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  • FIRST POST
    • JustAnotherSaver
    • By JustAnotherSaver 11th Aug 19, 8:08 PM
    • 4,157Posts
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    JustAnotherSaver
    For those familiar with Lars Kroijer and his views
    • #1
    • 11th Aug 19, 8:08 PM
    For those familiar with Lars Kroijer and his views 11th Aug 19 at 8:08 PM
    I've been meaning to ask this on here for some time now but keep failing to get round to it. There was a bit in the book that if i remember right i wanted to refer to but it looks like i've left the book at work. There was also a thread on here i saw within the last month or so that made me think of this even moreso but i've ended up leaving it that long that i can't find it now. Typical


    Someone on here, i forget who, suggested i read the book, so i started & a lot of what he says seems to make sense to me. "Do you have an edge" gets repeated throughout. No i certainly do not is my answer.

    A couple years ago i had another book suggested to me on here & Lars Kroijer seems to be basically echoing that one, or at least so far as i've read he seems to be echoing it.


    The more i read it the more i agree that not only do i not have an edge but how do 99% of people have an edge? Likely they do not. They're either lucky or i don't know what.


    Which brings me here. From reading in these forums, i could be wrong but it appears that the majority and not the minority believe they have an edge, certainly amongst the regular posters and it makes me wonder - why is that.


    The other book i had (name of which i forget as i've loaned it out although i can try and get the title if it helps any) basically suggested cheap multi asset index trackers (i'm hoping i've got the correct term down there, i have a habit of not doing!) are the best way forward for the average Joe and that historically they outperform managed funds.

    I think this is the point someone on here steps in and says absolutely everything is managed anyway. I don't know enough to argue that point but clearly that person must know what these others are on about when they refer to managed vs otherwise?
    The Lars Kroijer Investing Demystified book i'm reading seems to be going down the same path, as far as i've read.



    The thread on here that i referred to which was posted recently, many spoke of actively managed funds in their portfolio and how it is either totally actively managed or mostly actively managed. So when i'm reading that most people don't have this 'edge' that Lars Kroijer mentions in his book, i'm wondering ... how come most of the regulars on MSE actually do??


    I understand that the responses to this are probably going to result in me questioning life itself and my mind will explode from the pushing and pulling - how people on both sides of the fence make sense and i don't know who's 'right' but what the hell. After reading the book i'm just curious on the stance from others.

Page 3
    • bostonerimus
    • By bostonerimus 14th Aug 19, 10:39 PM
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    bostonerimus
    Linton, if you are so confident that your strategy will meet your objectives and these objectives require higher returns than you would get from low cost index funds, does that not mean that you do consider that you have an edge? Is it managing the risk and asset allocation that gives you that edge?
    Originally posted by Audaxer
    It’s super difficult to prove an edge because you have to compare like with like and the performance of one portfolio vs another is never going to be statistically significant. So it all comes down to personal preferences. There are an infinite number of ways to reach your financial goals and I’m certain Linton has things well covered. The key here is that both Linton and I have done some research and understand what we are doing and why. That’s the most important component in each of our portfolios.

    Now lots of people won’t be as geeky as that which is where something like VLSxx comes in and maybe even the advice of a sensible IFA.
    Misanthrope in search of similar for mutual loathing
    • Audaxer
    • By Audaxer 14th Aug 19, 11:48 PM
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    Audaxer
    Now lots of people won’t be as geeky as that which is where something like VLSxx comes in and maybe even the advice of a sensible IFA.
    Originally posted by bostonerimus
    I would have thought something like VLSxx isn't much different from your portfolio of 3 index funds.
    • bostonerimus
    • By bostonerimus 15th Aug 19, 12:03 PM
    • 3,490 Posts
    • 2,791 Thanks
    bostonerimus
    I would have thought something like VLSxx isn't much different from your portfolio of 3 index funds.
    Originally posted by Audaxer
    Well VLSxx is a fund of funds, but once you drill down to the stocks held I imagine they could be made to look quite similar.

    Of course my 3 index funds aren’t everything in my portfolio; I have rental property for income, plus pensions, state pension, cash, deferred annuity etc.
    Misanthrope in search of similar for mutual loathing
    • BananaRepublic
    • By BananaRepublic 15th Aug 19, 1:23 PM
    • 1,467 Posts
    • 1,022 Thanks
    BananaRepublic
    The OP seems to come down to active versus passive, a much discussed topic here over countless years ...

