Professional Finance people no better than amateurs

darkpool

dunstonh wrote: »

You tell me the last time the FTSE all share tracker was best fund in the UK all companies sector over 12 months

No-one would want you anyway.

you seem to change your mind about what you said a lot..

i'll agree that trackers will be mid table after 12 months. but over a couple of decades they are likely to rise to the top of the table.... you know i'm right

ehhhmmm ok, yeah like my family have hardly any advisers acting for us.

MrMalkin

dunstonh wrote: »

You tell me the last time the FTSE all share tracker was best fund in the UK all companies sector over 12 months

But 12 month performance of any investment other than a savings account is largely irrelevant - aren't we advised that the minimum investment horizon should be 5 years? The point of trackers is that over the short term they will probably be mid-pack or even relatively poor performers, but over the long term (most analysis of tracker outperformance I've seen is 20 years or more) the benefits of their lower costs and non-existent fund manager risk play out.

Only a small proportion of managed funds will beat their relevant tracker over that sort of time frame, perhaps 20%, but the point is that it is very difficult if not impossible to tell which will be the winners - especially for the type of retail investor who posts on these boards. Therefore, the only rational choice is to take the tracker and avoid the chance of picking the 70-80% of funds who are likely to underperform.

Plus one thing tracker critics never seem to bring up is that setting up an asset allocation consisting up low-cost funds across multiple investment areas is just as important as choosing to index those areas. Nobody sensible just buys one index fund and leaves it at that.

Linton

MrMalkin wrote: »

But 12 month performance of any investment other than a savings account is largely irrelevant - aren't we advised that the minimum investment horizon should be 5 years? The point of trackers is that over the short term they will probably be mid-pack or even relatively poor performers, but over the long term (most analysis of tracker outperformance I've seen is 20 years or more) the benefits of their lower costs and non-existent fund manager risk play out.

Only a small proportion of managed funds will beat their relevant tracker over that sort of time frame, perhaps 20%, but the point is that it is very difficult if not impossible to tell which will be the winners - especially for the type of retail investor who posts on these boards. Therefore, the only rational choice is to take the tracker and avoid the chance of picking the 70-80% of funds who are likely to underperform.

The evidence over 10 years for the main tracker sector in the UK - UK Allshare - seems to be that trackers stay in the middle. I dont see much relevence in 20 year+ assessments as even a long term investor would probably make significant changes to his portfolio in that timefame

Linton

[QUOTE=MrMalkin;51277423.....
Plus one thing tracker critics never seem to bring up is that setting up an asset allocation consisting up low-cost funds across multiple investment areas is just as important as choosing to index those areas. Nobody sensible just buys one index fund and leaves it at that.[/QUOTE]

My criticism of the tracker fundamentalists is that they dont see that many of the most interesting sectors dont have viable trackers - you cant get a portfolio diversified to your (well mine anyway) requirements purely with trackers.

And many otherwise sensible people do just buy one index fund - look at the "I've £100/month to invest in a tracker" people who frequently post on these boards.

MrMalkin

Linton wrote: »

The evidence over 10 years for the main tracker sector in the UK - UK Allshare - seems to be that trackers stay in the middle. I dont see much relevence in 20 year+ assessments as even a long term investor would probably make significant changes to his portfolio in that timefame

10 years is really too short of a time period to make that kind of a judgement though, since the FTSE All-Share has been in a bear market for almost all of that period. Longer time periods take into account more varied market conditions giving you a better baseline to work with.

As for making changes over the 20+ year timeframe, that should only be in response to attitudes to risk changing over that period. You can adjust portfolios to take into account risk attitudes simply by shifting the proportions of the markets you are invested in, not by abandoning those markets outright. I.e, reduce equity and increase bond allocation to reduce risk rather than jumping from one fund to another, incurring costs.

MrMalkin

Linton wrote: »

My criticism of the tracker fundamentalists is that they dont see that many of the most interesting sectors dont have viable trackers - you cant get a portfolio diversified to your (well mine anyway) requirements purely with trackers.

A valid criticism, although the number of markets that are not covered by trackers has diminished over the last decade or so and I expect it to continue to do so.

Linton wrote: »

And many otherwise sensible people do just buy one index fund - look at the "I've £100/month to invest in a tracker" people who frequently post on these boards.

Either those people are not sensible, or you can't see the rest of the portfolio and therefore are not in a position to pass judgement. If you can't afford to buy enough funds to set up a sensible allocation then you probably shouldn't be investing, or you should carefully drip-feed smaller amounts into different funds across that allocation, or you should go for total market or lifestyle trackers or something.

Linton

MrMalkin wrote: »

10 years is really too short of a time period to make that kind of a judgement though, since the FTSE All-Share has been in a bear market for almost all of that period. Longer time periods take into account more varied market conditions giving you a better baseline to work with.

Yes but if the effect isnt obvious over 10 years it really must be pretty minor and greatly overshadowed by the natural variability of any investment over any timesframe.

MrMalkin

Linton wrote: »

Yes but if the effect isnt obvious over 10 years it really must be pretty minor and greatly overshadowed by the natural variability of any investment over any timesframe.

Why that short of a timeframe? If 5 years is the minimum investment horizon then 10 years isn't that much longer. If I retire in 40 years and plan to live another 40 beyond that, that's 80 years where I could potentially remain invested to some extent or other. 10 year trends out of 80 become less important.

And the point is that the benefits of trackers become more pronounced over time, they don't suddenly plateau at 10 years.

darkpool

Linton wrote: »

Yes but if the effect isnt obvious over 10 years it really must be pretty minor and greatly overshadowed by the natural variability of any investment over any timesframe.

Have you ordered that book yet?

MrMalkin

darkpool wrote: »

Have you ordered that book yet?

Linton, darkpool may be a horrible little oik sometimes but he has a point here. Smarter Investing and the other books mentioned here aren't just polemics arguing that you should buy trackers, they explain an entire investing methodology that you should give a chance. You could learn a lot even if you wish to stay invested with managed funds, because an asset allocation strategy should work with those as well, plus there are all sorts of other portfolio management tips which are transferable too. Hale even specifically addresses the point you made about some markets lacking trackers, and I think (been a while since I read it and I don't have it to hand) he even suggests some pointers as to choosing active funds in those areas.

The whole strategy is called (rather condescendingly if you ask me) Intelligent Investing - indexing is just one part of it.

You're willing to pay hundreds or even thousands to fund managers, what's £10 for a book?