Great British Invest off or Passive V Active Discussion

ams25

Linton wrote: »

You cant split the two factors - an active manager isnt being very active if he simply invests in The Market. The key question in my view is whether the lower cost of passive funds outweighs any benefits of the greater flexibility of asset allocation of active. That is the real practical dilemma faced by investors. Passive fans say yes, active fans say no. It will be very interesting to see how it plays out.

that does depend on if you are investing in the total market (then yes) or a specific sector or building your own globally diversified portfolio. E.g. Do you use a Japan index fund or Japan active fund.. Passive devotees will say the index approach is always better over the long term. Active fans will say not.

Audaxer

Linton wrote: »

I believe the passive line is that it is not possible to pick an unusually well performing portfolio except by random luck - one is just as likely to pick an unusually poorly performing one. And that a well performing portfolio cannot be well performing for a usefully significant amount of time. If that is correct one should see that the active portfolios are scattered evenly on both sides of the passive ones and that over time no one active investor should be seen to have the golden touch.

Sadly I doubt whether we will have enough portfolios or time to show anything of great significance but hopefully the exercise will be fun, interesting and educational anyway. With any luck there will be another Great Crash so we can look at the effect of risk as well as performance in the good times.

That's the thing - you are not going to have any meaningful results for years. And would active investors over time not be adding funds, changing funds or at least tinkering a bit with their portfolio over a meaningful time frame? So while you can say a VLS100 over a 10 year period has produced '£x' return, it is probably unlikely that active single sectors portfolios will hold all the same funds and percentages over a 10 year period, or am I wrong?

bowlhead99

You say

TBC15 wrote: »

Portfolio constituents are only mentioned so that any element of doubt is removed.

implying the mentioning of portfolio constituents is a bit of an afterthought and not really necessary, and 'only mentioned' for whatever reason.

But at the beginning of the thread you said

For those who are curious to compare their Passive or Active investment strategies...

Surely if the goal is to compare strategies then looking at what is in the portfolio is the whole raison d'etre of the exercise. If you wanted to compare how "decisions affect returns in a changing environment" then it could only possibly make sense if you understood what decisions had been taken and how and why they were implemented.

I don't think the portfolio composition is mentioned just to allow an auditor to "prove" someone's claimed monthly performance beyond a doubt. Instead, surely the primary reason for mentioning it is that when one person gets +15% in a quarter because they stuck everything in a world equity index and equities all shot up at the same time as sterling depreciated, that figure doesn't get compared with someone else's 1% for the quarter in their actively managed widows and orphans Christmas party fund.

So really this exercise is just to satisfy our curiosity about what people might be invested in to their objectives (acknowledging everyone has different objectives hence results may be largely incomparable...)? The "Passive Vs Active" of the title doesn't really seem to come into it though. Or am I missing something?

Linton

ams25 wrote: »

that does depend on if you are investing in the total market (then yes) or a specific sector or building your own globally diversified portfolio. E.g. Do you use a Japan index fund or Japan active fund.. Passive devotees will say the index approach is always better over the long term. Active fans will say not.

Assume that poeople are investing globally. But they may choose to have a different % Japan than a global passive fund. It's not just geographies that are involved in asset allocation. It's also well documented characteristics like industry sector and and size of company, these may be more important than geography as regards performance. And then there are the less well documented characteristics such as growth vs value. And finally there are factors such as momentum (companies that are increasing or decreasing in value tend to continue to do so for longer than random movement would imply) which have no direct connection to the nature of the company itself.

There is no way to get a true match across everything other than by holding the same % of shares in the same companies.

ams25

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bowlhead99 wrote: »

TBC15 wrote: »

So really this exercise is just to satisfy our curiosity about what people might be invested in to their objectives (acknowledging everyone has different objectives hence results may be largely incomparable...)? The "Passive Vs Active" of the title doesn't really seem to come into it though. Or am I missing something?

this is why I matched my active funds to vls60. It will give a view on whether a passive like vls6o is best achieved active or passive. You can see that over the last 3 years active using my portfolio has done better. Its not a perfect comparisln, but a reasonable one.

