Don't buy index trackers.........for my sake

bostonerimus

Linton wrote: »

Interesting that you bring in religion. Real adherents know that they have have seen The Truth and enthusiastically take on their duty to bring it to the unbelievers. Plus there is the added reassurance of knowing that anyone who disagrees with them is deluded or sinful.

Please don't read too much into that, I was being ironic. We are all subject to our own dogmas. I'm not evangelizing for passive indexing here, in fact my original post does exactly the opposite. I've been looking for a paper that models the performance of indexing as it becomes a larger and larger component of the whole market, but I can't find one in the literature.

Linton

username12345678 wrote: »

I agree.

I understand that my insight is not greater than the collective insight of milllions of other investors - would you say yours was?

The collective market wisdom thinks it's a better idea - if you think otherwise what insight do you have that millions of others don't?

What knowledge do you have that millions of others don't have that tells you that being underweight banking and overweight supermarkets is the correct move?

There isnt a "collective insight of millions of investors". There may be an average but that's different. Each investor is investing in their own way to meet their own objectives. Private investors with small amounts of money looking for long term gain or a steady income are a small % of the market. I cant see any good reason why their objectives are best met by merely following a market created by short term traders, hedge funds, speculators, banks and insurance companies etc dealing daily in £Ms with quite different objectives.

... I do agree that there is an argument for each individual assessing their risk tolerance and adjusting their asset allocation accordingly. There are lots of resources online showing drawdowns/returns for a variety of asset mixes going back almost a century.

Why should this just apply to equity vs property vs bonds? Why not to small companies vs large ones, income vs growth, one sector vs another etc etc. Risk tolerance isnt just a simple matter of %equity vs bonds. There are other factors to consider such as income and its sustainability and long term vs short term behaviour.

The biggest challenge for amateur investors (myself included) is overcoming the veneer of complexity that is lacquered on liberally by the investment industry to justify enormous fees.

There is enormous complexity. It's not mainly lacquered on by the investment industry, it exists because of the complexity of the global economy and the complexity and variety of people's requirements and situations. Hiding under the bedclothes with a not too bad, one size fits all solution may be one way of dealing with the complexity, but it's not the only one.

bostonerimus

Linton wrote: »

There is enormous complexity. It's not mainly lacquered on by the investment industry, it exists because of the complexity of the global economy and the complexity and variety of people's requirements and situations. Hiding under the bedclothes with a not too bad, one size fits all solution may be one way of dealing with the complexity, but it's not the only one.

I like the bedclothes.....The world is complex, but a great deal of that complexity either isn't relevant or can be removed from personal finances. Actively dealing with the complexity can be interesting and that active investing is necessary for people to be able to apply the simplification of indexing.

username12345678

Linton wrote: »

There is enormous complexity. It's not mainly lacquered on by the investment industry, it exists because of the complexity of the global economy and the complexity and variety of people's requirements and situations. Hiding under the bedclothes with a not too bad, one size fits all solution may be one way of dealing with the complexity, but it's not the only one.

I'm assuming you're an IFA Linton and i'm happy to assume your knowledge is such that you can identify macro economic trends across geographical areas and map them on to a tailored and evolving risk profile of your client.

My experience is paying around 2% (inc fund ocf's) for a generic assessment and a fund allocation driven by the WMA canned formula.

For example: My very well-known WM has me in Neptune Japan Opportunities, i've found a number of funds with less long term volatility, lower charges and better long term returns.

Similarly, i've x-rayed all the funds and the overlap is ridiculous. Many individual shares are popping up in 4 or even 5 of the funds - how is that not concentrating the risk?

I'm not going to insult you by calculating what 2%pa fees over an 'investment lifetime' of say 40 years is going to take out of a persons pot. Perhaps, the industry does add enough value to justify what they do but i'm still searching for the evidence - and I would honestly love to find it.

fun4everyone

username12345678 wrote: »

I'm assuming you're an IFA Linton.

Why would you assume that? Linton is one of the best and most respected posters on here. You do realise you don't have to be an IFA to have good, extensive, financial knowledge or to use some active funds? Also plenty of IFA's recommend passive funds, especially for small portfolios.

Linton

username12345678 wrote: »

I'm assuming you're an IFA Linton and i'm happy to assume your knowledge is such that you can identify macro economic trends across geographical areas and map them on to a tailored and evolving risk profile of your client.

My experience is paying around 2% (inc fund ocf's) for a generic assessment and a fund allocation driven by the WMA canned formula.

For example: My very well-known WM has me in Neptune Japan Opportunities, i've found a number of funds with less long term volatility, lower charges and better long term returns.

