I noticed on Rooshv there are plenty of members who extol the virtues of investing in low cost passive stock market index funds (e.g. Vanguard). But isn't that just defeatism? Guys on this forum for the most part believe in self improvement and being better than average at things that matter.
Its kind of the financial equivalent of game denialism. Yeah sure, most active investors and fund managers under-perform the market but most people (I mean society in general) are idiots or in the case of fund managers they have misaligned incentives which harm performance. So, if that is your competition what is the problem? Just like most men are low value betas with no game who rarely get laid with quality girls and have to fight for scraps. Does that mean we should start telling people to give up on game and self improvement and marry the first chubby wall approaching girl that agrees to it? Of course not. We tell people to improve themselves to not be one of those low value betas!
So why should we tell people to buy passive index funds? With the right attitude, patience, discipline and study/knowledge most reasonably intelligent people can outperform the market. It is a realistic goal.
Most retail/individual investors are uninformed idiots, so beating them should be easy. As for guys who say "if most professionals cannot outperform the market what chance do I have?" Well in my previous paragraph I mentioned misaligned incentives.
A lot of fund managers will diversify a lot to "reduce volatility" because having a concentrated portfolio tends to increase volatility, and having much higher volatility than the market can lead to big outflows. Being concentrated also increases the chance of drastic under-performance and drastic over-performance (its a double edged sword). Given that a moderate amount of under-performance can be overcome by a good marketing strategy and customer captivity, then playing it safe and not sticking your neck out becomes the priority (yes I am aware that active funds are losing market share to passive funds).
For example if a large bank has uninformed customers that have transaction accounts, mortgages, credit cards, etc all with that bank and this person has money to invest but not the knowledge they might have a consultation with the bank "financial planner" who will "advise" them to invest in the bank owned/affiliated managed funds.
Also a lot of fund managers are afraid of losing their job if they under-perform by too wide a margin for a period even as short as two years so they instead opt to under-perform modestly and 'hug' the index.
Another point is that fund managers have large sums of money to invest so they are like an elephant, whereas the small individual investor is fast and nimble and can easily buy and sell positions in smaller stocks quickly without moving the price.
Also many fund managers have constraints in their mandate many things such as maximum exposure to any single industry or stock, maximum cash weightings, use of gearing and even in some cases ethical considerations such as not investing in oil or tabbaco stocks, etc
In short fund managers typically have a lot of constraints and misaligned incentives (their number on priority is funds under management not out-performance).
The short version summary of my post is that any reasonably intelligent person who puts in the work and has patience can outperform the stock market indexes by picking individual stocks, so why they throw in the towel and become a passive index investor?
Its kind of the financial equivalent of game denialism. Yeah sure, most active investors and fund managers under-perform the market but most people (I mean society in general) are idiots or in the case of fund managers they have misaligned incentives which harm performance. So, if that is your competition what is the problem? Just like most men are low value betas with no game who rarely get laid with quality girls and have to fight for scraps. Does that mean we should start telling people to give up on game and self improvement and marry the first chubby wall approaching girl that agrees to it? Of course not. We tell people to improve themselves to not be one of those low value betas!
So why should we tell people to buy passive index funds? With the right attitude, patience, discipline and study/knowledge most reasonably intelligent people can outperform the market. It is a realistic goal.
Most retail/individual investors are uninformed idiots, so beating them should be easy. As for guys who say "if most professionals cannot outperform the market what chance do I have?" Well in my previous paragraph I mentioned misaligned incentives.
A lot of fund managers will diversify a lot to "reduce volatility" because having a concentrated portfolio tends to increase volatility, and having much higher volatility than the market can lead to big outflows. Being concentrated also increases the chance of drastic under-performance and drastic over-performance (its a double edged sword). Given that a moderate amount of under-performance can be overcome by a good marketing strategy and customer captivity, then playing it safe and not sticking your neck out becomes the priority (yes I am aware that active funds are losing market share to passive funds).
For example if a large bank has uninformed customers that have transaction accounts, mortgages, credit cards, etc all with that bank and this person has money to invest but not the knowledge they might have a consultation with the bank "financial planner" who will "advise" them to invest in the bank owned/affiliated managed funds.
Also a lot of fund managers are afraid of losing their job if they under-perform by too wide a margin for a period even as short as two years so they instead opt to under-perform modestly and 'hug' the index.
Another point is that fund managers have large sums of money to invest so they are like an elephant, whereas the small individual investor is fast and nimble and can easily buy and sell positions in smaller stocks quickly without moving the price.
Also many fund managers have constraints in their mandate many things such as maximum exposure to any single industry or stock, maximum cash weightings, use of gearing and even in some cases ethical considerations such as not investing in oil or tabbaco stocks, etc
In short fund managers typically have a lot of constraints and misaligned incentives (their number on priority is funds under management not out-performance).
The short version summary of my post is that any reasonably intelligent person who puts in the work and has patience can outperform the stock market indexes by picking individual stocks, so why they throw in the towel and become a passive index investor?