Vanguard investing options in market downturn

BananaRepublic

AnotherJoe said:

BananaRepublic said:

AnotherJoe said:

BananaRepublic said:

JohnWinder said:

Unloved companies shunned by the masses will quickly be identified by the astute investors and gobbled up thus raising their price to appropriate levels.

I'm anticipating investing for another 40 years, with some bequest intentions beyond, so that's certainly my horizon.

It sounds like you accept the efficient market hypothesis. Many years ago I read some research that suggested that the EMH applied well in the US, consistent with trackers being the wise choice, but less well in other markets such as Japan. Since then more research has been done. I can’t remember the explanation but I think it’s because there is so much information available and so many financial companies in the US that it’s hard for a company to hide. There’s plenty of research that suggests the EMH does not apply well in Europe and Japan. It’s also possible it does not apply to small companies as well because there are so many, hence there is too much information available. 

Some fund managers have staff who visit companies and talk to their directors to get a better idea of their future. Pension funds and private investors don’t normally do that. I suspect many funds don’t do that ie the marketing shells that are commission vehicles. 

I cant recall where i saw it, but there was a recent article I read which i found very persuasive which argued that visiting companies, chatting to the directors, etc, didnt do anything but  give companies a chance to pull the wool over analysts eyes.

Was it in the Economist or the Beano? Without a source no-one can judge the quality of the argument. 

Or without the article, take it on its own merits, since it coudl be equally likely to be good which of those it was in, there's plenty of rubbish in the economist. If I ever come across it again I'll post.

I was suggesting that a source was needed, so we could read it, and form an opinion. Obviously either could have a duff article on equity fund management. That said, I generally find the Beano reliable. 

Thrugelmir

AnotherJoe said:

Thrugelmir said:

JohnWinder said:

Paying a fair price for the underlying stocks? 

Isn't that a fundamental principle when choosing investments. Appreciate it's rather an old fashioned concept that seems to have fallen by the wayside. 

Entirely depends on your definition of "fair".

That's why opinion drives markets. The future can be only a projection. Without using a metric of some kind though one is simply sticking a finger in the air.

SMT as a investment company are worth the value of the investments they hold. 

Apple has been around a very long time. Had it's ups and downs. Long established cult brand following. Though gets forgotten that the iPhone only launched in 2007. To reignite Apple's fortunes. The divergence into other lines of commerce. Is a clear sign that the big ideas are beginning to run short.  

Tesla faces the challenge of competition. Unlike Apple. Isn't going to be able to charge a premium price and make high margins if it is going to make inroads into the volume segment of the market. With the annual car market of some 100 million vehicles sold globally.  A long way to go to become a dominant player. Manufacturing capacity needs to be ramped up further. 

Thrugelmir

Michael121 said:

BananaRepublic said:

Regarding the supposed superiority of index funds, I used the YouInvest fund comparison tool. Search European Large Caps Blend Equity + Acc, and you see 15 funds. Look at the performance over ten years. The Vanguard index funds are probably the best option. Now search European Large Caps Growth Equity + Acc, and you see 9 funds. Look at the performance. Surprised? 

Look at European Small Caps Equity + Acc. There’s no trackers.

Look at Europe ex-UK Small/Mid Caps + Acc. There’s no trackers. 

Small cap wins on the 10 year. Are the fund managers excellent stock pickers or are they just piling more money into riskier investments.

Sometimes it's easier to identify companies not to hold. All equity investments carry a multitude of risks. Fund managers certainly don't pile money in. Screening is multi layered process. Building sizable stakes likewise an incremental process. Remember fund managers will back capital raising exercises. So there's a good reason for company boards to maintain a transparent and honest relationship with their major investors. 

Linton

Thrugelmir said:

Michael121 said:

BananaRepublic said:

Regarding the supposed superiority of index funds, I used the YouInvest fund comparison tool. Search European Large Caps Blend Equity + Acc, and you see 15 funds. Look at the performance over ten years. The Vanguard index funds are probably the best option. Now search European Large Caps Growth Equity + Acc, and you see 9 funds. Look at the performance. Surprised? 

