Independent Financial Advisors

[Deleted User]

Cus said:

Deleted_User said:

grumiofoundation said:

Deleted_User said:

“You also make the mistake of assuming that all active funds perform badly. “    

Depends over what period of time. The longer your duration the fewer active funds outperform. Cost is a heavy burden.   Passed 10 years, very few active funds outperform. 

https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12
https://www.evidenceinvestor.com/active-versus-passive-in-europe-is-no-contest/

But looking at your own links you can see that in certain areas active funds are far more likely to outperform passive funds and vice-versa. 

So the original statement “You also make the mistake of assuming that all active funds perform badly. “  seems correct. 

Not at all. Some active funds will always outperform in a given year. The trouble is its not always the same funds. In 2 out of 66 categories active outperformed. Next year also 2  categories will outperform. In 20 years maybe 1 fund out of 1000s outperforms. But do you know which one? Its very hard. And a crapshoot. Much easier to get one of the many that shine for a bit and then go aot.

The articles indicate to me that if you select active rather than passive on a random basis across all sectors then you very likely will be worse off over 10 years.
The difficulty therefore comes in selecting (and deselecting) the right actives on a semi regular basis, and knowing when to select passives.
Who would have the best chance of doing this?
I would assume that any chance of succeeding in this method would require a very high level of expertise, probably teams of analysts, researchers etc.
What chance for a DIY'er? 

Very, very, very low. What chance for an IFA? Even lower because:
1. there is an extra layer of charges on top
2. IFAs are not required to have “a very high level of expetise”. Doubt many of them would be able to do a security analysis - not that they need to.
3. They don’t know your needs as well as you do and don’t have anywhere near as much skin in the game.

Prism

Deleted_User said:

Prism said:

Deleted_User said:

Prism said:

Deleted_User said:

dunstonh said:

Cus said:

@dunstonh
How do you identify that you consistently outperform multi-asset funds?  There are a lot of them, all with varying equity ratios, risk ratios, let alone what sectors those equity ratios are invested in.  Do you identify just 1 that is closest to a portfolio you manage and then compare? Or take an average?

in respect of my post here, it was using VLS as I suspected that was the range being referred to (as is so often the case).     There is a bit of an assumption with some here that VLS is the best thing for everyone and nothing can possibly be better.   I do also use multi-asset funds (but no longer VLS) for transactional advice cases.

VLS100 was established in 2011. That’s too recent. Beating it over that period of time was as easy as picking S&P100 fund or faang. That does not say a lot unless the funds your clients buy are equally well diversified. 

If you are mixing active and passive funds, buying and selling and changing allocations then you are an active investor.   Picking an active fund to beat passive is difficult. Most active funds underperformed even if you count the survivors. Yes, VLS is a bit expensive but surely cheaper than several layers of charges when using an IFA to manage funds.  So your claim is hard to believe. 

But lets do a forward looking test. Pick a typical IFA portfolio for 1M, as well diversified as VLS and assume 100% equity and I’ll pick up a passive one, also as well diversified as VLS (or better). No concentration of over 5% in any single stock.  We’ll apply the actual costs. 

See what happens. What do you think? 

Part of the problem in comparision is that very few investors are likely to keep track of all values before and after additions to allow a time weighted return - especially over 10+ years with multiple contributions of differing amounts, lumps sums and platform transfers. Comparisons are difficult.
You also mention being as well diversified as VLS. Surely that is down to opinion. Is 30 stocks enough? 100? 1000? Does it need to represent every country in the world? Some would say you only need 10 stocks total to be diversified. How do you measure it? Volatility?

These types of conversations tend to end with one person saying that they pick good funds and the other saying that isn't likely...

10 isn’t “well diversified” compared to VLS. Its better than 1 or 2 and a portfolio one can be reasonably expected to manage property if he buys individual stocks. Lets put countries aside, but all regions and industries should be well represented and maximum exposure to a single stock should not be higher than VLS. 

Of course the problem is that you are either taking short term bets or you really are mimicking a multi-asset fund but at a higher cost if you use IFA on an ongoing basis.

I did notice that almost nobody on this board seems to track time weighted returns, which makes comparisons kinda meaningless. 

