active vs passive?

TheTracker

jimjames wrote: »

Whilst I agree on the futility of timing markets and staying out for 18 years waiting for the correct value, 1999/2000 was a time when it seemed fairly clear that prices were overvalued especially for companies never having made a profit. Some did come good like Google but others fell by the wayside.

Google IPOd in 2004

Ryan_Futuristics

bowlhead99 wrote: »

In recent weeks there's been growing speculation that the European central bank may, belatedly, follow the U.S., Japan and the UK by embracing quantitative easing. If the ECB goes down this path, experience suggests that the policy would work partly by pushing up equity values. So, all eyes on the ecb to see what they will do next - take the historic step? Not take it? Or, all eyes on the market to see what it thinks the ECB will do next. Choosing deflating cash instead of QE'd equities could be an expensive mistake.

Certainly if Europe takes it, I'd imagine European stocks will be 2015's big success story

I'm not actually expecting it - I think the market will keep moving on speculation, with the hope being speculation's enough to inflate asset prices and kickstart growth (everyone's moaning at the moment, but this might prove to be wise)

So with markets at what you think are peaks, perhaps two decades to revert to mean? And then, because you don't want to buy at "mean" but would prefer to buy on a dip below mean... how much longer until you would be fully back in the market? I may be a bit short on lifetime and patience if I spent an entire generation or two out of the markets; missing the dividends and years of"mediocre" returns,to instead take the return from cash.

My own recommendation would be to buy the bits that are cheap - at the moment that's emerging markets and europe (with some of the best valuations you're likely to see in any 10-20 year period), and it would only take a decent market correction next year to make US shares decent value again

On the other hand, if we're talking overvalued stocks, a 3% real return on bonds or P2P lending over 20 years would still beat a 1% real return in the markets (which is far from implausible)

Your problem is that you are sticking steadfast to your belief that you can value a market better than all other market participants who say the current price is a fair price, all things considered. You believe that the price is wrong and we just need to ignore the market for 18 years until the price is right. Anyone who buys now is ignoring valuation and you don't understand why they would ignore valuation. I would counter that they are performing valuation exercises but simply coming up with a number that you don't agree with. Given there are millions of them, perhaps it is the contrarian who is wrong.

Every valuation metric I'm aware of says US and world markets are overvalued ... I don't think anyone saying they're fair value is really talking about value (at least in any context that isn't dependent on maintaining very low interest rates)

Someone like Buffett says that the average person should use a set of simple indexes as it is cheap and uncomplicated and certainly suitable for his family (who can afford to lose millions )after he's gone. However what he does in practice for BH investors is time the market after researching the hell out of individual companies to find the ones with appealing prices for what they offer. That takes some skill but his team seem good enough. But simply broadening the brush to go from researching a company and its customers and business plan and board, to valuing a whole market on one or two average metrics and deciding whether to use the market or abandon it for 15-18 years, seems like quite a ballsy call.

Buffett also talks only in terms of LONG long long-term horizon investing

I mentioned in another thread, I think the reason he's recommending this approach is because he knows how little value there is for any investor in US markets now (and he's not really a global investor)

This has been the first 5-year period since inception that Berkshire Hathaway's not beaten the S&P500 - ergo: if Buffett can't do it, no one can ... I'd say that's a fair bet ... But I'd also say that's advice for US investors, and advice for those with very long horizons (and an element of faith - in his own words: he thinks there's a few more years growth in the market)

Mistermeaner

How about diversifying on approaches: 50/50 value/passive, that way get best/worst of both worlds.

What would be fun if someone could be bothered doing the leg work is to run a virtual trading/investing league table where each start with 10k and see how we go over the next few years. Then we can have a few 'told you so ' moments.

Anyone game for organising?

TheTracker

ggb1979 wrote: »

How about diversifying on approaches: 50/50 value/passive, that way get best/worst of both worlds.

What would be fun if someone could be bothered doing the leg work is to run a virtual trading/investing league table where each start with 10k and see how we go over the next few years. Then we can have a few 'told you so ' moments.

Anyone game for organising?

It is rarely mentioned but the labour of researching and trading is another discriminating factor. I probably spend an hour a month max.

Eg this evening was the first time since 2000 I looked at a Berkshire Hathaway chart. He's done well, I wonder what happens when the telomeres run out.

Jaguar_Skills

TheTracker wrote: »

OP, yes Smarter Investing would be a good book to read. You need to settle on a strategy before choosing funds. You need to work out your needs before settling on a strategy.

Thanks mate. A lot of good advice on this thread although it seems to have gone off at a tangent.

guymo

To the OP:

The Tim Hale book is a well-regarded account of a passive investing strategy for a UK investor, so do give it a look. It's perfectly possible to construct a portfolio of funds along the lines Hale recommends, even with a small amount of money, as long as you don't mind (or maybe even enjoy) putting in the effort to rebalance them etc. In purely financial terms that effort is probably not rewarded when the total sum invested is small, though. If you prefer not to work that hard, you will likely find some multi-asset funds around that you are comfortable with once you have an idea what you want to invest in.

To understand the nature of a portfolio and how to determine an appropriate asset allocation you should read beyond the Hale book though. I enjoyed Bernstein's "Intelligent Asset Allocator" as a relatively easy introduction to portfolio theory.

Ryan_Futuristics

TheTracker wrote: »

Typical fluff story. It wouldn't want to be measured in 3 year terms. And when compared with other comparable funds it would only expect to be a media performer in the long term. It is in the second quartile. Fees don't appear to have been accounted for either.

Surely in random markets it's just finding its statistically logical place, somewhere in between the 3rd and 2nd quartile

ggb1979 wrote: »

How about diversifying on approaches: 50/50 value/passive, that way get best/worst of both worlds.

What would be fun if someone could be bothered doing the leg work is to run a virtual trading/investing league table where each start with 10k and see how we go over the next few years. Then we can have a few 'told you so ' moments.

Anyone game for organising?

Value can be passive - you just need to build an index based on valuation rather than market cap and rebalance

I do 50/50 value/quality - half companies people don't want, and half companies people do

Unfortunately any decent strategy is likely to be pretty long horizon ... There's a good chance an S&P 500 tracker could beat everything over the next few years if the US keep pumping QE money in (but at some point you know it's going DOWN ... just like that Vanguard 60)

TheTracker

Ryan_Futuristics wrote: »

Surely in random markets it's just finding its statistically logical place, somewhere in between the 3rd and 2nd quartile

Nope, it's not trying to track the other 290 funds in that group.

Ryan_Futuristics

TheTracker wrote: »

Nope, it's not trying to track the other 290 funds in that group.

Shouldn't make any difference - chaos doesn't discriminate


Heard a great point yesterday actually - we get so many magazine articles saying "the average investor under-performs the market" (presumably because it's one of these modern narratives that makes us feel better ... Rather than "the average investor is doing better than you")

But the statement is illogical - every sale price represents a buy price, and vice versa: the average investor *is* the market (they can't do better or worse than it), the question is whether we're using the right benchmark in every case (presumably we're using the wrong one at least as often)

Nosler

Ryan_Futuristics wrote: »

But the statement is illogical - every sale price represents a buy price, and vice versa: the average investor *is* the market (they can't do better or worse than it), the question is whether we're using the right benchmark in every case (presumably we're using the wrong one at least as often)

but after fees could the average investor not be doing worse than the market?


since investors do not have the same amount to invest it is possible that richer investors make better returns and the average investor underperforms...