Look at European Small Caps Equity + Acc. There’s no trackers.

Look at Europe ex-UK Small/Mid Caps + Acc. There’s no trackers. 

Small cap wins on the 10 year. Are the fund managers excellent stock pickers or are they just piling more money into riskier investments.

Sometimes it's easier to identify companies not to hold. All equity investments carry a multitude of risks. Fund managers certainly don't pile money in. Screening is multi layered process. Building sizable stakes likewise an incremental process. Remember fund managers will back capital raising exercises. So there's a good reason for company boards to maintain a transparent and honest relationship with their major investors. 

In any case, surely the main criteria for an active fund to investment in a company would have to be met from the company accounts and annual reports, not tea and cake around the boardroom table.

Thrugelmir

Linton said:

Thrugelmir said:

Michael121 said:

BananaRepublic said:

Regarding the supposed superiority of index funds, I used the YouInvest fund comparison tool. Search European Large Caps Blend Equity + Acc, and you see 15 funds. Look at the performance over ten years. The Vanguard index funds are probably the best option. Now search European Large Caps Growth Equity + Acc, and you see 9 funds. Look at the performance. Surprised? 

Look at European Small Caps Equity + Acc. There’s no trackers.

Look at Europe ex-UK Small/Mid Caps + Acc. There’s no trackers. 

Small cap wins on the 10 year. Are the fund managers excellent stock pickers or are they just piling more money into riskier investments.

Sometimes it's easier to identify companies not to hold. All equity investments carry a multitude of risks. Fund managers certainly don't pile money in. Screening is multi layered process. Building sizable stakes likewise an incremental process. Remember fund managers will back capital raising exercises. So there's a good reason for company boards to maintain a transparent and honest relationship with their major investors. 

In any case, surely the main criteria for an active fund to investment in a company would have to be met from the company accounts and annual reports, not tea and cake around the boardroom table.

Accounts and annual reports by the time they are published are well out of date.  Do you invest using historical data alone?  Video conferencing has existed for many years.  Boomed after 9/11. No need to waste valuable time travelling. 

Smaller companies need to promote themselves to gain visibility. By chance a while back I heard the new CEO of a company called Robinson (RBN) on the radio. Interested me. Niche operations.  Undertook some research and bought a stake. Subsequently performed very well. Haven't heard of the company since. Minnows go totally unnoticed. 

JohnWinder

BananaRepublic said:

You make a lot of assumptions that are not justified by the SPIVA data.

As to your last remarks, obviously you keep an eye on your funds. A market may underperform relative to others, Japan being a good example. Or a fund may underperform, perhaps because of fundamental changes in the management structure. 

You also ignore the fact that some markets do not have index funds. 

Thanks. I'm certainly making a lot of assumptions THAT the SPIVA data reflects the truth of the situation. And we need to factor in the uncertainty about the conclusions when taking action plans from them. But could you say what assumptions you have in mind that are not, or even might not be justified BY the data?

Second, yes, we keep an eye on our funds. We need our own investing plan, and I want to use someone else's that works better than indexing.  But what action do we take in response to what we see after keeping an eye? I need something actionable.

One of the, I suppose, unspoken aspects of index fund investing is diversification - one's best protection against idiosyncratic risk, leaving one at the mercy of just market risk. What markets did you have in mind that don't have an index? My guess is that the securities in those markets would be captured in an existing broader - diversified! - index.

JohnWinder

Prism said:

JohnWinder said:

Market inefficiencies are no doubt there, but how can we, the people, exploit them? Only by risking below market returns. Some are happy to do that, others are happy to accept market returns and unhappy not to get what's rightfully theirs when they invest in the market.

One thing I look for is a team of the fund manager and analysts that do their own research and do not buy the data in. That is the only way that they can ensure they are looking at things differently. An individual analyst might be able to keep track of around 5-10 companies this way so it tends to suggest funds that hold a fairly low number of stocks - high conviction. There a several examples of fund houses that I use (and some that I don't) that work this way - Fundsmith, Lindsell Train, Montanaro, Blue Whale, Baillie Gifford and Merian. 