So lets say the funds that someone uses specifically underweight certain sectors because of ethical (energy) or volatility (finance) reasons. It makes it very difficult to compare over anything less than 10+ years because that sort of play can take up to 20 years to fully play out. It kind of creates a meaningless comparision over short periods.

I find my current platform slightly annoying that it doesn't let me go back and see valuation on a given date so unless I happen to log in on the day before contribution and record the value it is lost. 

To me, being underweight or overweight certain sectors is fine but putting 50% or more into Tech or, lets say consumables, would be a problem. Clearly you are taking on a tonne more systemic risk and not comparing like with like. 

“Valuations on a given date” - are you referring to the overall portfolio or funds? Presumably portfolio.  I just have a google sheet spreadsheet which automatically reads values in real time and records portfolio value monthly. And then it calculates time weighted and money weighted returns; the former is based on monthly data.  I kinda have to do this; for various tax and migration reasons I have too many accounts. 

Yeah the portfolio. I would need to pull in a data feed like you say for the number of unit I hold of each fund and then record that amount before each contribution. I doubt many people would bother unless like you they have multiple accounts and need to calculate exact returns. Some platforms do this for you.

So I make do with money weighted XIRR returns as its simpler even though not as accurate.

[Deleted User]

XIRR works for passive unless the flows are large vs portfolio value. I find they are within 0.1% for me - and I did have some major inflows over the considered period. To be fair, 0.1% difference over multiple years has a significant impact.

If you search for bogleheads “calculating personal returns”, they provide a spreadsheet you can copy. Its neat, produces trailing portfolio return plots, growth of 10k, etc. That requires you to copy monthly values manually.  I just went a step further and used googlefinance and a bit of coding to automate everything but its really not necessary. 

I think most people on N American financial forums tend to at least claim to provide TWR when boasting at the end of each year.  The problem tends to be that they “forget” to include their non-brokerage/cash accounts because it would make it look worse. And general errors.  On this forum people are just giving numbers: “plonk. Take it or leave it”. 

Thrugelmir

Cus said:

Deleted_User said:

grumiofoundation said:

Deleted_User said:

“You also make the mistake of assuming that all active funds perform badly. “    

Depends over what period of time. The longer your duration the fewer active funds outperform. Cost is a heavy burden.   Passed 10 years, very few active funds outperform. 

https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12
https://www.evidenceinvestor.com/active-versus-passive-in-europe-is-no-contest/

But looking at your own links you can see that in certain areas active funds are far more likely to outperform passive funds and vice-versa. 

So the original statement “You also make the mistake of assuming that all active funds perform badly. “  seems correct. 

Not at all. Some active funds will always outperform in a given year. The trouble is its not always the same funds. In 2 out of 66 categories active outperformed. Next year also 2  categories will outperform. In 20 years maybe 1 fund out of 1000s outperforms. But do you know which one? Its very hard. And a crapshoot. Much easier to get one of the many that shine for a bit and then go aot.

What chance for a DIY'er? 

The other day I learnt that you had invested $1 in the S&P 500 in 1983 it would have grown to $35 by 1983.  If you had invested $1 in the 10 highest yielding stocks in the index instead, and reinvested the income. By 1983 it would have grown to over $150. 

There's more than one way to skin a cat. Opportunities come and go.  Always be looking for them. 

[Deleted User]

Thrugelmir said:

Cus said:

Deleted_User said:

grumiofoundation said:

Deleted_User said:

“You also make the mistake of assuming that all active funds perform badly. “    

Depends over what period of time. The longer your duration the fewer active funds outperform. Cost is a heavy burden.   Passed 10 years, very few active funds outperform. 

https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12
https://www.evidenceinvestor.com/active-versus-passive-in-europe-is-no-contest/

But looking at your own links you can see that in certain areas active funds are far more likely to outperform passive funds and vice-versa. 

So the original statement “You also make the mistake of assuming that all active funds perform badly. “  seems correct. 

Not at all. Some active funds will always outperform in a given year. The trouble is its not always the same funds. In 2 out of 66 categories active outperformed. Next year also 2  categories will outperform. In 20 years maybe 1 fund out of 1000s outperforms. But do you know which one? Its very hard. And a crapshoot. Much easier to get one of the many that shine for a bit and then go aot.

