S&P500 at record highs - time to stay in or pull out?

[Inlineonline]

732NM said:

Inlineonline said:

But over a 10+ year time frame less than 10% of actively managed funds beat the market. Not only do they have to beat the index, the have to cover their (sometimes quite high) fees.

Over a shorter time frame it s just pot luck as you can t know whether an individuals performance is skill or just random chance


And if 90 % underperform the index how are you to pick one of the 10% that beat the index over the long term?

What do you mean by the market?

The index.

Most professional fund managers do worse than the index over a long enough time period. Of course there will be some who outperform but usually only for shorter periods of time and so a) there is no way to identify them before their good run which may not be repeated and b)it s almost impossible to know whether any short term success is due to luck or skill

All the information is out there, so other than guessing how can anyone identify Miss priced assets in the market and really have an edge? And especially so retail investors who are gambling with their own money and so are much more vulnerable to fear and greed impulses that are known to push people into worse not better decision making.

Can anyone here claim to have consistently beaten the index over say a 20 year time frame? ?? f so you ll be posting from your super yacht in the Med!

Edited by Inlineonline on Friday 10th April 21:04

[Panamax]

Inlineonline said:

Most professional fund managers do worse than the index over a long enough time period.

Most professional golfers, football clubs and tennis players eventually get beaten. Are you suggesting they were wasting their time?

Strike while the iron is hot, keep your eyes on the prize, make hay while the sun shines etc etc. There are a number of people on this finance forum who've clearly managed to make a pretty good fist of things.

[NowWatchThisDrive]

I've always felt free float market cap weighting to be quite illustrative of Goodhart's Law in that as passive market share grows, the structural momentum effect it embeds becomes more distortive and harder to ignore. And when you dig into index methodologies and see some of the absolute shenanigans around getting companies into them - e.g. SpaceX and Nasdaq right now - you appreciate that there is a fair bit more active decision-making in the process than might be expected.

All that said, it works sufficiently well for the average investor to probably lead to better long-term outcomes than the alternatives. Personally I am and probably always will be (at least until I lose my marbles) a stockpicker through and through, as I enjoy analysing businesses too much and struggle to imagine myself not wanting to "play the game".

[Inlineonline]

Panamax said:

Inlineonline said:

Most professional fund managers do worse than the index over a long enough time period.

Most professional golfers, football clubs and tennis players eventually get beaten. Are you suggesting they were wasting their time?

Strike while the iron is hot, keep your eyes on the prize, make hay while the sun shines etc etc. There are a number of people on this finance forum who've clearly managed to make a pretty good fist of things.

I think it’s a different challenge.

In sports you need talent, mental toughness, hard work and some good luck. These are attributes that not everyone has and so it is possible to be a Roger Federer and consistently win over a period of time long enough to demonstrate that you are special.

What are the attributes needed for stock market success?

Analytical skills, a level head, a willingness to take risks and above all information.

These are far more widely available so why should anyone person have an advantage. The statistics would suggest almost no one does in that have a consistent and sustainable advantage. A good run is likely to be largely down to luck.

For all the people on this forum who have made a good return through active management, how many more have lost money? Is there really anything to distinguish between them other than chance? (Accepting that some people just have a catastrophically bad approach of course.)

If all that it takes to succeed in the stock market is keeping your eye on the ball and trying a bit harder surely everyone would be doing it? And the statistics show that they are not.

[Mr Whippy]

Jakey123 said:

Mr Whippy said:

There is a very clear mantra though, everyone can't be a winner.

If everyone invested in 'global' and there was no other choice, there would be no growth unless the entire planet actually grew in real value per head/investor.

So you've got to ask do you think the global position can be net positive after inflation year on year, everyone in the world can be better off tomorrow than today?

I frankly think that's a dream as it stands today.

There is definitely tons of value out there, but not in the nebulous diffused 'global' imo.



Also that 'global' paradigm makes sense if you're buying over time, because it rebalances to what's moving as you buy at the new weightings all the time.
If you have £1m making you an income/retirement fund, and in the next 25 years the global stays still but USA doubles and everyone else halves, so you stand still, you're gonna have £1m doing nothing for you.

I see your logic.

What are you suggesting instead?
What is your method to avoid the risk you are mentioning?
Cash ISAs or guaranteed returns just guarantee you lose vs inflation.
Picking stocks proved to also be a gamble...?

I’m not suggesting anything really.

Just pointing out that ‘global’ by definition means exactly that.

And I’d suggest it’s had a good run for the time where global trackers have been vogue because of widespread QE/debasement… and what in actual fact we’re now going to see/seeing is inflation running hot and eroding all that new “wealth” away again… a kind of time delayed reality becoming apparent.

The global economy is a big thing with many moving parts, lots of growth, wealth sinks, shrinkage, etc.