    Index trackers have the advantage that management costs are (usually) low, and much lower than for active funds, and in many markets on average they outperform active funds over the long term. So unless you can know which active funds to pick when, passive funds are often the way to go. Woodward provides the best example of an active fund manager going off the boil.

    However, not all indexes/themes have an index fund, in which case if you want exposure to that index/theme, you'll have to go active. And apparently in some markets (unlike the US) index funds do not outperform active funds.

    And as Bostonerimus reminds us, stock markets are not the only investment vehicle. In fact you might want to buy vehicles. Or property. Or something else.
    • JustAnotherSaver
    • By JustAnotherSaver 15th Aug 19, 8:23 PM
    • 4,157 Posts
    • 746 Thanks
    JustAnotherSaver
    I knew there was something the book raised. I just can't find the bloody section to quote it now so i'm going to have to go off a hazy memory but now that i've only remembered it on page 3 of the thread it may get buried.



    I'm pretty sure it was the Japanese market that Kroijer mentioned. I could be wrong on the country though.


    Now from what i read i was of the belief that say you're in your 20s-30s and investing for your 'typical' retirement. You have 30-40 years of investing ahead of you.
    So people reference huge crashes. It's all ok exposing yourself to huge risk, VLS100 going all in on equities (not specifically VLS100 btw) but what would you do in the event of big dips? Hold your nerve or panic sell or whatever.


    Now i was of the belief that it 'doesn't matter' - i've got 30 years ahead of me so the market will come good again, crash again, come good again and so on. Hopefully it's good when i retire.


    But from reading the book & this mentioning of Japanese market, i'm sure he said something like 20 years on from some bad crash (i'm sure you guys will know what i'm referring to but i'd never heard of it before) and it's still not where it was.



    So the belief of it'll always come good after a crash (if you're investing for the long term) may not be true? Not if we're talking long term as in a typical working life (say 30-40 years of investing (30 in my case)).


    Wasn't really sure what to make of that and wondered what others who are more in the know thought.



    Or property.
    Originally posted by BananaRepublic
    Kroijer mentions that early on in the book too.

    • Thrugelmir
    • By Thrugelmir 15th Aug 19, 10:01 PM
    • 65,919 Posts
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    Thrugelmir
    But from reading the book & this mentioning of Japanese market, i'm sure he said something like 20 years on from some bad crash (i'm sure you guys will know what i'm referring to but i'd never heard of it before) and it's still not where it was.


    Originally posted by JustAnotherSaver
    In 1990 the Nikkei 225 lost over 40% in a year , and has never recovered since. To say markets always recover is therefore factually incorrect. The big loser in the UK were those that held endowment policies to repay their mortgages. As investment returns suffered.

    Hence why bonds have historically been considered key to diversify portfolios. In the eventuality that such an event occurs. 100 year market averages hide a multitude of sins.
    Last edited by Thrugelmir; 15-08-2019 at 10:04 PM.
    ““there really is no such thing as ‘the future’, singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise.””
    ― Niall Ferguson
    • Linton
    • By Linton 15th Aug 19, 10:06 PM
    • 11,532 Posts
    • 11,941 Thanks
    Linton
    Linton, if you are so confident that your strategy will meet your objectives and these objectives require higher returns than you would get from low cost index funds, does that not mean that you do consider that you have an edge? Is it managing the risk and asset allocation that gives you that edge?
    Originally posted by Audaxer
    My strategy has underperformed indexes like the FTSE World and also VLS100 over the past couple of years because the US has outperfirmed other areas recently and my % US is much less than that in the indexes. Over 5 years I am still well ahead

    Beating passive fund performance is not an objective, it merely adds a bit of personal satisfaction. The objective for my set of portfolios as a whole is to provide a steady income of at least 4%, and preferably a lot more, of money invested for the rest of my and my wife's life. The growth portfolio objective to provide most of that return whilst minimising the effects of single point failures and correlation by maximising diversification.

    Managing risk and asset allocation is to help ensure the income is steady not to maximise long term return. However my expectation is that a very satisfactory long term return will be a useful side effect perhaps because a focus on diversification and managing correlation gives me the confidence to invest in higher risk/return funds than would otherwise be the case.

