re: Investing Advice for a Noob

I believe long term has been pretty much reduced to anything that isn't less than a year.

Its a complicated answer because you aren't comparing one index to one fund. You are comparing the index to all the funds and their individual success rates. You are also considering the fact that the average investor has a minute chance of picking the correct managed fund that will beat an index any given year. Not to mention, that fund that wins in 1995 isn't likely to beat the index in 1996. So now you have the minute chance of picking the correct fund multiplied by the fact the average investor now has to "switch" to another "winning" fund that beats the market in the next year. Hence, the "long term" has basically meant any period of time where statistical luck of the draw can be ferreted out as I understand it. And this time period has basically been brought to a very low amount of time to where at any given time the index is beating any chance of you picking the right fund.

Wall of text.

You're basically arguing for something I either can't understand or cannot be provided to you because it simply doesn't exist. However you define "long term," the indexers say the manged funds lose. Pick whatever time frame, you lose.

Will this always be true? That can't be answered. Obviously, if you were savvy and saw 2007 coming and got out of indexes you won that year. But did you wait until the market got ahead of 2007 levels? Then you lost, which brings up the market timing issue, that again, the average investor has no idea how to handle. And in the 2007 scenario the average investor was more likely to sell closer to the bottom than before the burst I'd imagine.

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Fair enough. I would venture to say you don't have to beat the index every year. If your manager can avoid a 2008 type loss and just provide solid returns then you are fine and will come out ahead a lot of times.

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This is the inherent point of the indexer logic. THe chance you pick a manager that can beat or lessen losses in comparison to the index, when you include the costs you pay for him to manage it, are so low you effectively lose every time over any time frame.

Ya, SOMEONE had a managed fund that did well during the burst. But good luck being that guy is the indexer argument.

Sort of like this. I beat the index IF

IF I have a good manager
IF his return is greater than the return of the index
IF this return covers the cost of paying
IF I picked the right fund in the first place in the right assets that did well for any given time period.

IF I'm able to do the above at all times as an "average" investor.

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This is not an accurate statement

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I know what you're getting at.

Its not accurate if you pick the winning fund. AKA you didn't index down the hole after 2007 and the fund you chose got out of losing assets.

Its accurate in the sense that usually, you're gonna pick the wrong fund and you went down the hole just like the index, and didn't make sufficient gains to beat it back on the way up either.

Of course if you pick the winning fund for 3 months, 6 months, 20 years, you beat the index, that's not the point of the argument though. The indexer argument is you won't make that selection enough times to win in the first place.

I kind of feel I'm talking in circles.

ETA: I will also add I've seen them run this with the infamous JANUS fund which crushed out returns for while in the 90s, etc.

If you read enough books on indexing, they will point out a handful of funds that would have done well over a lengthly period versus an index.

Magellan was one I believe in the 80s/90s.

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Ok, so it is possible to beat the indexes with managed funds. However, you have to do a little homework and find them. That seams reasonable.

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Your odds of finding that fund with your research are considered next to nil according to them, but whatever floats your boat.

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The next question I have is this. How many of the index holders do you think sold out at the bottom and did not get back in at all or waited a long time? I would venture to guess a lot. Therefore, I would also say that index returns don't always equal investor returns for this reason.

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Well, I agree a lot of people did.

Of course, the first sacred rule of index philosophy is to never sell or time the market sooo you can't really use those people as an argument against it, as the argument is to stay in the index no matter what.

According to who?

"Random Walk" etc. The thousands and thousands of funds available. The small percentage that beat a given index any given year. The even smaller percentage of those funds that beat an index over 5 years, an even smaller percentage that beat over 10, and so on.

Again, no one says this will remain true for the next 100 years. This all occurred in a growing stock market over the 20th century.

You too, there is a disclaimer added to the above.

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I have read it several times. My argument would be that you can't realistically compare anything longer than 5-10 years, because holding periods generally aren't 20-30 years.

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Ah, I could understand that sentiment. IE either through irrational moves or the nature of human life, investing in general, etc.

I thought Random Walk talked about 5-10 year time frames? I had read about 3 or 4 books about indexing in general, so much of Random Walk's advice was rehashed to me so it didn't have quite the same profound effect on me as others. I was pulling from all those works together and from memory so,

I stay out of stocks for now just because I know I'll get worked. But some day I'd like to get into them a little bit after research and see if I have my "pulse" on certain companies, etc. Plus, they are certainly more fun.

Links aren't working. Did this include costs?

And I've already noted that this was claimed to be true right up to 2007. No claims were made past that. I haven't read any literature on the subject extending to present and only incorporating the last 10 years.

Lots of funds are going to have better returns if you get to choose the time frame around a burst, I imagine.

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It's from Morningstar.com, for whatever reason their links suck. And yes including fees, all 4 funds beat their index benchmark.

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Can you give me the symbols for them?