How to do your own research?

Alexland

sebtomato wrote: »

I think chance could indeed account for 6 months or one year, but not for 3 or 5 years.

Some economic conditions endure for 5+ years such as the low anticipated return on bonds and investors piling into quality shares as bond-proxies. It doesn't mean the managers of such funds are being consistantly fortunate. They got lucky once this cycle and it ran for a long time. As the world keeps turning another style may be more fortunate next time. For all those that did well there are hundreds of funds that didn't.

Alex

NedS

Aminatidi wrote: »

Things I look for are:

• Fund managers with "skin in the game" so their interests are broadly aligned with mine
• A good website that's updated in a reasonably timely manner
• A set of holdings that, as an investment novice, make some degree of sense
• Good track record, OK not always possible and the future is not the past but if a fund has lost 50% over the past three years whilst everything else in its sector has gained 50% that might be a clue something isn't right
• Peer feedback

And I would add an understanding or appreciation of how the fund performed in recent market crashes (financial crash, dot.com crash), which are now more than 10 years ago so a 10 year chart of most investment funds only appears to go one way (up).

sebtomato

Alexland wrote: »

Some economic conditions endure for 5+ years such as the low anticipated return on bonds and investors piling into quality shares as bond-proxies. It doesn't mean the managers of such funds are being consistantly fortunate. They got lucky once this cycle and it ran for a long time. As the world keeps turning another style may be more fortunate next time. For all those that did well there are hundreds of funds that didn't.

Alex

It's all a bet anyway. Either you invest in passive funds (and decide yourself the split between countries, bonds and shares, meaning some research and own assumptions) or you trust a professional person to do it for you in active funds, for an extra fee of 0.3% or 0.4% per year. Sometimes the professional will do better based on knowledge/information/experience, someone he/she won't because markets can be unpredictable anyway.

My strategy over the last 6 years has been to have a combination of active and passive funds, and regularly monitoring how the active funds were doing over the last 6 months compared to the market. As soon as they start not performing, I swapped (so got out of Woodford quickly for instance). Also, I believe drip-feeding investment is the key to long term success (instead of trying to time investment), regardless of market conditions. I managed to more than double my money invested over the last 6 years, which I am happy with.

sebtomato

NedS wrote: »

And I would add an understanding or appreciation of how the fund performed in recent market crashes (financial crash, dot.com crash), which are now more than 10 years ago so a 10 year chart of most investment funds only appears to go one way (up).

I think 2018 was not a good year for most funds and indexes, so you can look at how specific funds did for that year.

Aminatidi

NedS wrote: »

And I would add an understanding or appreciation of how the fund performed in recent market crashes (financial crash, dot.com crash), which are now more than 10 years ago so a 10 year chart of most investment funds only appears to go one way (up).

Yes that's something I definitely do with my "wealth preservation" holdings as I guess the clue is in the name as to why I have them

ColdIron

Aminatidi wrote: »

Things I look for are:

• Fund managers with "skin in the game" so their interests are broadly aligned with mine

That's OK for a manager of a large liquid global fund but a bit tough on one tasked to manage a small niche one such as Venezuelan Beaver cheese

Aminatidi

ColdIron wrote: »

That's OK for a manager of a large liquid global fund but a bit tough on one tasked to manage a small niche one such as Venezuelan Beaver cheese

Yes fair but I wouldn't invest in Venezuelan Beaver cheese because I don't understand it

"A set of holdings that, as an investment novice, make some degree of sense"

I could look at the top 10 of any fund or trust I hold and I'm reasonably confident I have at least some idea what they do.

I'll leave whether they're good businesses to some of the other stuff I wrote i.e. I would hope Terry Smith or James Anderson or Simon Edelston or Peter Spiller or Seb Lyon wouldn't be pumping millions of their own money into bad businesses.

