Professional Finance people no better than amateurs

Linton

MrMalkin wrote: »

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?

I have read Smarter Investing, Tim Hale, and would agree that 12 of the 15 chapters are excellent and well balanced and should be read by any novice (or not so novice) investor.

His final chapters advocating the fund charge as a major factor in deciding where to invest are in my mind seriously flawed, both naive in its analysis, in some areas just plain wrong at least in the UK and in general dangerous for his main readership, the inexperienced investor.

For example "index fund vehicles tend to outperform a majority of managed funds in less-efficient markets including small-cap stocks...". Name one UK small cap stock tracker. I couldnt find one on Trustnet. If there were one that tracked the FTSE Small Cap Index it would have underperformed almost all managed funds in that sector over the past 10 years.

Where he is fundamentally wrong and dangerous is IMHO not paying sufficient attention to market sectors. This is leading novice investors to chose index trackers because they are index trackers, and not worrying about whether the index actually represents a good or appropriate investment.

Finally the style of writing in these final chapters is more akin to that of the US gurus who can tell you the simple way to investment success and whose readership leaves the book with eyes glowing with missionary zeal in the knowledge that they have seen The Truth. Sorry, investment is not that simple.

For more interesting reading can I recommend Black Swan and Fooled by Randomness by Nassim Taleb and The Misbehaviour of Markets by Mandelbrot. Neither unfortunately will tell you the guaranteed way to investment success but will perhaps increase ones understanding.

gadgetmind

Linton wrote: »

Name one UK small cap stock tracker.

That's why I went for a global small cap tracker, but I do have my eye on a couple of UK small cap Investment Trusts.

If there were one that tracked the FTSE Small Cap Index it would have underperformed almost all managed funds in that sector over the past 10 years.

That's quite a bold statement. I don't have the evidence at hand to disprove it but do wonder why you're so confident that it's true.

Where he is fundamentally wrong and dangerous is IMHO not paying sufficient attention to market sectors. This is leading novice investors to chose index trackers because they are index trackers, and not worrying about whether the index actually represents a good or appropriate investment.

Which sectors do you feel Hale ignores?

MrMalkin

Linton wrote: »

For example "index fund vehicles tend to outperform a majority of managed funds in less-efficient markets including small-cap stocks...". Name one UK small cap stock tracker. I couldnt find one on Trustnet. If there were one that tracked the FTSE Small Cap Index it would have underperformed almost all managed funds in that sector over the past 10 years.

Again, as per what you have said earlier, there are markets that are not covered by trackers. In this case I suspect the reference was to US small caps, for which there are many trackers.

Linton wrote: »

Where he is fundamentally wrong and dangerous is IMHO not paying sufficient attention to market sectors. This is leading novice investors to chose index trackers because they are index trackers, and not worrying about whether the index actually represents a good or appropriate investment.

Market sectors offer less diversification and are therefore more risky. Just ask someone who invested in tech stocks a decade or more ago. There is little evidence that concentrating on specific market sectors provides excess returns over the long term.

Linton wrote: »

Sorry, investment is not that simple.

You think the concepts underlying the book are 'simple'? So why did it take so many Nobel prize winners to define them?

Linton wrote: »

For more interesting reading can I recommend Black Swan and Fooled by Randomness by Nassim Taleb and The Misbehaviour of Markets by Mandelbrot.

Neither of which tell you much about building a portfolio. Black Swan, despite it's interesting subject matter, comes across far too much like the author is giving himself congratulatory pats on the back. And his writing style is terrible.

e: from the manner of your response, given your previous lack of knowledge on the book, it seems all you did was get the chapter headings off Google Books and maybe skimmed through it a bit...in fact Hale specifically talks about why faddish market sectors are best avoided.

brasso

darkpool wrote: »

did you open the link i provided? i never got the story from a newspaper. but it does provide a real life example of the advice someone going to an IFA gets.

never the less, what do you think of a 15 year investment that has 3% annual charges? You seem to make clear it is bad advice anyway? it certainly didn't look that good an investment to me.

this thread is about IFAs not being better than amateurs, i would suggest that a lot of the amateurs here could provide better advice than an investment where the money is tied up for 15 years with 3% annual charges.

I usually find it helps my judgement to read things before I jump into a forum discussion.

The source of the quote doesn't matter. I understood from your earlier comments that it was a story of some questionable advice, wherever it came from. My point was that you were taking that as being representative of typical advice given by IFAs -- and I was calling that into question. It may or may not be, we don't know.

Frankly, this discussion is pretty pointless without a mass of data, and that is something that isn't available. All we have is anecdotal, and as we know, we are always more likely to tell others about a bad experience than a good one.

Linton

gadgetmind wrote: »

.....

Ref UK Small Cap funds outperforming FTSE Small Cap Index

That's quite a bold statement. I don't have the evidence at hand to disprove it but do wonder why you're so confident that it's true.
....

