Where to Start?

iglad

Prism wrote: »

You could see that level of under performance and then the technical problems a mile off though. Anyway, even of you stayed invested with Woodford to the bitter end there is still a decent chance you did better than a UK tracker.

If you stay with Woodford to the bitter end you won't actually have any money left. His WPCT over 1yr is minus 41% and 3 years it's a whopping 52%. However it could turn around?

iglad

Alexland wrote: »

So you seriously expect an active stock picker to outperform for 40 years despite all the evidence suggesting otherwise? The longer you stick with an active fund the less likely it will outperform a tracker. Going active over such a long time period is like continually hopping between frying pans praying not to get burnt.

I do not expect a fund manager to outperform the market over a 40 year period, I''l tale 20 years. When the fund starts on the negative slide you move to a better one, it's pity people didn't do that with Woodford and they wouldn't be sat on losses of 52% in his WPCT.

I find it odd that no one complies the best tracker funds, why is that.

System

iglad wrote: »

I find it odd that no one complies the best tracker funds, why is that.

I don't find it odd, I think it is perfectly logical.

DrSyn

iglad wrote: »

When the fund starts on the negative slide you move to a better one.

Exactly at what point on the negative slide are you suggesting that the move to a better one should take place? -5%, -10%, -20%?

How exactly do you go about identifying the start of this negative slide from a normal market correction at the time it is happening ( i.e. without the use of hindsight)?

iglad

Alexland wrote: »

So you seriously expect an active stock picker to outperform for 40 years despite all the evidence suggesting otherwise? The longer you stick with an active fund the less likely it will outperform a tracker. Going active over such a long time period is like continually hopping between frying pans praying not to get burnt.

I doubt very much many people would stick to a fund for 40 years. I did about 20 years and then moved to different funds once it started to underperform ( currently -10% on the year). Nobody has shown me the data to convince me enough regarding a tracker. All I see is them being outperformed over 1,3,5, and 10 year by about 2x or 3x growth rates by the best active funds and I have plenty of data for that. Trackers are good in that you can just put them away and not really bother to check their performanceas there's no real need. Trackers are good for those who want middle of the road performance and there's nothing wrong in that. However they are easily beaten by active performers.

sendu

iglad wrote: »

Nobody has shown me the data to convince me enough regarding a tracker. All I see is them being outperformed over 1,3,5, and 10 year by about 2x or 3x growth rates by the best active funds and I have plenty of data for that.

That's purely hindsight performance. The point people are trying to make to you is that you can't predict which funds are going to hit 3x growth in advance of them doing so, so that you personally enjoy the full benefit of that.

The stock market is a (less than) zero sum game. For every fund doing +3x, there's one doing -3x, so to speak. Someone took the opposite side of the winning bet and was a loser. That's why no active fund stays at the top of the performance league table for very long. They eventually start losing bets, until they average out to ~50% winning bets if they're lucky/a bit competent, and would match the average performance of the stock market as a whole, if they had no fees. But they do, so they average less.

Trackers are good for those who want middle of the road performance and there's nothing wrong in that. However they are easily beaten by active performers.

Morningstar's research of fund performance shows the biggest predictor of fund performance is simply the OFC. Trackers don't give you "middle of the road" performance, they seek the average at low fees, which means they eventually beat all active funds.

Because you can't know which active fund is going to do well next year, and when it will stop doing well, on balance your statistical likelyhood of gaining the most returns long term is buying the whole market for the lowest cost possible.

Investing in trackers isn't about giving up big returns. It's about maximising your chances of getting the most returns.

Thrugelmir

sendu wrote: »

Warren Buffet recommends the exact same approach as I do.

Do you hold a low cost S&P 500 index tracker as your main investment fund?

Buffet himself is a disciple of Benjamin Graham who is the father of value investing. Of course like any fad. Once it becomes successfull then people copy and apply the concept on a far broader basis. Once the investment returns fade, the next fad takes centre stage. Stick around long enough and you'll see the full cycle. The herd instinct mentality always takes over.

sendu

Thrugelmir wrote: »

Of course like any fad. Once it becomes successfull then people copy and apply the concept on a far broader basis. Once the investment returns fade, the next fad takes centre stage. Stick around long enough and you'll see the full cycle. The herd instinct mentality always takes over.

Market edges are unlikely to ever last, so in that sense the "fads" that seek to exploit some market inefficiency do indeed fade, because the investors buying that type of stock soon result in the price of those stocks rising so that the edge is gone.

Seeking the average market return is not a "fad", it is maths that will always work out. Of course there always have to be active investors and an equilibrium will form between them and the passives. But retail investors don't have to take a chance on active investing; they can maximise their chances of getting the greatest returns by buying the whole market.

Audaxer

sendu wrote: »

Because you can't know which active fund is going to do well next year, and when it will stop doing well, on balance your statistical likelyhood of gaining the most returns long term is buying the whole market for the lowest cost possible.

Investing in trackers isn't about giving up big returns. It's about maximising your chances of getting the most returns.

Its difficult to compare individual active funds over decades, as I've haven't come across many active funds that have been around for decades. However there are a number of ITs that have been around for decades and I'm fairly sure some of these have beaten the market over the long term. One example, City of London IT, has paid dividends which have increased every year for over 50 years. Many investors buy these ITs and hold for the long term in retirement with confidence that increasing dividends will continue to be received.

To get a comparison with a UK Equity index, I looked at a Trustnet chart which showed that the total return from Jan 2000 to date for City of London IT is over 250%, compared to less than 100% total return on the HSBC FTSE 100 Index tracker over the same period. So while I like the simplicity of passive indexes and multi asset funds, I do like some active funds and ITs, particularly for an income portfolio in retirement.

Alexland

Audaxer wrote: »

I looked at a Trustnet chart which showed that the total return from Jan 2000 to date for City of London IT is over 250%, compared to less than 100% total return on the HSBC FTSE 100 Index tracker over the same period.

Try setting the graph back to start earlier and City seems to have underperformed in the late 90s, did ok in the 2000s and has done well recently (or maybe the index has done badly...) which is probably why we are talking about it now.

Alex