    What is really needed now is a serious crash to see how the theory works when under stress.
    • Crashy Time
    • By Crashy Time 15th Aug 19, 10:19 PM
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    Crashy Time
    Once you give up the idea of “having and edge” and trying to find funds or stocks to make you a quick profit you will be able to relax and let general economic growth and compounding meet your financial goals.
    Originally posted by bostonerimus
    Those things are not as easy to lock into any more though?
    • Linton
    • By Linton 15th Aug 19, 10:24 PM
    • 11,532 Posts
    • 11,941 Thanks
    Linton
    In 1990 the Nikkei 225 lost over 40% in a year , and has never recovered since. To say markets always recover is therefore factually incorrect. The big loser in the UK were those that held endowment policies to repay their mortgages. As investment returns suffered.

    Hence why bonds have historically been considered key to diversify portfolios. In the eventuality that such an event occurs. 100 year market averages hide a multitude of sins.
    Originally posted by Thrugelmir



    I would question the significance of the Japanese crash as being that relevent to most endowment policies as people generally at that time would be highly invested in the UK. A Japanese fund would be seen as somewhat esoteric.


    What happened to the Japanese markets is a valuable warning to investors. However it would be far less likely to happen and would not be a serious problem for investors generally now that markets and people's portfolios are truly global. Were it to happen on a global basis it would be one of those situations where our investments would be the least of our problems.
    • arwain
    • By arwain 15th Aug 19, 10:39 PM
    • 65 Posts
    • 32 Thanks
    arwain
    I'm pretty sure it was the Japanese market that Kroijer mentioned. I could be wrong on the country though.
    Originally posted by JustAnotherSaver
    You are correct, see bottom of page 69 and top of page 70. Regarding something like VLS100 and similar funds, they invest in markets all over the world not just one county. So the chances something like that will be worth less in 20 years than it is now, especially if you reinvest the dividends for those 20 years is fairly unlikely, but not impossible.
    • Thrugelmir
    • By Thrugelmir 15th Aug 19, 10:48 PM
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    Thrugelmir
    I would question the significance of the Japanese crash as being that relevent to most endowment policies as people generally at that time would be highly invested in the UK.
    Originally posted by Linton
    Friends Provident started buying into Japanese stocks in the late 70's. Once foreign ownership on a nominee basis was allowed. If I recall correctly we used Extel at the time.

    While easy to be dismissive now. Japan was the place to invest then. Electronics, cars, banking led the world. Post war reconstruction catapulted Japan far ahead of other economies..

    Amazon, Netflix etc are todays darlings. How long for who knows.
    Last edited by Thrugelmir; 15-08-2019 at 10:52 PM.
    ““there really is no such thing as ‘the future’, singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise.””
    ― Niall Ferguson
    • dales1
    • By dales1 15th Aug 19, 10:53 PM
    • 108 Posts
    • 104 Thanks
    dales1
    I knew there was something the book raised. I just can't find the bloody section to quote it now
    Originally posted by JustAnotherSaver
    Try the end of chapter 6 and the commentary on Figure 6.4, which shows the Nikkei 65% down on 1990 for over 20 years (and nowhere near recovered even now).
    • Thrugelmir
    • By Thrugelmir 15th Aug 19, 10:55 PM
    • 65,919 Posts
    • 58,029 Thanks
    Thrugelmir
    So the chances something like that will be worth less in 20 years than it is now, especially if you reinvest the dividends for those 20 years is fairly unlikely, but not impossible.
    Originally posted by arwain
    Depends where you are in the cycle of life. 40 year investment horizon. Fine, time to recover and save more. Just retired. Not so comfortable.
    ““there really is no such thing as ‘the future’, singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise.””
    ― Niall Ferguson
    • Audaxer
    • By Audaxer 15th Aug 19, 10:58 PM
    • 1,928 Posts
    • 1,196 Thanks
    Audaxer
    The objective for my set of portfolios as a whole is to provide a steady income of at least 4%, and preferably a lot more, of money invested for the rest of my and my wife's life.
    Originally posted by Linton
    So if I understand that correctly, your main objective is taking withdrawal rate of at least 4% per annum increasing with inflation. As 4% is the much talked about safe withdrawal rate, I'm sure that will be achievable, especially as markets have been on a bull run since you retired. Do you think it might be different for someone retiring now if we do enter a bear market soon, even with a good strategy like yours?
    Managing risk and asset allocation is to help ensure the income is steady not to maximise long term return.
    That's the bit I'm not sure I understand - I know you have an income portfolio which you occasionally top up from your growth portfolio, but is there something else you do to manage your asset allocation to ensure you have a steady income?
    • Crashy Time
    • By Crashy Time 15th Aug 19, 11:07 PM
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    Crashy Time
    I knew there was something the book raised. I just can't find the bloody section to quote it now so i'm going to have to go off a hazy memory but now that i've only remembered it on page 3 of the thread it may get buried.