What chance for a DIY'er? 

The other day I learnt that you had invested $1 in the S&P 500 in 1983 it would have grown to $35 by 1983.  If you had invested $1 in the 10 highest yielding stocks in the index instead, and reinvested the income. By 1983 it would have grown to over $150. 

There's more than one way to skin a cat. Opportunities come and go.  Always be looking for them. 

These kinds of data mining click bates are worth nothing.  You can always pick an arbitrary criterion and a strategically selected set of dates to make anything look wonderful. High yield is a poor indicator somewhat related to value.  Value has outperformed in general but underperformed over the last 10 years. Thats quite a long time. The future... Who knows?  But screening by high yield pushes you to concentrate in a small set of industries and jacks up your risk exposure. 

garmeg

Thrugelmir said:

Cus said:

Deleted_User said:

grumiofoundation said:

Deleted_User said:

“You also make the mistake of assuming that all active funds perform badly. “    

Depends over what period of time. The longer your duration the fewer active funds outperform. Cost is a heavy burden.   Passed 10 years, very few active funds outperform. 

https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12
https://www.evidenceinvestor.com/active-versus-passive-in-europe-is-no-contest/

But looking at your own links you can see that in certain areas active funds are far more likely to outperform passive funds and vice-versa. 

So the original statement “You also make the mistake of assuming that all active funds perform badly. “  seems correct. 

Not at all. Some active funds will always outperform in a given year. The trouble is its not always the same funds. In 2 out of 66 categories active outperformed. Next year also 2  categories will outperform. In 20 years maybe 1 fund out of 1000s outperforms. But do you know which one? Its very hard. And a crapshoot. Much easier to get one of the many that shine for a bit and then go aot.

What chance for a DIY'er? 

The other day I learnt that you had invested $1 in the S&P 500 in 1983 it would have grown to $35 by 1983.  If you had invested $1 in the 10 highest yielding stocks in the index instead, and reinvested the income. By 1983 it would have grown to over $150. 

There's more than one way to skin a cat. Opportunities come and go.  Always be looking for them. 

Presumably only the first year is 1983 and the other two instances of 1983 are typos and should be 2020 or something?

Alexland

garmeg said:

Presumably only the first year is 1983 and the other two instances of 1983 are typos and should be 2020 or something?

1983 was clearly a very good year. But if you had invested $1 in the S&P 500 in 1984 you could have immediately retired on the gains. Those were the good old days.

[Deleted User]

Deleted_User said:

Thrugelmir said:

Cus said:

Deleted_User said:

grumiofoundation said:

Deleted_User said:

“You also make the mistake of assuming that all active funds perform badly. “    

Depends over what period of time. The longer your duration the fewer active funds outperform. Cost is a heavy burden.   Passed 10 years, very few active funds outperform. 

https://www.marketwatch.com/story/more-evidence-that-passive-fund-management-beats-active-2019-09-12
https://www.evidenceinvestor.com/active-versus-passive-in-europe-is-no-contest/

But looking at your own links you can see that in certain areas active funds are far more likely to outperform passive funds and vice-versa. 

So the original statement “You also make the mistake of assuming that all active funds perform badly. “  seems correct. 

Not at all. Some active funds will always outperform in a given year. The trouble is its not always the same funds. In 2 out of 66 categories active outperformed. Next year also 2  categories will outperform. In 20 years maybe 1 fund out of 1000s outperforms. But do you know which one? Its very hard. And a crapshoot. Much easier to get one of the many that shine for a bit and then go aot.

What chance for a DIY'er? 

The other day I learnt that you had invested $1 in the S&P 500 in 1983 it would have grown to $35 by 1983.  If you had invested $1 in the 10 highest yielding stocks in the index instead, and reinvested the income. By 1983 it would have grown to over $150. 

There's more than one way to skin a cat. Opportunities come and go.  Always be looking for them. 

These kinds of data mining click bates are worth nothing.  You can always pick an arbitrary criterion and a strategically selected set of dates to make anything look wonderful. 

Ah yes, the "if we count from here to here" exercise. By which yardstick, I believe, it has been shown that England haven't lost a match since 1966.