Tim Hale - Smarter Investing

jamesd

Linton wrote: »

Buy and hold versus trading: I guess most people here, including myself, would advocate that the private investor buys and holds through the good times and bad and would believe that timing the market is futile.

Would you really not time the market by buying after large market drops?

ChesterDog

Not those of us who are already fully invested.

Linton

jamesd wrote: »

Would you really not time the market by buying after large market drops?

On the principle that "the time in the market" is better than "timing the market" I invest when I have the money to do so. What I invest in may well be influenced by what is currently cheap.

The alternative means deciding to keep ones excess wealth in cash waiting for a large market drop - a suboptimal strategy, I believe. Do you disagree?

gadgetmind

jamesd wrote: »

Would you really not time the market by buying after large market drops?

I did this from 2009 through to late 2011 and then to a lesser degree in 2012. This was partly rebalancing, partly investing fresh cash, but also a conscious decision to reduce my cash allocation given the screamingly good value of equities.

I am now starting to sell down a few equities to rebuild the cash but I'm not going mad by any means.

jamesd

Yes, I disagree to some extent. I have a range of investments and a range of available borrowings. Improved opportunities can cause me to switch investments from say a mortgage offset account or to increase borrowing. Perception of reduced opportunities or rewards causes me to decrease borrowing. One example was borrowing on credit cards in early 2009 then repaying the cards as the deals ended because I didn't think the opportunities at that time merited continuing to use the credit. My 0% credit card borrowing has been around mid level - around £18,000 - since the start of 2012, up from approximately zero.

As well as that, I vary my usage of leverage within investments, doing things like sometimes using a doubly leveraged FTSE index tracker ETF.

Beyond that, I'll sell investments that I believe are highly priced to buy investments that I believe have relatively attractive valuations. I also vary the amount of cash I hold. I also sell if market moves cause me to form a new opinion about whether a sector is a good one to be invested in, compared to others, or due to things like fund manager changes.

Holding cash has a cost but the benefit of buying after say a 10% or 20% or higher drop is enough to make it worth holding cash for a significant time. But in general I prefer to be invested somewhere else rather than in cash.

But I don't deal regularly, seldom as often as monthly. Most of my holdings are fairly stable. The last change made to the pension I'm paying into was to switch most of my holding in the default balanced managed fund into a UK smaller companies fund a bit over a year ago and to adjust the new purchase mixture.

ExMugPunter

Thanks Linton,

But, I don't think they are 2 different arguments, they combine to underpin the culture of passive and active investing.

You are an experienced investor who is clued up on what you want and have a good idea about how to get it. I am guessing, but you probably read a hell of a lot about investing and markets but are experienced enough to phase out the noise and bluster of 'buy this, own that'. But most people aren't. It is those people that i am talking about.

The industry promotes active managed funds far in excess than trackers simply because they want to sell the idea of churning your portfolio and cream the fees. It attracts these people then spits them out.
Those people, like me, would be far, far better off and safer to own tracker portfolios.

In my opinion the main reason that buying into the Hale, Hallam, Bogle, Hebner indexing pathway is correct for most people, is not because index trackers are 'better' or will out-perform buying and holding certain managed funds. It is because that path protects people from the constant barrage of fee chasing, cost accumulating actions from advertising and sales pitches that our media is awash with.

The culture of chasing returns and performance leads to mistakes and the ruin of many portfolios. Indexing avoids those pitfalls. That for me is far more important than comparing one managed fund to an index.

bowlhead99

dunstonh wrote: »

It is not. Vanguard has a massive amount under management on managed funds. It is relatively new to the UK retail market and currently only offers index trackers to that market. However, in the US, it offers both.

Fair enough - I should have said "pretty much exclusively [known as] an index fund investor". If you cross the pond, they are still known for the pile it high, stack it cheap low cost funds - from their belief that fees are important and it's difficult to get good talent at low enough cost to outperform fee differentials.

The first index fund available to the public in the mid 70s was a Vanguard one, upon their launch ; the largest mutual fund on the planet is a Vanguard equity index one, with 0.3 trillion under management. So while by number, they have more actives or semiactives than indexes because of the wide spread of sectors they want to earn cash on (a one stop shop) - a huge number of people think of them as the index guys.

gadgetmind wrote: »

http://www.vanguard.com/pdf/icrcs.pdf

"We conclude that indexing is a powerful strategy in all segments of the market, and that the active/index decision should therefore be predicated on an investor’s ability to identify low-cost, talented managers, and not on the indiscriminate selection of active managers in market areas perceived to be inefficient."

I totally agree that you are not going to beat a sector benchmark by simply thinking "I will need an active manager for this specialist sector because I hear the market is not efficient so an index is not the best approach ; let me just go get one, any one ; great, found one!"

bigadaj

I still think that ideally the big fund houses could guarantee a certain out performance of the index over a certain time period, I know there are options with performance fees. This doesn't appear to be forthcoming and the similarity of charges between funds makes it all look like a cartel, as we've seen here there is actually a choice in cost on trackers though there is obviously no practical benefit to the investor.

To be fair there are managers that have a Significant proportion of their personal wealth in their funds which is a good sign of conviction.

bigadaj

guymo wrote: »

Of course errors compound. The calculations I made allow for that --- I calculated the annualised return of the market (5.5%) and the tracker fund (3.1%) by computing the tenth root of the quoted 10-year returns. The gap of 2.4% each year (on average) is partly down to the 1.5% charge and partly to… something else

Yes but that's assuming a straight line graph, which isn't the case for investments. This could be recalculated on an annualised basis on actual data but to be accurate might need to be done daily which is a bit of an ask.

jamesd

There are possible benefits to cost differences between trackers. Consider both tracking error and whether the tracker actually holds the shares, uses only derivatives plus unrelated security or some mixture. There can also be a degree of active management with trackers, as there is with the stock lending done by Vanguard funds. The degree of leverage or shorting used can also vary between trackers for the same market.