a significant margin, any index you care to name (S&P500, FTSE250) and even your beloved VRWL.
I have done so with very low standard deviation (<4%), healthy sharpe ratio, low max drawdown.
And that's not only on a 5 year basis. I outperformed this year too. Feb/March the indices dropped more than I did, and I climbed out of the trough sooner than they did.
And that's long-only. No cheating with shorts.
<removed by moderator>
I don’t see why you need to be so aggressive. There will always be some people that outperform either due to luck or skill. Often that outperformance doesn’t persist. If you have an edge that allows you to consistently outperform then that’s great for you, and extreme wealth is guaranteed. But the simple fact is the vast majority of investors have no edge and will do better tracking the index. There’s no reason for you to try and convince them otherwise, unless you somehow stand to gain from people listening to you. Really you should be encouraging passive investing as it will make it easier for you to continue to outperform.
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