Linton

sebtomato wrote: »

.......
My strategy over the last 6 years has been to have a combination of active and passive funds, and regularly monitoring how the active funds were doing over the last 6 months compared to the market. As soon as they start not performing, I swapped (so got out of Woodford quickly for instance). Also, I believe drip-feeding investment is the key to long term success (instead of trying to time investment), regardless of market conditions. I managed to more than double my money invested over the last 6 years, which I am happy with.

I would not use this strategy as a general policy as "non-performance" is more a factor of what type of shares (industry, geography, small/large, growth vs value etc) the manager prefers, or the remit of the fund demands, than loss of skill in stock picking. In this environment selling when a fund's price falls is an example of the newbie error of buying high and selling low.


The strategy may have worked well over the past few years because major gains over the period have come from the Tech sector, the US Tech sector in particular. Other sectors have performed much less well. The net result of selling poor performing funds could be that the portfolio asset allocation is becoming increasingly biased towards US Tech. This is very successful for a while but circumstances change and there is a danger that when they do your portfolio will seriously suffer.


Much better in my view for the long term is to focus on maintaining a steady allocation across all factors. If particular areas do well use some of the gains to increase holdings in sectors that could do well in 5 years time.


To return to the topic - (a) in order to do this one needs good information and (b) past good performance is not a major factor in choosing new investments though it is a good reason to reduce one's holding in existing investments.

seacaitch

sebtomato wrote: »

I think chance could indeed account for 6 months or one year, but not for 3 or 5 years. If I have been good at my job for the last 5 years, chances are that I will continue being quite good over the next few years (with some exceptions, life events etc.). On an active fund, we can only extrapolate past data, not much else to base a judgment on

IMO the above shows a deep ignorance, or lack of awareness, of investment and investment market history.

It's a trivial exercise to come up with numerous past examples of active investment strategies that performed very strongly for 3, 5 or more years, because they happened (whether intentionally or through chance) to align with certain economic or societal, ie. market, trends but which then went on to perform poorly once those trends ended and/or eventually reversed.

The "narrower" your investment strategy (ie. the further you depart from the market portfolio and towards one focused on a specific theme or element), the greater the opportunity for dramatic outperformance, but also the greater the opportunity for underperformance when conditions happen to no longer favour your specific focus.

Presumably this is why market cap-based index trackers (ie. market portfolio proxies) become ever more popular. They remove from investors this obligation to attempt to forecast or guess what themes will work in the nearer term future, and conversely what themes to avoid, and when to shift between said themes.

Just so long as the investor can "hold fast" (which can be big ask) and not do anything silly, they are rewarded with the market return and do better than most other people. The main challenges to retaining investment discipline are likely to be emotions arising from either (a) market turbulence, risking abandonment (selling low) due to worry over losses/drawdowns, or (b) a thematic bubble, risking abandonment due to feelings of missing out inducing a desire to overweight the bubble theme (buying high).


NB my view is that if selecting active funds the primary focus should be on understanding the manager's underlying investment philosophy: what aspects and factors the strategy is aimed at following (exploiting), gauging the soundness and durability or otherwise of this chosen approach, and assessing how well the manager has actually implemented the strategy. I think many/most people likely have better things to do with their time than to attempt this.

sebtomato

seacaitch wrote: »

IMO the above shows a deep ignorance, or lack of awareness, of investment and investment market history.

Well, I have been investing for 15 years on the stock market, and have done well so far. You are entitled to your opinions and views, but no need to insult others'.

As I said, it's all a gamble and bet anyway. If you think you can predict the future directions of stock markets beyond just looking at past data and extrapolating, then I can only assume you are the most successful fund manager around and/or a billionaire. Then it's to wonder why you can be bothered posting on this forum.

Anyway, a professional fund manager has more information than I have to make better informed decisions, but markets are unpredictable anyway, so even the best fund managers will get it wrong. It's a gamble. You deciding on which passive fund to go for is a gamble as well (80% stock. 20% bonds? US vs. Europe etc). You have no clue which stock market will do well in the next few years, whether bonds will collapse or not etc.

Best investment strategy is diversification and drip feeding investments as opposed to trying to second guess timing or directions.