Similarly, i've x-rayed all the funds and the overlap is ridiculous. Many individual shares are popping up in 4 or even 5 of the funds - how is that not concentrating the risk?

I'm not going to insult you by calculating what 2%pa fees over an 'investment lifetime' of say 40 years is going to take out of a persons pot. Perhaps, the industry does add enough value to justify what they do but i'm still searching for the evidence - and I would honestly love to find it.

IFA's have to include the fact on their post footers. I am not one, just a retired private investor managing a relatively large drawdown SIPP/ISA pot comprising 3 separate portfolios with different objectives. The portfolio focussed on growth is invested 100% in active funds and has outperformed VLS100 over each of the past 3 years it has been in existance in its current form.

Reputable IFAs dont claim to predict macro economic trends, nor outperforming funds. Neither do I. The best one can do is to reject the dogs and focus on the funds investment allocations and approach. My strategy is maximum diversification investing more broadly both in company size and geographic allocation than a Global Tracker would. This is managed using morningstar xray data. Diversification and coverage are more important than individual fund performance.

Not knowing your portfolio, I cant comment on your funds. My aim is to hold a range of individual funds that each uniquely satisfy a particular objective. No share listed on the morningstar overlap listing is included in more than 3 funds. Most are only included in 2, one of which is a global growth fund held for historic reasons.

I have no problem with passive funds, just the attitude of the fans that this is the only sensible way to invest. My results show me that this is not so and that broad diversification and a focus on asset allocation have benefits far larger than a fraction of a % in fees.

bostonerimus

Linton wrote: »

I have no problem with passive funds, just the attitude of the fans that this is the only sensible way to invest. My results show me that this is not so and that broad diversification and a focus on asset allocation have benefits far larger than a fraction of a % in fees.

There are many ways to skin a cat.....but generally they rely on broad diversification and appropriate asset allocation. Most people should concentrate on the simplest way to skin a cat to avoid really messing up the pelt.

There will always be active portfolios that beat the index and we often hear about those.......but on the other side of the average there are necessarily active portfolios that under perform. We don't hear about those often as people don't like to advertise failure, but they are out there. The winners and the losers of investing give indexers the chance to be average.....thank you winners and losers I owe my averageness to you. Passive index investing will not give you the biggest returns or the biggest losses and so maybe it actually is the most sensible approach.

username12345678

Linton wrote: »

IFA's have to include the fact on their post footers. I am not one, just a retired private investor managing a relatively large drawdown SIPP/ISA pot comprising 3 separate portfolios with different objectives. The portfolio focussed on growth is invested 100% in active funds and has outperformed VLS100 over each of the past 3 years it has been in existance in its current form.

Reputable IFAs dont claim to predict macro economic trends, nor outperforming funds. Neither do I. The best one can do is to reject the dogs and focus on the funds investment allocations and approach. My strategy is maximum diversification investing more broadly both in company size and geographic allocation than a Global Tracker would. This is managed using morningstar xray data. Diversification and coverage are more important than individual fund performance.

Not knowing your portfolio, I cant comment on your funds. My aim is to hold a range of individual funds that each uniquely satisfy a particular objective. No share listed on the morningstar overlap listing is included in more than 3 funds. Most are only included in 2, one of which is a global growth fund held for historic reasons.

I have no problem with passive funds, just the attitude of the fans that this is the only sensible way to invest. My results show me that this is not so and that broad diversification and a focus on asset allocation have benefits far larger than a fraction of a % in fees.

Apologies for causing any offence with the assumption you were an IFA.

Ultimately the objective for all investors (I would hope) is to achieve whatever their particular aim is. I'm sure not even the most hardcore Boglehead would shun an active fund that had a long-term out performance of a passive alternative - that would be nuts.

My feeling is it gets emotive when there is a feeling that the industry is taking investors for a ride and not adding anywhere near the value that their charges suggest they should. And active fund charges versus performance are one aspect of that.

Thrugelmir

bostonerimus wrote: »

You speak the truth........and once you can see through the smoke and mirrors it's very liberating. But the thrust of my initial post is that we don't want this to become too widely known. We need the active investors to keep the market efficiently humming along....we need those winners and losers.

Makes you wonder why Investment Houses spend all that money researching companies.

bostonerimus

username12345678 wrote: »

Ultimately the objective for all investors (I would hope) is to achieve whatever their particular aim is. I'm sure not even the most hardcore Boglehead would shun an active fund that had a long-term out performance of a passive alternative - that would be nuts.

The dirty little secret of many Bogleheads is ownership of the active Wellesley Income fund, but it's large bond allocation might mean poorer than average returns in the near future.

https://personal.vanguard.com/us/funds/snapshot?FundId=0527&FundIntExt=INT