    I'm pretty sure it was the Japanese market that Kroijer mentioned. I could be wrong on the country though.


    Now from what i read i was of the belief that say you're in your 20s-30s and investing for your 'typical' retirement. You have 30-40 years of investing ahead of you.
    So people reference huge crashes. It's all ok exposing yourself to huge risk, VLS100 going all in on equities (not specifically VLS100 btw) but what would you do in the event of big dips? Hold your nerve or panic sell or whatever.


    Now i was of the belief that it 'doesn't matter' - i've got 30 years ahead of me so the market will come good again, crash again, come good again and so on. Hopefully it's good when i retire.


    But from reading the book & this mentioning of Japanese market, i'm sure he said something like 20 years on from some bad crash (i'm sure you guys will know what i'm referring to but i'd never heard of it before) and it's still not where it was.



    So the belief of it'll always come good after a crash (if you're investing for the long term) may not be true? Not if we're talking long term as in a typical working life (say 30-40 years of investing (30 in my case)).


    Wasn't really sure what to make of that and wondered what others who are more in the know thought.




    Kroijer mentions that early on in the book too.
    Originally posted by JustAnotherSaver
    He makes the point that you need to consider a crash in the market and no recovery within your realistic time-frame for needing the money to be available. The Motley Fool used to say things like "If stock markets cease to exist/function, then you will be more concerned with basic survival than your net worth and therefore shouldn`t worry about this scenario" etc. etc. meaning that complete financial meltdown was very very unlikely outwith Total Global war or massive natural disaster or pandemic, something like that where how many bits of paper you are worth becomes pretty meaningless.

    I had investments in Japanese markets in the mid to late 80`s that did very well, and I managed to sell out before it all went south, mainly due to pure luck than anything else, someone who had a globally diversified portfolio (as LK recommends) wouldn`t have been burned by the Japanese meltdown the same way as someone who had all their eggs - property, pension, job, other investments - relying on the health of the Japanese economy/markets.

    I think you need to find a sensible middle ground between worrying about armageddon and expecting Buffet like returns from a few hours on here and browsing a couple of books (not saying that is what you are expecting, but some people just shy away from markets all together - BTL is my pension people, or get crazy ideas about what is achievable - Day trading is easy money people) and instead think about how much you want to allocate to certain investments, how risky they are, how liquid they are, and as mentioned what outcome you are hoping to achieve from these investments/allocations. I think it is a good idea to have the equivalent of six months to a years salary somewhere totally safe and accessible before you start dabbling in stock markets, even trackers,and go slowly, research each thing that you are doing carefully before allocating any money (The basic advice in the LK book could be all you need?)

    There was a discussion on here about how the Dow actually recovered investors money (if they stayed invested) quicker than (I) thought after the great late 20`s crash, and there is maybe an equivalent alternative story about Japan that someone on here can post up, although I think japan is the true recent example of how it can go badly wrong for a long long time.
    • Audaxer
    • By Audaxer 15th Aug 19, 11:12 PM
    • 1,928 Posts
    • 1,196 Thanks
    Audaxer
    You are correct, see bottom of page 69 and top of page 70. Regarding something like VLS100 and similar funds, they invest in markets all over the world not just one county. So the chances something like that will be worth less in 20 years than it is now, especially if you reinvest the dividends for those 20 years is fairly unlikely, but not impossible.
    Originally posted by arwain
    I would say that was very unlikely. I think it would have to be a case where there was a bad recession just after your invested the money, and then another one at Year 20 with a few other equity crashes in between. If there was a bad crash at year 20, the best thing to do would be sit tight for another few years if you can until markets recover before selling any equity investments.

    If a globally diversified 100% equity fund of passive indexes like the VLS100 was worth less at the end of a 20 year period, I would think most active portfolios of 100% equities would also be worth less over the same 20 year period.
    • Crashy Time
    • By Crashy Time 15th Aug 19, 11:13 PM
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    Crashy Time
    I would question the significance of the Japanese crash as being that relevent to most endowment policies as people generally at that time would be highly invested in the UK. A Japanese fund would be seen as somewhat esoteric.


