Tim Hale - Smarter Investing

sabretoothtigger

Cpu2007 wrote: »

So let's say that long term is the way to go, waiting 5 years to see some profits it's a lot of time.

5 years is about a minute in the big scheme of things but the world can change in sixty seconds


Its possible to see profits immediately, the thing is for an idea to mature then 5 years is the minimum to possible fruition.
Often private investors can sell out too early, etc

20% is reasonable gain but obviously alot more would be nice and after inflation is deducted.
Or 20% is the min it could be said to be a successful idea, or timing. It might be best to sell at +5% if it seems a late arrival to the party was the situation


I micromanaged Japan this year. Biggest gain since 1972 and it was all in line, just needed to be left alone as I was already short yen with it. News matched results, step back and smile with folded arms is most profitable position

gallygirl

Glen_Clark wrote: »

Well I have just finished reading the latest (Third - 2013) Edition.
I can see its a good book, a bit heavy going in places, like where it gives lots of data to support the passive investing (index fund) argument - but you don't have to read all that.
What did I get from it;
He doesn't seem to think much of active funds (inc hedge funds) or gold, and ridicules the structured products you see sold by the building societies (100% return of the FTSE index over 5 years, without the dividends, less fees, and if we don't go bust like Lehmans did)
He recommends checking the value of your portfolio only once a year, any more often leads to irrational exuberance, or depression, and subsequent bad decisions.
I thought there may be some ideas of how QE will develop from here, but there isn't. We don't know what will happen, so just don't put all your eggs in one basket.
There are no share tips.
At its simplest, a low charging index tracker fund or ETF, balanced by cash paying the best rate you can find (since National Savings Index linked certificates are not available), seems to be a good bet.
Its an interesting read, but I shan't be changing anything through reading it. Although I would have done if I had read it years ago and it would have paid for itself many times over.

Thanks for summing it up Glen, does that mean I don't have to finish it now .

What I would like to see now is a book which debunks Tim Hale - is there one written from the opposing point of view (I know there are tons on investing but I'd like one which specifically counters his arguments).

guymo

gallygirl wrote: »

What I would like to see now is a book which debunks Tim Hale - is there one written from the opposing point of view (I know there are tons on investing but I'd like one which specifically counters his arguments).

Right -- this would be interesting.

The standard argument for passive investing is that "most active fund managers fail to beat the market", but that by itself is not good enough: you need to know what the distribution of returns of active funds is, and similarly for the passive index funds, before you can draw a conclusion from this.

The Which news story
http://www.which.co.uk/news/2013/04/most-active-fund-managers-fail-to-beat-the-market-317423/

discusses funds benchmarked on the FTSE all-share index, and says:

"Just 37 of the 96 actively managed funds that aim to beat the return of the index managed to do so over the past decade. The average performer returned 164% over this period, with dividends reinvested, compared to 171% for the index."

--- sounds like a bad outcome for the active funds. But,

"we also found striking differences in the performance of tracker funds aiming to match the index. The best tracker, M&G UK Index, which has an ongoing charge of 0.46%, returned 160%. The worst performer, Halifax UK FTSE All Share Index, achieved only 136%"

So the BEST passive fund did worse than the AVERAGE active fund.

But without knowing exactly what they mean by average, and what the distributions are in the two data sets, you can't conclude much.

I completely believe that it is hard to pick an outperforming fund manager. But to do better than a tracker, the above suggests that you only have to pick a not-too-far-below-average fund manager, and I have no idea how hard this is!

And if you're going the passive route, you need to avoid an under performing tracker. How hard is it to pick a close-enough-to-average tracker? Again I have no idea.

So yes, I'd like to see data and analysis on this, too.

Marazan

Without knowing the methodology of the Which report we don't know if they've taken survivorship bias into account or not - that is the propensity for "losing" actively managed funds to be closed or merged thus wiping them out of the record books.

