Fees

dunstonh

do you have any evidence that shows the average investor can time the economic cycle?

do you have any evidence that shows they cannot?

from my viewpoint it seems that if the entire financial community failed to forecast the entire eurozone debt crisis it's unlikely that an amateur investor will be able to time the markets.

Correct. However, the impact was just the same on tracker funds as it was managed. Events will happen. We are not talking about timing them. We are talking about utilising investment strategies at the right time. There are times to invest in certain investments and times when other areas will be better. Sometimes you wont got it right, sometimes you will.

If you know that the tracker is going to be consistently mid table then you have to decide if a particular market or investment strategy IN YOUR OPINION is going to be worth paying a bit more for in the aim to get a potentially higher return. In some cases the answer will be no. In some cases it will be yes. You may end up being right, you may end up being wrong. There is little reason to invest in say a UK growth fund as the chances of beating the tracker are very low. However, a UK recovery fund or special situations or equity income fund offers something that may be right to invest in for a period.

The problem with some is that they will only consider one or the other. In reality you should consider both and use the best of both.

doubleJackD

dunstonh wrote: »

do you have any evidence that shows they cannot?

Correct. However, the impact was just the same on tracker funds as it was managed. Events will happen. We are not talking about timing them. We are talking about utilising investment strategies at the right time. There are times to invest in certain investments and times when other areas will be better. Sometimes you wont got it right, sometimes you will.

you suggested that private investors could time the market, i believe the convention is that you provide evidence to substantiate your claim.

So we agree that the biggest financial crisis since the Depression was not forecast by any economic commentator, and you still believe that financial layman can ride the economic cycle?

Jegersmart

Doublejack

I am not sure what we are doing now, because you made a statement based on your own "research" and asked for feedback. You have duly received some feedback but now seem to be arguing about who is right........?

This is the last reply I will make to this thread because I am not sure that you are not just spoiling for a fight and to be honest that would be a waste of time.

There are many factors to consider when investing and performance is only one of the more important. Sure, according to my own calculations I would have earned approximately 16% more on UK focussed funds if I ha dbeen using a tracker in the Mar 2009-12 period but then I also would have been down 40 something % in 2008-2009 high low - where as I was down only 7.xx% at the peak due to using specialty managed funds.

Whatever you think, having an open mind is key to investing because things change all the time, new approaches or strategies are potentially needed at different times and if you are stuck in your own mind it could prove quite difficult.

But just to be clear, if your investment strategy is to choose a number markets and invest through a or more tracker funds and then take a look in 25 years to see what you "might have won" then it may be that many managed funds have underperformed in that period but then who the hell invests like that?? I just think that you don't sound experienced enough to have such a closed mindset.

all imho and good luck

J

Jegersmart

doubleJackD wrote: »

you suggested that private investors could time the market, i believe the convention is that you provide evidence to substantiate your claim.

p.s.

I just wanted to address this. Timing equity markets is not an exact science and takes a bit of work and discipline to make it benefit you.

If you look at price evolution in any instrument, generally speaking the price will test levels as it finds its way towards and through "true value" as the market tends to overreact in eithe direction. A simplistic but useful way to look at this is to watch for "highs" and "lows". If a market makes a new "high" - i.e. one that was higher than the last high, th eprice will then correct downwards to test that it has not gone too far. In reality people take profit which causes the drop and look to buy in again lower down. What to watch for then it the last low price, as the price corrects downards does it get close to it? If it then makes a new low over a period of time one could say that we are in "no-man's" land because the price has made a new high (which can be indicative of follow thorugh to more upside) as well as a ne wlow which could indicate the reverse. If after making a new high we fall a bit through profit taking then we wtach again for further upmoves to see if the move is still "intact".

This is overly simplistic for illustration purposes (of course), but for me if we test and do not make new highs I tend to start to rotate out of equities (if I am watching equities) into something less sensitive to price falls in equities - whether it is bonds or some other funds with a different focus depends on the macro picture and other facrots at the time. When the reverse happens or fear is high(est) I rotate back in. I am not advocating moving 100% equities into something else if we fail once at a high - merely that these are signs that *may* be indicative and that we should perform risk management according to our own measures.

Watching indices globally is potentially a time consuming activity although with some practive one can do very basic observations like the above in a matter of an hour for 15-20 indices or whatever you are watching. Other studies such as Fibonacci levels etc can generally be done every so often as your charting package will remember your annotations and levels - so don't always need so much time.