    What happened to the Japanese markets is a valuable warning to investors. However it would be far less likely to happen and would not be a serious problem for investors generally now that markets and people's portfolios are truly global. Were it to happen on a global basis it would be one of those situations where our investments would be the least of our problems.
    Originally posted by Linton
    Not as I remember it, I think it was a standard recommendation at the time from financial advisers etc. as it was boom time in that sector of the markets, the same way property recently has been lapped up by pension funds etc.
    • Crashy Time
    • By Crashy Time 15th Aug 19, 11:29 PM
    • 8,602 Posts
    • 3,033 Thanks
    Crashy Time
    He makes the point that you need to consider a crash in the market and no recovery within your realistic time-frame for needing the money to be available. The Motley Fool used to say things like "If stock markets cease to exist/function, then you will be more concerned with basic survival than your net worth and therefore shouldn`t worry about this scenario" etc. etc. meaning that complete financial meltdown was very very unlikely outwith Total Global war or massive natural disaster or pandemic, something like that where how many bits of paper you are worth becomes pretty meaningless.

    I had investments in Japanese markets in the mid to late 80`s that did very well, and I managed to sell out before it all went south, mainly due to pure luck than anything else, someone who had a globally diversified portfolio (as LK recommends) wouldn`t have been burned by the Japanese meltdown the same way as someone who had all their eggs - property, pension, job, other investments - relying on the health of the Japanese economy/markets.

    I think you need to find a sensible middle ground between worrying about armageddon and expecting Buffet like returns from a few hours on here and browsing a couple of books (not saying that is what you are expecting, but some people just shy away from markets all together - BTL is my pension people, or get crazy ideas about what is achievable - Day trading is easy money people) and instead think about how much you want to allocate to certain investments, how risky they are, how liquid they are, and as mentioned what outcome you are hoping to achieve from these investments/allocations. I think it is a good idea to have the equivalent of six months to a years salary somewhere totally safe and accessible before you start dabbling in stock markets, even trackers,and go slowly, research each thing that you are doing carefully before allocating any money (The basic advice in the LK book could be all you need?)

    There was a discussion on here about how the Dow actually recovered investors money (if they stayed invested) quicker than (I) thought after the great late 20`s crash, and there is maybe an equivalent alternative story about Japan that someone on here can post up, although I think japan is the true recent example of how it can go badly wrong for a long long time.
    Originally posted by Crashy Time
    https://forums.moneysavingexpert.com/showthread.php?t=5941553&highlight=crashy+time&pag e=4
    • Alexland
    • By Alexland 16th Aug 19, 8:52 AM
    • 5,778 Posts
    • 5,039 Thanks
    Alexland
    There was a discussion on here about how the Dow actually recovered investors money (if they stayed invested) quicker than (I) thought after the great late 20`s crash, and there is maybe an equivalent alternative story about Japan that someone on here can post up, although I think japan is the true recent example of how it can go badly wrong for a long long time.
    Originally posted by Crashy Time
    Similar to the Wall Street Crash when you consider total return it shows that investing in the Nikkei has not been a total disaster for the unfortunate person who only put in a lump sum in just before the big crash.

    https://pensionpartners.com/the-nikkei-straw-man/

    I expect the majority of Nikkei investors will have done better as they would have gains from the big ramp up before the crash and the lower prices for units bought after the crash. So a disappointing investment but not a wipe out.

    Alex
    • sendu
    • By sendu 16th Aug 19, 9:30 AM
    • 112 Posts
    • 50 Thanks
    sendu
    Now i was of the belief that it 'doesn't matter' - i've got 30 years ahead of me so the market will come good again, crash again, come good again and so on. Hopefully it's good when i retire.
    [...]
    So the belief of it'll always come good after a crash (if you're investing for the long term) may not be true? Not if we're talking long term as in a typical working life (say 30-40 years of investing (30 in my case)).
    Originally posted by JustAnotherSaver
    What happened in Japan is one of the reasons you should diversify globally, and not put all your eggs in one basket. It's quite unlikely for the global economy to effectively lose 30 years of growth.

    At least one country ought to come out on top, and if you're in a passive global index tracker that's cap-weighted, you'll automatically benefit.
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