Let’s not forget China can build bridges to nowhere, and then pay to smash them down, both events ADD to GDP.

But over time that misallocation of wealth becomes apparent. They don’t really get a powerhouse economy doing that.

The reality takes years to show, possibly decades, so global funds aren’t reacting instantly.



My gut says a new paradigm is upon us. We’ve done globalisation, it feels like a run for localisation is vogue again.
The USA appears to be first out of the gate on that logic and others have yet to wake up to it.

Which arguably could mean USA is still the top bet?!

[732NM]

Inlineonline said:

732NM said:

Inlineonline said:

But over a 10+ year time frame less than 10% of actively managed funds beat the market. Not only do they have to beat the index, the have to cover their (sometimes quite high) fees.

Over a shorter time frame it s just pot luck as you can t know whether an individuals performance is skill or just random chance


And if 90 % underperform the index how are you to pick one of the 10% that beat the index over the long term?

What do you mean by the market?

The index.

Most professional fund managers do worse than the index over a long enough time period. Of course there will be some who outperform but usually only for shorter periods of time and so a) there is no way to identify them before their good run which may not be repeated and b)it s almost impossible to know whether any short term success is due to luck or skill

All the information is out there, so other than guessing how can anyone identify Miss priced assets in the market and really have an edge? And especially so retail investors who are gambling with their own money and so are much more vulnerable to fear and greed impulses that are known to push people into worse not better decision making.

Can anyone here claim to have consistently beaten the index over say a 20 year time frame? ?? f so you ll be posting from your super yacht in the Med!

Edited by Inlineonline on Friday 10th April 21:04

Which Index? There are loads of them.

[locoloco]

as a sweeping generalization i'd say that in this country we're way behind counterparts in places like the US when it comes to investing; A broad look at topics such as ISA's or SIPPs seem to indicate that possibly (?) many are not that well informed. I suspect aside form it not being a school driven subject, the fact that many have a pension that they haven't a clue what its worth/what it's invested in/how it compares to peers for performance indicates that we've got a buy and forget mentality.

Even talk of trackers and buying something 'as concentrated' as the S&P seems to raise the heartbeat of many - which if that's how one wants to operate is their choice. Most folks in the US hold stocks, not etf's and those that I know are acutely aware of the value of their 'pot' and how its performaing - and what they might do to tailor/rotate.

For me, an index and to some degree niche etf's are like having a bag of liquorice allsorts - there's a lot that are bloody awful and some that are good, and have been good for years. As to whether/why managed funds can or can't just beat a tracker (and vs a private investor) - funds have to rebalance per rules, and per protecting their clients/investors - otherwise i'm sure that more than one of them would have bought 50% nvda 2 years ago and a smattering of whatever else was likely to have massive growth over the coming 1-2-3-4 years.

and that's effectively an edge that a private investor has - they can decide their risk tolerance, if 'someone' thought that it was a reasonable probability that the likes of LITE/ MU/GLW or whatever else was likely to have a stellar order book and therefore massive growth - they could decide to allocate accordingly. and now with a little help with AI its easy to sanity check the balance/risk of a portfolio....

feed in the stocks held, check the historic beta to the major index, check suggestions to lay off some risk with a few steady eddies that have no correlation to the growth element and balance according to one's conviction.

anyways, the headline topic was/is SP - i guess earnings in a cple of mths will be interesting; part of the index will still have massive order books and some companies will feel the pain of supply issues and rising costs to eat in to the bottom line. Throw in Trump, interest rates and inflation and i guess it'll be a year of volatility - but good assets, scarce assets tend to stay that way.

[andrewh]

Panamax said:

Most professional golfers, football clubs and tennis players eventually get beaten. Are you suggesting they were wasting their time?

Strike while the iron is hot, keep your eyes on the prize, make hay while the sun shines etc etc. There are a number of people on this finance forum who've clearly managed to make a pretty good fist of things.

Professional sports people making a good living and with a few million etc in net worth are like 0.001 % of the worlds population and many more lose time and money trying to break into professional sports, fail and end up doing a low value day job, even some of those that do make it end up losing their shirt due to poor financial advice, crooked agents etc.

[Inlineonline]

And again who here has genuinely beaten a global all caps index fund consistently over at least 10 years?

Eg the Vanguard global FTSE all cap accumulation fund which has returned 10.45% with dividends reinvested.

And considering your whole portfolio not cherrypicking the bits that did well.

[Blue_star]

Mr Whippy said:

The Gauge said:

If Global Index tracking funds are being regarded as the fund to choose for long term growth (which I agree with) why would anyone invest in other funds? Is it just personal preference, lack of knowledge, or actually having particular knowledge that others don't?

There is a very clear mantra though, everyone can't be a winner.

