Index Trackers Are So Widely Recommended..... But...?

JohnWinder

Go back to the time of your original post: you thought the ftse100 had risen 2% in 19 years. Ignoring the losses from trading, taxes etc, a good index tracker would have risen 2% in 19 years. That means, let’s say 20% of market participants, who are the passive investors, got market returns. The other 80% are trading, some losing some gaining, but on average they can only get exactly the market returns for those 19 years (because they, and the passive investors, all together, can only get market returns in aggregate).
So I’ll turn your question around: am I really supposed to think that the average active managed fund can get anything but the market return? It would seem impossible; and while they're doing that for you, it’s costing you more in fees than an index tracker. They’re turning their experience and your money into their money and your experience.
It’s simplistic and misleading to write: ‘according to stats a large number (most?) Active Funds perform worse than Index Trackers.’
Have a look at the SPIVA reports, which as a rough approximation, differing by country etc, suggest: most active managers beat the market after 1 year; for 2 consecutive years it’s near half; after 5 years a small percentage are still ahead of a comparable index; and down it goes. Can you pick the long term successful ones ahead of time, or know when to get out when the success of any of them turns bad? On average, no one can (vide supra); but most people think they’re smarter than average.

iglad

Dividend reinvest I had that with Lloyds shares however the dividend is n't worth anything when the shares have tanked and stay tanked.

bowlhead99

capital0ne wrote: »

In reality no one can predict, take a guess, or work out where any share price is going, which is why active funds or IT's are a waste of time, thus the index tracker.

No one on this site or any fund manager or (I)FA can say you should invest in xyz company/fund/it - it's meaningless and just lines the the advisor's pockets

Going down a index tracker - passive route is the only guaranteed way to grow your investment portfolio.

Anything else will not work

Although that's probably not what you really think, because just a few months ago you were talking about the fact that you had a bunch of individual shares which you had held for a long time because you had previously thought they were the best way to invest your money and were then moving to using investment trusts holding similar shares which you had started to think were the best way to invest your money.

Now you say nobody can predict or even take a guess where any share price is going so you shouldn't buy any individual shares, and ITs are meaningless and a waste of time, and will not work to grow your wealth.

I expect you're only talking now about index investing being a good thing because you've heard other people say it; it's not really your opinion, but as it's popular you want us to think that you are part of that passive investing crowd because they are a group who are growing within the investing community.

Rather than try to be associated with one bandwagon or another, it's probably best to work out an investing style with which you're comfortable. Having landed on that solution, the options are to keep quiet about it or to be evangelical and try to teach others about it. If you keep flipping from one idea to another other, people won't take you seriously even though they are entertained.

capital0ne wrote: »

Thanks everyone, I'm in the gradual process of selling the odd individual share and investing in an IT that holds the same share for example FGT for my holdings in DGE and ULVR, MRCH or JCH for my holdings in RDSB, BP., GSK and HSBA and so on.

Thrugelmir

bostonerimus wrote: »

However, with a 30 year perspective it has actually been ridiculously easy to make money; simple as 60/40 and rebalance. That got me through the good times and the bad times

You've been fortunate in your choice of strategy and investment. Hindsight unfortunately has no bearing on the future. This is a very different era now.

Thrugelmir

iglad wrote: »

Dividend reinvest I had that with Lloyds shares however the dividend is n't worth anything when the shares have tanked and stay tanked.

Always cut your losses and run your winners. Never hang onto a share in the hope of recovery. Until the fog of PPI finally lifts. Lloyds will remain under a cloud.

bowlhead99

Thrugelmir wrote: »

Always cut your losses and run your winners. Never hang onto a share in the hope of recovery. Until the fog of PPI finally lifts. Lloyds will remain under a cloud.

Do you mean the losses from 680p to 200p between '98 and '03, and miss the recovery from 200p to 400p by 2007, or the losses from 400p to 20p by 2011?

I guess if you had held on at 20p and watched it turn into 30p and 40p in 2012 and then 50p and 60p and 70p in 2013, you would be glad you didn't cut your losses at 25p, and had instead held on 'in the hope of recovery" because you would have missed it tripling from the bottom. And the people who had bought at 30 or 40 or 50p were probably thinking to run their winners in 2014 as it went up through 80p towards 90 plus dividends. How do you know then to cut your losses to stop it coming back to 50? I mean, if you don't know there are more PPI claims to come before the market knows it. And for some time, the 'fog' of PPI claim window end has been signposted. So the only way is up, right...?

Oh except a UK-focused bank won't have a good time in a recession with declining interest rates, but it might have a great time if Brexit is better than feared and UK financial services businesses are rerated...

There is always some 'next thing' with individual shares. There is with indexes too, but volatility is vastly suppressed compared to single companies.

Thrugelmir

bowlhead99 wrote: »

Do you mean the losses from 680p to 200p between '98 and '03, and miss the recovery from 200p to 400p by 2007, or the losses from 400p to 20p by 2011?

We don't know when the shares were purchased and the price paid. My comment was a general one of the trap many investors fall into when holding a few individual shares. Rather than a thought out constructed portfolio. There'll always be winners and losers. The question being at the time is their better value elsewhere when evaluating whether to hold onto a share. Bottom line is that the shares have never recovered to their 1998 peak. Same principle could apply to Barclays or BT (for example). Still trading well below their historic price peaks.

Thrugelmir

bowlhead99 wrote: »

Oh except a UK-focused bank won't have a good time in a recession with declining interest rates, but it might have a great time if Brexit is better than feared and UK financial services businesses are rerated...

Banks generally are suffering in the low interest environment. Not just UK based ones. Brexit isn't the only matter on the agenda.

Recovery in Lloyds share price was in part due to share buy back policy that was cancelled. The Lloyds Board obviously underestimated the claims that yet were to be submitted before the deadline. HBOS has cost them dearly. I heard Paul Moore speak a few years ago. He provided an interesting insight to the culture in the bank.

itwasntme001

bowlhead99 wrote: »

There is always some 'next thing' with individual shares. There is with indexes too, but volatility is vastly suppressed compared to single companies.

This is not necessarily true, there are examples of single shares and active funds that are a lot less volatile then their respective benchmark index funds.


If you mean single stocks are riskier then indexes in terms of single company risk then yes i would agree. Volatility is not the same as risk.

itwasntme001

Thrugelmir wrote: »

Banks generally are suffering in the low interest environment. Not just UK based ones. Brexit isn't the only matter on the agenda.

It is not just low interest rates (actually it is net interest margin that matters and it is not clear whether or not their margins are that low even now) but also demand for loans, regulatory costs, competition (eg fintech), general economic sentiment, brexit concerns etc.


Banks are cyclicals so they tend to do really well when there are signs of coming out of a recession or more growth and do really bad when there are signs of a slow-down or recession.