Linton

Audaxer wrote: »

That's the thing - you are not going to have any meaningful results for years. And would active investors over time not be adding funds, changing funds or at least tinkering a bit with their portfolio over a meaningful time frame? So while you can say a VLS100 over a 10 year period has produced '£x' return, it is probably unlikely that active single sectors portfolios will hold all the same funds and percentages over a 10 year period, or am I wrong?

The %s will change because different funds will rise or fall at different rates. You can contrast this with say VLS100 where the manager "tinkers" to keep the % geographic allocation constant. So one could say that the rules of the exercise disadvantage people with active portfolios because they arent allowed to rebalance.

bowlhead99

Linton wrote: »

The %s will change because different funds will rise or fall at different rates. You can contrast this with say VLS100 where the manager "tinkers" to keep the % geographic allocation constant. So one could say that the rules of the exercise disadvantage people with active portfolios because they arent allowed to rebalance.

I don't see why there would be any rule that people with active portfolios couldn't rebalance them during the course of this exercise. That would be a bit ridiculous because when the active investors portfolio moves with the market to be 80/20 or 60/40 equities / non equities or domestic/ overseas, the active investor would intend to re-balance it back to 70/30 or whatever mix of holdings he sees fit for that point of the economic cycle.

Likewise a passive investing stalwart with his 60% global equities and 40% global bond indexes is not going to let it go 90/10, presumably. Someone with 100% VWRL from the start would seem however to have nothing to do.

As the OP said, a farmers market where you choose to grow apples and I use pears, we both hope to end up with a pile of fruit. The result may be largely meaningless if you are trying to grow your fruit to make a gallon of cider and I'm looking to bake a pie. And if your objective was "never produce less than 10kg of fruit per year to meet the target for the cider production contract" and mine was "sell the pies at an annual summer market but I don't mind if I only show up at the market one year in three, as long as the profits pay for the other lean years"... then it is certainly not a "like with like" comparison

Ray_Singh-Blue

If all the investors in the world turned up for this thread, we would find that their average return was the market average. That's just logic.

You can subtract the passive investors, who are simply tracking the average. And conclude that the average return of everybody who actively chooses their investments is, mathematically, the market average.

That said, I find it endlessly fascinating to see how people stash their hard-earned. So please, crack on��

TheTracker

As others have said, this isn’t really any use for active v passive. Comparative returns need to be adjusted for differences in asset allocation and time-weighting (sheer luck of when you make large deposits). There are plenty of studies using the scientific method, such as SPIVA, that overwhelmingly demonstrate the broad futility of active investing. A little thread on the corner of the Internet isn’t going to add more than a grain of sand to that beach.

Having said that, a “money where your mouth is” thread would be a good idea. Alas I feel it would get little traction. There are end of year threads on this forum and each year 10 or 20 people post their returns. Only a few are from regulars. I post mine. Racing blue springs to mind. But not many of the louder mouths. “My returns are of no relevance without context. I’m not seeking raw return, I’m seeking protection of capital or regular income or blah blah blah, and anyway there are no passive vehicles that match my active portfolio”.

Occasionally we will have a new joiner who proclaims they can achieve some great result, usually they are advocates of one form of investment, like value or small or a burgeoning sector. Inevitably lampooned. Ironically, often by those who practise “active investing” and implicitly claim they can do something similar.

So I wish you all the best. I’ll continue to post my once or twice a year returns. Let’s see who else does.

AnotherJoe

coastline wrote: »

If possible I'd like to join in but I'll be trading passive ETF's actively if that makes sense.I'd also like to trade a few FTSE shares.I'll stick with £100,000 cash at the moment until the DOW goes off the boil.
Send a reply if I'm in the team..

I would categorize that as active investment. The fact you use passive funds is neither here nor there. I believe the point with "true" passive investment is you pick an allocation and rigidly stick to it come hell or high water. So you only make one decision, what the initial allocation is. ( One fundamentalist here would say even that is active but in that case there is no such thing as a passive )