This is not an exact science by any means but with some work and learning anyone can do it and make it work for you. It does take time and effort though so if you can't be bothered then just buy a tracker fund, safe in the knowledge that you don't have to take any responsibility for your decisions. That is not my aim and that is why we do not agree.

Good luck.

J

gadgetmind

dunstonh wrote: »

It you use managed funds you need to be prepared to move in and out of them.

Which is something that people might get right but are far more likely to get wrong.

The problem with some is that they will only consider one or the other. In reality you should consider both and use the best of both.

I use both but am (damp finger) 90% in trackers.

dunstonh

Which is something that people might get right but are far more likely to get wrong.

I disagree. If the tracker is mid table then half the funds are above and half below. If you eliminate the obvious failures, closet trackers etc then you stand a pretty good chance of being above. As long as you understand that you could come under.

gadgetmind

dunstonh wrote: »

I disagree. If the tracker is mid table then half the funds are above and half below. If you eliminate the obvious failures, closet trackers etc then you stand a pretty good chance of being above. As long as you understand that you could come under.

But today's "obvious failures" could be tomorrow's runaway successes. Historical studies have shown that today's lower quartile funds are *more* likely to be in the top quartile a year from now than one that's currently in the top quartile. (I might have misremembered the 1 year and it might be 3 - I'll check the chart tonight.)

As for half above and half below, it does depend on the size of the funds in question. And you also need to bear in mind that only a minority of funds beat trackers over the long term. I guess this is maybe why you suggested hopping from fund to fund, but selling losers to buy what's just gone up is a recipe for disaster, and a contrarian play isn't exactly low risk either.

dunstonh

But today's "obvious failures" could be tomorrow's runaway successes.

I was thinking more along the lines of banks and insurance companies.

Historical studies have shown that today's lower quartile funds are *more* likely to be in the top quartile a year from now than one that's currently in the top quartile. (I might have misremembered the 1 year and it might be 3 - I'll check the chart tonight.)

This is why lazy investors need to avoid them and active investors need to move them.

And you also need to bear in mind that only a minority of funds beat trackers over the long term.

Correct. (and another good reason lazy investors need to avoid)

I guess this is maybe why you suggested hopping from fund to fund, but selling losers to buy what's just gone up is a recipe for disaster, and a contrarian play isn't exactly low risk either.

But it is an investment decision you make on the merits (or not) of moving to an alternative or sticking with tracker. A managed fund has an investment strategy. A tracker has an investment strategy. You dont know which will be best in any period. You decide if the extra cost is worth it or not. Sometimes it is. Sometimes it is not.

gadgetmind

dunstonh wrote: »

I was thinking more along the lines of banks and insurance companies.

I (well, my wife) own shares in both, but I know that's not what you meant. Yes, there are some dogs, but "spot the dog" isn't an easy game to play. Today's superstar manager, using his ninja skills to invest in the latest trendy area, stands as much chance as being a dog on the next spin of the wheel as does the man in the next yacht down.

But it is an investment decision you make on the merits (or not) of moving to an alternative or sticking with tracker. A managed fund has an investment strategy. A tracker has an investment strategy. You dont know which will be best in any period. You decide if the extra cost is worth it or not. Sometimes it is. Sometimes it is not.

However, lacking a crystal ball, knowing which will perform best is guesswork, and even if it's informed guesswork, it needs to be sufficiently informed (or clairvoyant!) to beat the fee drag of active funds.

My guesswork isn't that good, never has been, and never will be.

I mainly use active management for bonds (minefield right now IMO), smaller companies, property, EM, and infrastructure, but little of this is via funds, and I also have substantial passive investments in these areas.

I also have substantial (50% of my portfolio!) investments in a small number of equities that I have selected myself. This is high-risk, and doesn't make for sound sleeping, but it's not guesswork as I have the specialist knowledge to be able to map the likely future trajectory of these companies, and a good track record to date of being right. But, as the Japanese say, "one inch into the future is darkness".

bigadaj

I liked the idea behind the manek fund, not sure if it's still going. I recall he won the amateur investment competition in the Sunday times and started his own fund, or was bankrolled to, given his success.

The obvious problem was that to win the competition he took a lot of big punts on high risk investments and many came off. You could never accuse him of being a closet tracker, but performance was atrocious.

When I say liked the idea, more as a warning than any useful investment instrument.