I am confident because I looked it up a while ago:)

IMA Small Cap Fund average increase over 10 years (source Trustnet): 125.8%

FTSE Small Cap Index (source https://www.marketwatch.com)
22/02/2002: 2440.3
23/02/2012: 3095.5
Therefore % increase over 10 years: 26.8%

Worst performing UK Small Cap fund listed on Trustnet:
Close Beacon: 32.8% increase over 10 years
Note that this is an AIM fund which is not a mainstream investment area. Most broader Small Cap funds performed much better.

Best performing UK Small Cap fund listed in Trustnet
Marlborough Special Situations:346% increase over 10 years
Note that this also invests in FTSE250 shares. But of course the fund has wildly outpeformed that index as well.

I would be delighted to see any real UK evidence that supports your case.

darkpool

brasso wrote: »

The source of the quote doesn't matter. I understood from your earlier comments that it was a story of some questionable advice, wherever it came from. My point was that you were taking that as being representative of typical advice given by IFAs -- and I was calling that into question. It may or may not be, we don't know.

Frankly, this discussion is pretty pointless without a mass of data, and that is something that isn't available. All we have is anecdotal, and as we know, we are always more likely to tell others about a bad experience than a good one.

it was the experiences of a poster, tbh i'd believe it was/ is quite a typical experience.

i'll agree that people normally talk about bad experiences. but to suggest we shouldn't have this type of discussion because there is no academic evidence is a bit silly. it's a consumer to consumer website, do you think people should commission research before they post something?

if you want any help on putting me on "ignore" just say.

gadgetmind

Linton wrote: »

FTSE Small Cap Index (source www.marketwatch.com)
22/02/2002: 2440.3
23/02/2012: 3095.5
Therefore % increase over 10 years: 26.8%

What about comparing with HGSC?

I have been looking at RS64, but I don't really fancy RBS as the counterparty ...

I would be delighted to see any real UK evidence that supports your case.

What case? I seek only the facts, and do accept that some very small niches might benefit from active management. Of course, whether investors want or need exposure to these niches is a whole other issue!

BTW, this is the article where I first read about RS64.

http://www.ft.com/cms/s/0/0329925e-71c1-11e0-9adf-00144feabdc0.html

You might need to google for "The wise investor should be small-minded".

There is also this -
http://monevator.com/2011/06/28/uk-small-cap-index-tracker/

However, it's still Aberforth that I have on my watch list!

Linton

MrMalkin wrote: »

......



1) Market sectors offer less diversification and are therefore more risky. Just ask someone who invested in tech stocks a decade or more ago.

2) You think the concepts underlying the book are 'simple'? So why did it take so many Nobel prize winners to define them?

3) Neither of which tell you much about building a portfolio. Black Swan, despite it's interesting subject matter, comes across far too much like the author is giving himself congratulatory pats on the back. And his writing style is terrible.

4)..in fact Hale specifically talks about why faddish market sectors are best avoided.

1) Depends how many sectors you invest in, and perhaps as important the sectors you dont invest in. Technology has not been a bad area to invest in since the collapse of the tech bubble. I am reasonably satisfied with the 15% annual performance increase my tech fund has provided over the past 4 years. Over the past 3 years it has performed both FTSE AllShare and FTSE100 trackers. (I dont have the data for 4 years)

2) I have no criticism of 90% of Smarter Investing, just the part on index funds with his blind acceptance of US data and simplistic advice on which funds to invest in.

3) Agreed that Mr Taleb doesnt come over as a particularly sympathetic character - but I dont believe you should disregard the message just because you dont like the messenger.

4) Faddish markets are best avoided once they become faddish. Markets that are likely to flourish alongside global economic trends are good to get into. That was why I bought emerging markets and raw materials 10 years ago.

jem16

darkpool wrote: »

well you enlightened me there, i did not know that technically a tracker was considered a UT.

Well that's very odd considering Meeper and I enlightened you back in December.

http://forums.moneysavingexpert.com/showpost.php?p=49525693&postcount=56

but in everyday conversation most people realise that UTs are shorthand for actively managed funds

Nope never heard anyone saying that except for you.

so how about answering my question, do you think an investment over 15 years with 3% annual fees is likely to be that good?

Yes it could be.

gadgetmind

Linton wrote: »

Technology has not been a bad area to invest in since the collapse of the tech bubble. I am reasonably satisfied with the 15% annual performance increase my tech fund has provided over the past 4 years.

I refuse the calculate my annual return from tech shares until I've sold everything in the dribs and drabs that CGT imposes upon us. I dare not even include their value into my retirement plans. :eek:

his blind acceptance of US data

Ah yes, we obviously get a better class of investment bankers in the UK.

Out of interest, why do you like fund managers so much?