If everyone invested in 'global' and there was no other choice, there would be no growth unless the entire planet actually grew in real value per head/investor.

So you've got to ask do you think the global position can be net positive after inflation year on year, everyone in the world can be better off tomorrow than today?

I frankly think that's a dream as it stands today.

There is definitely tons of value out there, but not in the nebulous diffused 'global' imo.



Also that 'global' paradigm makes sense if you're buying over time, because it rebalances to what's moving as you buy at the new weightings all the time.
If you have £1m making you an income/retirement fund, and in the next 25 years the global stays still but USA doubles and everyone else halves, so you stand still, you're gonna have £1m doing nothing for you.

So do you change your investment allocation pretty much monthly?

[Inlineonline]

It’s philosophically two quite distinct approaches.

1) Hope that as an individual you are uniquely able to do better than the other retail and professionals out there and consistently beat the market (index) year after year based on your skill, research, emotional control etc. and justify why you should be the one to win when everyone else with access to the same information and training is trying the same thing.

2) Accept that you’re not special and bank on the global economy as a whole growing over time. While this is not guaranteed, in the past several hundred years this strategy hasn’t failed yet over the long term (5,10,20 years plus).

I’ve been in (1), done pretty well (banked over £2M growth over 15 years) but now have come to the conclusion that I would almost certainly have done equally as well with a passive strategy and with far less effort/ stress!

What effort I do put in now is just some basic risk assessment, asset allocation and tax planning, apart from that the investments run themselves and I can get on with my life.

[NowWatchThisDrive]

Inlineonline said:

And again who here has genuinely beaten a global all caps index fund consistently over at least 10 years?

Eg the Vanguard global FTSE all cap accumulation fund which has returned 10.45% with dividends reinvested.

And considering your whole portfolio not cherrypicking the bits that did well.

I have, with a fairly sticky and concentrated portfolio of usually 10-15 UK small/midcap companies. Obviously I don't beat it every single year in isolation, but my CAGR over the last 5, 10, 15, 20, 25 years and since inception (~27 years) has beaten global market-cap weighted equities over all those periods.

Obviously it's not the right benchmark for what I do, but as a practical measure of opportunity cost - what I'd realistically do otherwise - it's a fair comparison and one I do track.

That said it's not necessarily something I'd recommend someone starting an investing journey from scratch tries to replicate. It's a pond I fish in because it's still inefficient enough for me to have an edge, but the flip side of that is occasional logic-defying moves and drawdowns that would make most index investors wince I wouldn't bother trying to stockpick among the large cap household name universe where the market is far too efficient for me to have any edge.

[ooid]

NowWatchThisDrive said:

That said it's not necessarily something I'd recommend someone starting an investing journey from scratch tries to replicate. It's a pond I fish in because it's still inefficient enough for me to have an edge, but the flip side of that is occasional logic-defying moves and drawdowns that would make most index investors wince I wouldn't bother trying to stockpick among the large cap household name universe where the market is far too efficient for me to have any edge.

Depending on how much risk they can afford though, we used to say, leave 90% of the savings on usual efficient manners (Global trackers on Pension, ISA and etc..) and 10% YOLO. It can also teach people how to read and analyse companies, which is a strong skill imho.

[Inlineonline]

NowWatchThisDrive said:

Inlineonline said:

And again who here has genuinely beaten a global all caps index fund consistently over at least 10 years?

Eg the Vanguard global FTSE all cap accumulation fund which has returned 10.45% with dividends reinvested.

And considering your whole portfolio not cherrypicking the bits that did well.

I have, with a fairly sticky and concentrated portfolio of usually 10-15 UK small/midcap companies. Obviously I don't beat it every single year in isolation, but my CAGR over the last 5, 10, 15, 20, 25 years and since inception (~27 years) has beaten global market-cap weighted equities over all those periods.

Obviously it's not the right benchmark for what I do, but as a practical measure of opportunity cost - what I'd realistically do otherwise - it's a fair comparison and one I do track.

That said it's not necessarily something I'd recommend someone starting an investing journey from scratch tries to replicate. It's a pond I fish in because it's still inefficient enough for me to have an edge, but the flip side of that is occasional logic-defying moves and drawdowns that would make most index investors wince I wouldn't bother trying to stockpick among the large cap household name universe where the market is far too efficient for me to have any edge.

That’s impressive

Do you mind me asking what your CAGR for the whole 27 years was? And was it worth the extra effort would you say over the index return?

[732NM]

Inlineonline said:

That s impressive

Do you mind me asking what your CAGR for the whole 27 years was? And was it worth the extra effort would you say over the index return?

Which index?

[birdcage]

Outside of some very smart, patient, well informed or lucky people one of the best types of investors are children.

