Damien Fahy's 80-20 Investor - thoughts?

Malthusian

Diplodicus said:

I think I understand what passes for being financially literate on the MSE savings and investment forum: all the gear for the tax benefit/ low fee angle; no idea where to put your money.  As long as you think you’re winning on the first measures, you just want NOT to be making a mistake on the second. 
Is that fair?

Pretty much. If you save £100 in tax or charges your expected return is a guaranteed £100. If you make management bets on your investments the expected return is zero minus dealing costs.

Martin Lewis didn't become a multi-multi-millionare by sending out newsletters full of "1. How to get 10 bottles of Persil for £5 2. Could you get £250 tax back from the marriage allowance? 3. Put £10 on Manek's Fantasy for the 3.30 at Kempton."

itwasntme001

It is difficult to say whether a fund manager who has outperformed in recent history (such as Fundsmith), has done so purely due to stock picking ability or due to the economic regime we have been in or some combination of both.  A lower sterling, disinflation and lower long term rates have contributed to the performance of overseas growth stocks since the GFC (for a £ based investor).  If you were to pick at random, 10 or 20 large cap stocks falling into the overseas growth stock basket 10 years ago, you would probably have had similar results to Fundsmith.

That is not to say avoid managed funds/trusts completely.  I hold a decent amount in various such funds including Fundsmith.  But I know that they should not be held "forever" unlike my tracker funds holdings which IMO are much better suited to be held for the long run.

In the global stock market, the top 5% of stocks provided 90% of the returns over the last 30 years.  If you are a fund manager holding a concentrated portfolio of stocks such as Fundsmith, you better hope that at least a few of the stocks chosen are in this top 5%.  Missing them out completely or having too few (possibly to offset the badly performing bottom 20% say) could have a detrimental effect on performance over a long time period.

Sailtheworld

itwasntme001 said:

It is difficult to say whether a fund manager who has outperformed in recent history (such as Fundsmith), has done so purely due to stock picking ability or due to the economic regime we have been in or some combination of both. 

Anyone trying to pick a fund manager will already know that a small minority of fund managers have an investment edge. To pick one that does is far from easy but it gets even more difficult when you realise that the market has already priced in that edge so that pick needs to front run the market.

Anyone that thinks they can do this is bordering on the delusional. The test for anyone thinking it's possible is to write down a summary of how it's done. It'll be long on waffle and short on detail. People massively underestimate how efficient the market is and forget it has already taken into account that article in the Sunday papers, that blogger's piece on the Internet and Terry Smith's view on the companies he holds.

Prism

itwasntme001 said:

It is difficult to say whether a fund manager who has outperformed in recent history (such as Fundsmith), has done so purely due to stock picking ability or due to the economic regime we have been in or some combination of both.  A lower sterling, disinflation and lower long term rates have contributed to the performance of overseas growth stocks since the GFC (for a £ based investor).  If you were to pick at random, 10 or 20 large cap stocks falling into the overseas growth stock basket 10 years ago, you would probably have had similar results to Fundsmith.

I would say for the most part its based on the investment strategy and over the last 20 years the place to be has shifted from last centuries value based 'buy it cheap' approach to the winning current growth strategy - in particular quality growth companies. The majority of fund managers that have done well over recent years have followed that approach. You might think that most other investors and fund managers would have followed the same path, after seeing it work year after year, but old habits seem to die hard and lots of those investors are still looking for their 'edge' of finding under valued stocks that somehow everyone else missed. The only way I can see that working again is with smaller less well researched companies, but even they seem hard to find in this world of instantly available information. The reason that quality growth seems to work well over the long term is that good companies tend to stay good companies for the most part and the actual price you pay for those companies isn't hugely important. No major reasons to go chopping and changing, trying to follow the cycles, always looking for the next cheap stocks.

The grandfather of this approach in terms of active funds is Morgan Stanley Global Brands (at least of the ones around today), which launched at about the worse time possible in October 2000 just before the dot.com crash. Since then it has averaged over 10% per year (the world index is about 4%). Most of modern funds copying this approach have also done very well - Fundsmith, Lindsell Train, Blue Whale. If you check the performance of the passive quality ETFs they are also at the top of the tables. I think its fair to say that any half decent fund manager (and their investors) have been pretty satisfied with their performance. Is 20 years enough time to say that this approach consistently works? That time frame includes 3 different crashes, several years of huge growth in typically value stocks, years of QoE and now a pandemic. I have no idea, but I can't think of another way I would prefer to invest.

