re: Investing Advice for a Noob

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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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But earlier you said this

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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.

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The key point is that

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For stock funds, the annual return assumption is 9.90%

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Their returns assume that these funds didn't outperform the 9.90% average, which they all did. Yes, you will save on fees, and that's Vanguard's entire sales pitch.

I used Morningstar because it's non-biased and shows the actual returns, not the assumed returns.

Well, he is using loaded funds which is not the best approach.

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Now, I'd be happy to pay the additional fees for the additional return of almost $800,000. Wouldn't you?

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Well sure. I'd also like to know who won the Super Bowl before its played. You're betting on the Saints to win in 2009 with info from 2013.

What about this fund would have made you invest in it BEFORE you would have gained $800,000? What are the odds I pick this one and not others who didn't win by 800k?

And really that is the other crux of the indexer theory, that of course you can find winners after the fact, but not before. If it was so easy to pick winners, I'd imagine there wouldn't be thousands and thousands and thousands of funds to choose from, since by now, everyone would have aggregated to the winners.

Let me sum it up:

The theory goes that index will win more often than not. Also, it will win because of costs.

It doesn't propose that it never loses. It preposes the chance of you picking a winner is close to nil, therefore, you take the sure bet that will "win" over the long term in comparison to ALL the choices you had. I believe that correctly summarizes it. We can all pick winners after they won. I'll know who won the Super Bowl on MOnday, that is obvious. Today? Not so.

Well, unless Notre Dame is playing.

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So, indexing always wins no matter how you slice up the holding period. Then once proven wrong, the answer is it doesn't matter because you wouldn't have been smart enough to own that before hand? Now, I am no fan of growth fund of America, but an awful lot of people own it. Am I finally getting it?

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who was proven wrong?

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I guess each has it's arguments, but I would say the idea that indexing always wins, no matter what time period was proven wrong. No?

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I sure thought it was, but it's tough to convince the Bogle-Heads sometimes. BTW, I found 7 more index beaters just in American Funds alone. lol

Which is all i was trying to say but i decided to go get drunk. I almost added in the part of the thesis where they debated what happens when everyone "catches on" to indexing. Thanks for adding that in foshizzle.

Ifs all about the odds and the lack of having hindsight. Apparently i could not convey 95% to 5% odds through a message board.

And sorry we parsed "always." I look at 95% and call it always because for all practical purposes if i have a 95 percent sure thing im not taking the 5.

Eta: i still see yall "proved" your point using perfect hindsight again, which is fine. In fact jm not sure there is a way to defeat the argument without using hindsight, since all data instantly becomes known/historical. I beat LSURussian in day trading all the time using hindsight

The sarcasm could have been left outside the discussion.

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I sure thought it was, but it's tough to convince the Bogle-Heads sometimes. BTW, I found 7 more index beaters just in American Funds alone. lol

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You guys done blathering on yet?

American Funds equity funds were hemorrhaging shareholder withdrawals in 2008/2009. No active fund with a mandate to hold 90% or more of fund assets in equities is going to protect a retail investor in a downmarket. Growth Fund of America has over $110B in assets under management and will not likely perform as it did when it was a much smaller fund (look at its performance from 2008 forward), plus you would have to adjust SPY to be able to allocate up to 25% of its holdings in international equity to replicate what GFA can do. That fund will most likely be a index hugger in the future, and indexers can diversify their holdings to gain more appropriate global and factor exposure. To boot, American Funds, even those with a load if held long enough, but especially those classes of shares found in retirement plans, do have relatively lower costs than the universe of funds. Which brings me to this study:

LINK

"Two conclusions can be drawn from this chart. First, there is a clear trend in each time period of lower costs leading to higher relative performance. Second, although this trend is positive, it does not by itself lead to identifying active funds that will consistently outperform the comparable index. Indeed, if we look at the aggregate average of the four different time periods, we find that the lowest-cost 50% of the funds in the universe produced a 23% probability of outperforming the benchmark, while the lowest-cost decile of funds (the least expensive 10% of funds in the universe) produced a 32% probability of outperforming the index.

It should be noted that the graph is calculated relative to costless benchmarks. If we lower the benchmark returns by 20 bps to compensate for the cost of investing in a low-cost index fund, the probability of the lowest-cost funds succeeding rises from 32% to 40%.

As a result, although low cost has proven to be the most consistent and effective quantitative factor that investors can use (ex-ante) to noticeably improve their odds7, it does not, by itself, guarantee success. Instead, for investors to achieve success using active management, a combination of both low cost and talent are needed.

Identifying talent
How can investors identify talented managers? While there has been a plethora of academic studies that offer shortcuts for identifying a skilled active manager, much of the industry has settled on using some variation of the “4 Ps” cited by Vanguard founder Jack Bogle in 1984—people, philosophy, portfolio, and performance8. Vanguard still uses a similar version of these criteria today:"

Yeah, it is a Vanguard study, but certainly makes some valid points. To each his own. I own indexed and managed and lose no sleep over it.

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