They don't go on forums, listen to conversations in the pub about the latest hot shares. Look to diversify away from tech to healthcare or react to big market swings or pay fees by chopping and changing every five minutes.

They invest monthly to take advantage of any dips or downturn periods, reinvest any dividends to aid compounding and enjoy a few different market cycles.

They have a long investment time, let's say from birth to 18. Much longer in fact but using a child ISA as an example.

If they notionally invest £200 a month adjusted for inflation into the S&P 500 into a low cost tracker they put in £55k and end up with £131k in todays money when they are 18, which isn't far off the UK average for UK retirees in a private pension.

You then persuade them to invest half of that until they are 60 when they then have £1.65 million in todays money.

All this for not one sleepless night. and they are doing well at 18 and very wealthy at 60. only a tiny percentage of people will beat that return, especially hassle free.

They go from being the smartest child to being the smartest adult, all from spending less than an hour on a computer.

As investors we need to think like children to achive the best returns.

[732NM]

Most children don't have any income apart from pocket money for treats, and end up in large debt post university.

[The Gauge]

simon800 said:

The Gauge said:

I like the idea of the Global Index fund for diversification. However if you already had a chunk of money invested there, and you later had another chunk of money to invest, would it make sense to diversify further by putting it in other funds such as SP500 etc or even individual sectors such as technology, health etc. Or would doing so be no different to just putting it into your existing global index?

This would add concentration, rather than diversification

Yes I can see why it would. This is what Im struggling to get my head around as diversification appeals to me as a way of spreading the risk.

But once you've set up a Global Index tracker, any further investing in other markets is simply concentrating your portfolio and going against your original diversification plan. To maintain diversification it would require putting that further investment into the existing global tracker. But then all of your money is in the same fund, which kind go goes against the idea of spreading it about.

I suppose thats the beauty of a global index, it maintains diversification and whilst it minimises any big falls, but it also minimises any big gains?

[Inlineonline]

birdcage said:

Outside of some very smart, patient, well informed or lucky people one of the best types of investors are children.

They don't go on forums, listen to conversations in the pub about the latest hot shares. Look to diversify away from tech to healthcare or react to big market swings or pay fees by chopping and changing every five minutes.

They invest monthly to take advantage of any dips or downturn periods, reinvest any dividends to aid compounding and enjoy a few different market cycles.

They have a long investment time, let's say from birth to 18. Much longer in fact but using a child ISA as an example.

If they notionally invest £200 a month adjusted for inflation into the S&P 500 into a low cost tracker they put in £55k and end up with £131k in todays money when they are 18, which isn't far off the UK average for UK retirees in a private pension.

You then persuade them to invest half of that until they are 60 when they then have £1.65 million in todays money.

All this for not one sleepless night. and they are doing well at 18 and very wealthy at 60. only a tiny percentage of people will beat that return, especially hassle free.

They go from being the smartest child to being the smartest adult, all from spending less than an hour on a computer.

As investors we need to think like children to achive the best returns.

100% this.

My wife has a child like attitude to investing (I firmly believe she thinks that her money is in a shoe box at the bank like that old Not the Nine of Clock News sketch!)

She pays into her ISA each year and then forgets about it getting on with her life.

When the global economy kicks off and Wall Street is flashing red, she's more concerned with children, schools, the house, pets, days out etc.


Every year or so, we check her account, and she's done at least as well as I have been with an active approach.

That made me realise. (And I'm not a bad investor statistically, Ime still making decent returns, just not constantly out performing a far easier passive strategy. So I'm now a passive investor too.)

[Inlineonline]

The Gauge said:

simon800 said:

The Gauge said:

I like the idea of the Global Index fund for diversification. However if you already had a chunk of money invested there, and you later had another chunk of money to invest, would it make sense to diversify further by putting it in other funds such as SP500 etc or even individual sectors such as technology, health etc. Or would doing so be no different to just putting it into your existing global index?

This would add concentration, rather than diversification

Yes I can see why it would. This is what Im struggling to get my head around as diversification appeals to me as a way of spreading the risk.

But once you've set up a Global Index tracker, any further investing in other markets is simply concentrating your portfolio and going against your original diversification plan. To maintain diversification it would require putting that further investment into the existing global tracker. But then all of your money is in the same fund, which kind go goes against the idea of spreading it about.

I suppose thats the beauty of a global index, it maintains diversification and whilst it minimises any big falls, but it also minimises any big gains?

There is an argument that a global index fund is very weighted to the S&P 500 by value. An alternative is an equal weight fund which is not skewed by market cap. This would reduce your exposure to tech giants for example. There are other weightings based on income, cash flow etc. But all of these funds are broad and diversified which is the main principle.

Once you have chosen your split between stocks. bonds, cash, property etc I don't see why you woudl ever need more than one index fund to be honest.