There is another style that has performed even better over a shorter time period which tends to generally get lumped in with momentum but isn't really. Maybe we should call it the Baillie Gifford style. This is where you invest for growth in the future quality companies before they have proven that they can do it. Much harder to get right but very rewarding if done well. Something like Scottish Mortgage is much harder to spot (and even harder sometimes to stick with) as it requires so much dependence on a skilled set of managers - and a bit of faith thrown in. Fundsmith could (and has been to some degree) be replaced by a large collection of other funds following the same approach.

Sailtheworld

According to some research Morningstar and Vanguard did (probably 10 years ago now). Net of fees 1% of managers outperform the market over 5 years. The Fundsmiths and Lindsell Trains of the world may well have an edge but to reliably pick one of these ahead of time also requires an edge or some luck. It's easy to assume that anyone that didn't invest in these winners must've been a bit dim but, then again, it's easy to pick a 20 year winner with hindsight.

Prism

Sailtheworld said:

According to some research Morningstar and Vanguard did (probably 10 years ago now). Net of fees 1% of managers outperform the market over 5 years. The Fundsmiths and Lindsell Trains of the world may well have an edge but to reliably pick one of these ahead of time also requires an edge or some luck. It's easy to assume that anyone that didn't invest in these winners must've been a bit dim but, then again, it's easy to pick a 20 year winner with hindsight.

They may or may not have an edge but they have been using pretty much the best investing strategy over the last 20 years so its hard to say how much is down to them or not. I imagine if you took all of the active funds that had done well recently, the majority would be following either momentum or quality investing. I reckon I have selected maybe 15 different funds at different times over the last 5 years or so and only 1 has underperformed its benchmark while I have held it. The common theme is they have all been of the same type of fund, even though the regions and sectors have been somewhat different. Its often more about what these funds don't invest in than what they do.

I'm sure there will be a time when cyclical, high income or value type investing comes roaring back, but it would have a lot of work to do to recover over 10 years of underperformance. And if that was to happen, then even if an individual missed a bit of it, stuck in a now underperforming growth strategy, they likely wouldn't lose out too much (as they didn't from 2000 to 2008) or simply swap funds will almost no cost. Much harder for a fund manager justifying a style change.

cjamie

DrSyn said:

1. You would do well taking heed of the previous posts, especially numbers 4 & 5.


2. As you as you are new to investing, I suggest to watch the two videos below:-


3. Also take a look at Multi-Asset Funds.

From looking around the options seem to be:

Vantage Life Strategy
HSBC Global Strategy
L&G Multi Index Funds
Blackrock Consensus
Architas Passive

These have wide diversification while minimising risk, at low cost.

Life Strategy seems the most often mentioned. The 60% shares/ 40 % bonds seems to me pretty much a "fire and forget" option.

There is also Fidelity Multi Asset Allocator

Baillie Gifford Managed. Holds individual shares, rather than index funds.

I want to thank you, I have had ISA and Pensions, with HL, Nutmeg, Wealthify.  After watching the videos and others about Index Trackers and use the FT Fund Comparision Website, I realised my so called high performance and medium risks funds were not out performing Index Trackers and the fees ridiculous when you compare them to Vanguard Investor.  So easy to setup, invest and now started the transfers.
I cannot recommend them enough, there platform is so easy to read and helpful investment advise etc.  For more videos on index trackers check out James Shack on YouTube, they are very useful for explaining the Life LifeStrategy Funds, which are Equities and Bonds
@DrSyn Thanks again, you made me interested in investing, instead of just leaving them and hoping for the best.

Steve182

If you are happy making your own INFORMED share buy/sell decisions based on research that you can understand, and want a tool to assist then I cannot recommend Stockopedia more highly.

Otherwise I suggest waging your wife, house and MIL on Sad Ken at 15.30 at Haydock, predicted SP at 25:1. Maybe do an E/W in case you lose and want your wife back a couple of days a week.....