Why do posters here have disproportionately higher than average pension funds...

BritishInvestor

pensionpawn said:

ComicGeek said:

pensionpawn said:

Deleted_User said:

My allocation is 70% equity and 30% fixed income and I am a passive investor but that’s irrelevant.  There are many paths to success. 

We tend to spend  way too much time on picking funds. In fact, diversified low cost portfolios do well and its the investor behaviour that hurts returns. We always have great arguments justifying us messing with our portfolios but invariably its a human emotion responding to various biases we have, such as “recency”. Studies have shown that investors who literally forget about investments do the best. (And I am sorry I don’t remember the references but if you read books analyzing actual returns secured by investors you will have come across it).  For this reason professionals, including active funds,  use a fixed set of rules or computers to remove human emotion from the decision making process.

“ Reviewing performance“ is ok (I am guilty of curiousity) as long as you have the will power to not make any changes to your IPS (including asset allocation and choice of investment vehicles). That should be reserved for rare, exceptional events, such as major changes in expected lifetime earnings from your job or if much cheaper investment vehicles become available. 

You may be interested in a book that I recently finished reading called "The man who solved the Market", about an American mathematician Jim Simons and the 'quant' revolution (1970s onward). It's an interesting reflection on how the introduction of computers and big data can remove the emotive aspect of investment strategy, and interestingly how major world events, like the present, caused those who created 'the machine' to doubt it's recommendations as 'it just didn't feel right'. Head, or heart, or computer processing....

But as an engineer it's also important to remember the rule of RIRO - rubbish in, rubbish out. Quality of computer outputs can only ever be as good as the inputs - I've just spent two years working on a construction project where the computer was telling me it wouldn't work, but I can very clearly see in practice now that it works exactly how I thought it would, even though the computer modelling didn't agree. Took a lot of personal conviction to follow through on that, and that's where real world experience pays off, not just relying computer outputs.

Indeed, or GIGO (garbage in, garbage out)! Indeed, the book covers the search for reliable data as well as creating successful algorithms. Jim Simons wasn't even a financial trader to start with although he's worth around $23B now....

A lot of the employees don't tend to be (nor need to be) experts in the market which specialisms ranging from big data to machine learning. Computer processing power can still be the limiting factor which makes you realise the size of the datasets and the strategies they run.

BritishInvestor

Albermarle said:

Studies have shown that investors who literally forget about investments do the best. (And I am sorry I don’t remember the references but if you read books analyzing actual returns secured by investors you will have come across it)

Maybe you meant this 

A news item that has gotten a lot of attention recently concerned an internal performance review of Fidelity accounts to determine which type of investors received the best returns between 2003 and 2013. The customer account audit revealed that the best investors were either dead or inactive—the people who switched jobs and “forgot” about an old 401(k) leaving the current options in place, or the people who died and the assets were frozen while the estate handled the assets. 

My speculation on why dead people beat everyone else is that there is no temptation to employ recency bias and sell a stock simply because the price of the company went down or they assume that the recent bad economic conditions will continue perpetually into the future.

Believed to be a fake story
https://twitter.com/jposhaughnessy/status/1155171083663925248?s=20

BritishInvestor

Albermarle said:

Sailtheworld said:

If the vast majority of people don't beat the markets and dead people are better investors than the living why do people keep tinkering? Probably because the broker who makes £9.95 with every trade has an interest in convincing the punters they all have an edge.

I understand that is how many City type people get rich . Not by investing them selves  but by persuading others to churn their holdings ( or get involved in useless mergers )

I'm assuming you've never worked in the city

JoeCrystal

doris540 said:

Friend of mine husband in the FCO all their kids went to private school from day one till they went to uni all their fees paid by the taxpayer and all the travel etc. Can the average man in the street afford to pay Private school fees ...............exactly.. 

You have to bear in mind that in some countries, the FCO does not permit staff to take their children either for health or security reasons. In others, local schools of an acceptable standard are not available. As frequent moves by staff and families between the UK and overseas, and between posts overseas, can be disruptive to the education of the children, the FCO (& MoD/Military) provides Continuity of Education Allowance (CEA). This enables staff who meet certain eligibility criteria to choose to provide an uninterrupted education for their children at a British boarding school in the UK while they continue to take up postings overseas at regular intervals during their career.

BritishInvestor

Prism said:

Sailtheworld said:

If the vast majority of people don't beat the markets and dead people are better investors than the living why do people keep tinkering? Probably because the broker who makes £9.95 with every trade has an interest in convincing the punters they all have an edge.

I'm not sure we have any UK stats on how many people do or don't beat the markets. There is no way they could know if I do or don't for example. But tinkering rarely seems to work for me at least. I would be better off leaving alone.

You can look at the SPIVA data for fund manager performance - it's probably safe to assume investors don't do any better.

BritishInvestor

Thrugelmir said:

Albermarle said:

Sailtheworld said:

If the vast majority of people don't beat the markets and dead people are better investors than the living why do people keep tinkering? Probably because the broker who makes £9.95 with every trade has an interest in convincing the punters they all have an edge.

I understand that is how many City type people get rich . Not by investing them selves  but by persuading others to churn their holdings ( or get involved in useless mergers )

City types make recommendations to their clients to buy while offloading the same stock off their books. Remember the Big Short and the global trader at Deutsche Bank in the US who personally became extremely wealthy. 

