Just for fun...

enjoyyourshoes

Stick it in a Pension/SIPP for your young kid,at least you get tax relief on it and get them involved in investing, thereby demystifying investing and allowing them to learn along the way.

Probably have to add in an extra £300+ to meet the criteria.

Ryan_Futuristics

Nosler wrote: »

perhaps you could state your academic qualifications/ investing experience please? I just want to know how much weight to give your opinions.

Let's say GCSE Home Economics

I'd rather you didn't give my opinions any weight - I think we've all got to keep looking at what's in front of us and testing our own biases

(One thing that renders this debate almost meaningless - that I was going to mention - is that most studies actually show fund performance has almost no measurable effect on typical investor returns ... Almost 100% of your returns will actually come down to the decisions you make with regards things like asset allocation ... But still ... If you were going to park £500 somewhere, a fund like Woodford's gives you considerably more opportunity than most alternatives)

Nosler

Ryan_Futuristics wrote: »

I

Cheap active funds (from Vanguard and others) even picked at random, will tend to outperform their indexes ...

Do you have any meaningful evidence that substantiates this claim?

TheTracker

Ryan_Futuristics wrote: »

No it's not ... The crowd is actually the median investor (take 100 investors, rank them by return, find who's in the middle); the market is the mean ...

What the chart implies is there are a lot of investors doing poorly (the "crowd") and a smaller number doing very well (which is known ... as ... the 80/20 rule)

I have read articles on efficient market hypothesis using the term "wisdom of the crowds", but I think you could only really make that case if you're talking about crowds of pound coins

I am talking about the crowd of pound coins. That's what market trackers and passive investors track, not Joe Chump down the pub, not Gideon Walletwhacker at the investment bank, not Ryan Futuristic in his pyjamas and backwards baseball cap in his bedroom. The "crowd" is the sum of all pounds, not the median of all pound holders.

Ryan_Futuristics wrote: »

Cheap active funds (from Vanguard and others) even picked at random, will tend to outperform their indexes ... This does not support ideas that markets are random or efficient

Do you believe this to be the case, risk corrected? I've seen no evidence of it. You also like to infer Malkiel thinks "markets are random", but he said no such thing. Indeed he says "the concept is not that the market is random or capricious, really, just the opposite". He believes markets are efficient and take a random walk to that efficient price.

Ryan_Futuristics

Nosler wrote: »

Do you have any meaningful evidence that substantiates this claim?

There are plenty of articles charting Vanguard's active fund performance, but here's a recent one comparing cheap active to cheap passive (with a focus on Vanguard and US markets)

http://www.morningstar.co.uk/uk/news/128343/active-vs-passive-is-the-wrong-question.aspx

Ryan_Futuristics

TheTracker wrote: »

I am talking about the crowd of pound coins. That's what market trackers and passive investors track, not Joe Chump down the pub, not Gideon Walletwhacker at the investment bank, not Ryan Futuristic in his pyjamas and backwards baseball cap in his bedroom. The "crowd" is the sum of all pounds, not the median of all pound holders.

I figured - it's just odd to hear someone refer to money as a "crowd"

Do you believe this to be the case, risk corrected? I've seen no evidence of it. You also like to infer Malkiel thinks "markets are random", but he said no such thing. Indeed he says "the concept is not that the market is random or capricious, really, just the opposite". He believes markets are efficient and take a random walk to that efficient price.

Risk-correcting should nudge actives a little higher (even using a very broad average, they do usually edge it on downside protection)

The link I posted above (where the chart comes from) shows a recent breakdown of active and passive fund performance ... but rather than lump every fund together, it compartmentalises them by expensive and cheap

Malkiel himself recently said: "It's not active vs passive anymore, it's active and passive" - he advocates core/satellite investing, where you hold indexes as core holdings, and actives where you expect outperformance


I read a good perspective recently in this article on Smart Beta:

"... in the most efficient market, we'd recommend a 50% allocation to fundamental; we'd recommend a 30% allocation to a market-cap portfolio; and because we see very little persistent outperformance, a 20% allocation to active management ... focusing on active managers with better downside protection.

The flip side of it is, if we look at the emerging market (one of the least efficient markets), there we'd have a 50% allocation to active management, a 30% allocation to fundamental, and a 20% allocation to market cap ... we believe you should have some exposure to all three. The weighting is somewhat dependent on the market environment and somewhat dependent on the segment of the market you are focused on."

http://www.morningstar.co.uk/uk/news/129387/how-to-use-strategic-beta-funds-in-your-portfolio.aspx


That's roughly how I'd approach it (although I've not taken the plunge with smart beta yet, apart from a UK dividends tracker) - I do think smart beta will be the next 'passive investing' though ... Certainly ready to move a crowd of my own money into a smart beta value tracker

shanebkk

the key to succesful investments is diversification. therefore , if you are building a portfolio over time, it is good to have some very low priced stocks with excellent potential due to strong balance sheeets, good product and a forward looking research team.

tunnel

As £500 isn't a great deal in investment terms I'd "just for fun" try my hand in a nice cheap penny share, there's some massive potential gain to be had through doing your homework. Take Fitbug for instance, just a month or so ago it was trading at 0.5p, then announced news of a deal with Samsung and boom...up over 5000%(5600 actually but who's to a few hundred percent), that'd give you £25k return on your £500.


Now that's what I call fun(not like boring funds, trackers...blah blah), but then I like a bit of risk

cloud_dog

Ummmm.... AMC.L




Yes, its a punt but its £500

cloud_dog

Ryan_Futuristics wrote: »

Cheap active funds (from Vanguard and others) even picked at random, will tend to outperform their indexes ...

Hi.... was a little unclear if you were supporting the above comment or not but.... Is that comment at all even possible?

Surely the very best a passive tracker can achieve is to match the index they are tracking. With at least some form of charges etc (however small) a tracker can only hope to mirror and perform nearly as well as the index they are tracking.

EDIT: Yes, I am behind the time line curve... been away from technology for a while.