I read that as: 'choose funds with no more than about 7.5 times the analyst number of securities, who rely only their own research and don't buy data.' Three criteria, not too taxing.

I can't find that information about Blue Whale.  Where does one find that information about the other funds?

Is the strategy easily enough actionable for choosing better than index funds?

Separately, I don't think we should start with: 'which funds have done better in the past; now what were their management approaches?',  and believe that that gives us as reliable information as: 'what management approaches do we think will work; now let's see how it plays out over the next 10 years?'.  Any model has to be tested, not simply developed to fit the existing data and believe that it will serve as well in the future, I think.

Linton

JohnWinder said:

Prism said:

JohnWinder said:

Market inefficiencies are no doubt there, but how can we, the people, exploit them? Only by risking below market returns. Some are happy to do that, others are happy to accept market returns and unhappy not to get what's rightfully theirs when they invest in the market.

One thing I look for is a team of the fund manager and analysts that do their own research and do not buy the data in. That is the only way that they can ensure they are looking at things differently. An individual analyst might be able to keep track of around 5-10 companies this way so it tends to suggest funds that hold a fairly low number of stocks - high conviction. There a several examples of fund houses that I use (and some that I don't) that work this way - Fundsmith, Lindsell Train, Montanaro, Blue Whale, Baillie Gifford and Merian. 

....

Separately, I don't think we should start with: 'which funds have done better in the past; now what were their management approaches?',  and believe that that gives us as reliable information as: 'what management approaches do we think will work; now let's see how it plays out over the next 10 years?'.  Any model has to be tested, not simply developed to fit the existing data and believe that it will serve as well in the future, I think.

If one cannot use data from the past how do you propose to test alternative strategies? With any test inconvenient results could be dismissed by saying that there is no proof that there would be the same outcome under future economic circumstances.

Prism

JohnWinder said:

Prism said:

JohnWinder said:

Market inefficiencies are no doubt there, but how can we, the people, exploit them? Only by risking below market returns. Some are happy to do that, others are happy to accept market returns and unhappy not to get what's rightfully theirs when they invest in the market.

One thing I look for is a team of the fund manager and analysts that do their own research and do not buy the data in. That is the only way that they can ensure they are looking at things differently. An individual analyst might be able to keep track of around 5-10 companies this way so it tends to suggest funds that hold a fairly low number of stocks - high conviction. There a several examples of fund houses that I use (and some that I don't) that work this way - Fundsmith, Lindsell Train, Montanaro, Blue Whale, Baillie Gifford and Merian. 

I read that as: 'choose funds with no more than about 7.5 times the analyst number of securities, who rely only their own research and don't buy data.' Three criteria, not too taxing.

I can't find that information about Blue Whale.  Where does one find that information about the other funds?

Is the strategy easily enough actionable for choosing better than index funds?

Separately, I don't think we should start with: 'which funds have done better in the past; now what were their management approaches?',  and believe that that gives us as reliable information as: 'what management approaches do we think will work; now let's see how it plays out over the next 10 years?'.  Any model has to be tested, not simply developed to fit the existing data and believe that it will serve as well in the future, I think.

To get that kind of information about how a fund is run I tend to watch the videos and interviews they release plus read any blogs and articles about them. This tends to take some time and I rarely invest into a fund before I have kept an eye on it for 6 months or more. As it happens Blue Whale is not one that I use although it is interesting enough to keep track of. Their approach can be seen here The Blue Whale Approach | LF Blue Whale Growth Fund – the flagship fund from Blue Whale Capital but I have also listened to podcasts where Stephen Yiu has gone into detail.

There is a vast amount of information in written and video form about the Baillie Gifford and Fundsmith approaches.

I do look at past performance but not just as a final statistic. I want to see what happened during the 2007 crash (if available) or the 2015 and 2018 sell offs, along with early 2020. Its all about opinion. Of course I have no idea about future performance but would prefer to put my investments into what I believe are good ideas. If I don't find anything I like I am perfectly happy to use an index fund. 

JohnWinder

I acknowledge your honesty. Thanks; I'm sure all readers do too.