Also 10 years is pretty much the minimum investing time horizon - over 30 years (say) the percentage of market beating funds is going to be even less.

gallygirl

Thanks Guy. You've basically written the book in one post :T.

Linton

gallygirl wrote: »

Thanks for summing it up Glen, does that mean I don't have to finish it now .

What I would like to see now is a book which debunks Tim Hale - is there one written from the opposing point of view (I know there are tons on investing but I'd like one which specifically counters his arguments).

I think this is the right attitude to adopt to any book that appears to offer an easy way to invest. There are unlikely to be any books that specifically debunk the Tim Hales book but you can learn a lot by checking his arguments yourself. Are they more substantial than quotes from US gurus who he agrees with? You can get a lot of data on fund performance from trustnet. How does the real world compare with what is said, particularly where the data used in the book is US based where the culture and tax system is rather different to the UK, or from the 1990s and earlier which may not appear to apply now?

To be fair a lot of what Tim Hales says is in my view very sensible and can be usefully applied irrespective of which particular assets you choose to invest in. The areas open to argument are those where he strongly recommends particular types of investment.

pip895

Also If you invest in less well researched areas such as UK Smaller Companies then I think there is evidence that trackers are not the way to go.


My own take is that a moderately interested amateur can probably beat trackers by choosing good active managers even in better researched areas.
When taking averages against all managers in a sector it is also worth noting that there could well be some in there who's primary objective is not necessarily to beat the index - it may merely be to get close but with much less volatility. They may achieve this and be excellent funds for many investors, but they will still drag down the average. Then of course there are the dogs.

Linton

Marazan wrote: »

Without knowing the methodology of the Which report we don't know if they've taken survivorship bias into account or not - that is the propensity for "losing" actively managed funds to be closed or merged thus wiping them out of the record books.

Also 10 years is pretty much the minimum investing time horizon - over 30 years (say) the percentage of market beating funds is going to be even less.

You can compensate for survivorship bias by using the IMA sector indexes which show the performance of the overall fund universe. In my view survivorship bias isnt as significant as you may believe for two reasons...

1) Its not necessarily the worst performing funds that disappear. For example for a short time I held Scot Windows US Smaller companies whose performance was, IIRC, at the top of the performance league when I bought. It disappeared a few months later.

2) When a poor performing funds does get closed fund unit holders are automatically moved into what is presumably a better performing fund.

The statement of the % of market beating funds being even less over 30 years is an assertion, not an argument. Unless of course you can provide data. But in any case if the effect was significant over 30 years it should at least be detectable over the 10 years for which detailed information is available. Is it? Have you checked?

innovate

gallygirl wrote: »

What I would like to see now is a book which debunks Tim Hale - is there one written from the opposing point of view (I know there are tons on investing but I'd like one which specifically counters his arguments).

Monevator have a series of blogs on the very matter: http://monevator.com/passive-vs-active-investing-episode-3/

guymo

Linton wrote: »

The statement of the % of market beating funds being even less over 30 years is an assertion, not an argument. Unless of course you can provide data. But in any case if the effect was significant over 30 years it should at least be detectable over the 10 years for which detailed information is available. Is it? Have you checked?

Moreover, this may not be the right thing to look for: though the fund managers try to beat the market, for the active/passive debate, what matters is beating the trackers, which tend to under perform the market by at least a little bit, as far as I'm aware (no data to back this up I'm afraid, but surely costs would imply a little bit of underperformance anyway.)

A couple of papers I dug up for the statistically-minded:
https://www.cassknowledge.com/sites/default/files/article-attachments/520~~keithcuthbertson_uk_mutual_fund_performance_skill_or_luck.pdf

https://www.cassknowledge.com/sites/default/files/article-attachments/522~~keithcuthbertson_mutual_fund_performance_measurement_and_evidence.pdf

Both of these conclude that trackers are likely to be a better bet for most people, but the data and statistics they produce are quite interesting, as far as I understand them.