Films may not always reflect reality

Thrugelmir

BritishInvestor said:

Thrugelmir said:

Albermarle said:

Sailtheworld said:

If the vast majority of people don't beat the markets and dead people are better investors than the living why do people keep tinkering? Probably because the broker who makes £9.95 with every trade has an interest in convincing the punters they all have an edge.

I understand that is how many City type people get rich . Not by investing them selves  but by persuading others to churn their holdings ( or get involved in useless mergers )

City types make recommendations to their clients to buy while offloading the same stock off their books. Remember the Big Short and the global trader at Deutsche Bank in the US who personally became extremely wealthy. 

Films may not always reflect reality

The events are factual. 

Thrugelmir

BritishInvestor said:

pensionpawn said:

Deleted_User said:

My allocation is 70% equity and 30% fixed income and I am a passive investor but that’s irrelevant.  There are many paths to success. 

We tend to spend  way too much time on picking funds. In fact, diversified low cost portfolios do well and its the investor behaviour that hurts returns. We always have great arguments justifying us messing with our portfolios but invariably its a human emotion responding to various biases we have, such as “recency”. Studies have shown that investors who literally forget about investments do the best. (And I am sorry I don’t remember the references but if you read books analyzing actual returns secured by investors you will have come across it).  For this reason professionals, including active funds,  use a fixed set of rules or computers to remove human emotion from the decision making process.

“ Reviewing performance“ is ok (I am guilty of curiousity) as long as you have the will power to not make any changes to your IPS (including asset allocation and choice of investment vehicles). That should be reserved for rare, exceptional events, such as major changes in expected lifetime earnings from your job or if much cheaper investment vehicles become available. 

You may be interested in a book that I recently finished reading called "The man who solved the Market", about an American mathematician Jim Simons and the 'quant' revolution (1970s onward). It's an interesting reflection on how the introduction of computers and big data can remove the emotive aspect of investment strategy, and interestingly how major world events, like the present, caused those who created 'the machine' to doubt it's recommendations as 'it just didn't feel right'. Head, or heart, or computer processing....

It's an excellent book, and after reading it makes you chuckle when people talk about outsmarting the market by using instinct and gut feel, which probably ceased to be effective circa 1985

The LTCM collapse in 1998 suggests otherwise. Even rocket scientists couldn't come up with the infalliable solution. 

BritishInvestor

Thrugelmir said:

BritishInvestor said:

Thrugelmir said:

Albermarle said:

Sailtheworld said:

If the vast majority of people don't beat the markets and dead people are better investors than the living why do people keep tinkering? Probably because the broker who makes £9.95 with every trade has an interest in convincing the punters they all have an edge.

I understand that is how many City type people get rich . Not by investing them selves  but by persuading others to churn their holdings ( or get involved in useless mergers )

City types make recommendations to their clients to buy while offloading the same stock off their books. Remember the Big Short and the global trader at Deutsche Bank in the US who personally became extremely wealthy. 

Films may not always reflect reality

The events are factual. 

The city is a very diverse place so you can't really draw any conclusions from watching a film about one event focusing on one sector.

BritishInvestor

Thrugelmir said:

BritishInvestor said:

pensionpawn said:

Deleted_User said:

My allocation is 70% equity and 30% fixed income and I am a passive investor but that’s irrelevant.  There are many paths to success. 

We tend to spend  way too much time on picking funds. In fact, diversified low cost portfolios do well and its the investor behaviour that hurts returns. We always have great arguments justifying us messing with our portfolios but invariably its a human emotion responding to various biases we have, such as “recency”. Studies have shown that investors who literally forget about investments do the best. (And I am sorry I don’t remember the references but if you read books analyzing actual returns secured by investors you will have come across it).  For this reason professionals, including active funds,  use a fixed set of rules or computers to remove human emotion from the decision making process.

“ Reviewing performance“ is ok (I am guilty of curiousity) as long as you have the will power to not make any changes to your IPS (including asset allocation and choice of investment vehicles). That should be reserved for rare, exceptional events, such as major changes in expected lifetime earnings from your job or if much cheaper investment vehicles become available. 

You may be interested in a book that I recently finished reading called "The man who solved the Market", about an American mathematician Jim Simons and the 'quant' revolution (1970s onward). It's an interesting reflection on how the introduction of computers and big data can remove the emotive aspect of investment strategy, and interestingly how major world events, like the present, caused those who created 'the machine' to doubt it's recommendations as 'it just didn't feel right'. Head, or heart, or computer processing....

It's an excellent book, and after reading it makes you chuckle when people talk about outsmarting the market by using instinct and gut feel, which probably ceased to be effective circa 1985

The LTCM collapse in 1998 suggests otherwise. Even rocket scientists couldn't come up with the infalliable solution. 

I'm assuming you've read "When Genius Failed"? From what I recall the street became aware of their strategies and effectively were front running. Risk management (which includes keeping leverage within acceptable margins) is key. Similar blow ups happen periodically.
https://arxiv.org/ftp/arxiv/papers/1103/1103.5672.pdf

so agreed, no system is infallible, and if you speak to owners of these firms they will admit they have had a fair amount of luck along the way. (I recall Meriwether blew up again a decade later )

But that was not my point, more that these firms remove the vast majority of inefficiencies from the marketplace before humans have time to react.