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Index fund investing - is it defeatism?
#1

Index fund investing - is it defeatism?

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?
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#2

Index fund investing - is it defeatism?

Wait what?

No......it means you are making a bet on MACRO level trends rather than individual companies.

And a lot of managers aren't as smart as they think they are, while many of the ones who actually are that smart allow their own opinions and biases to get in the way of analysis.
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#3

Index fund investing - is it defeatism?

Picking individual stocks can be more profitable, but methinks you need to be skilled at making the picks, a la Buffett. He preaches index fund investing, which is fool proof, while practicing stock picking. Of course he has the resources and skill to back up his decisions, which most don't have.

David took his men with him and went out and killed two hundred Philistines and brought back their foreskins. They counted out the full number to the king so that David might become the king's son-in-law. Then Saul gave him his daughter Michal in marriage. 1 Samuel 18:27
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#4

Index fund investing - is it defeatism?

Quote: (07-14-2017 11:13 AM)lex the impaler Wrote:  

Picking individual stocks can be more profitable, but methinks you need to be skilled at making the picks, a la Buffett. He preaches index fund investing, which is fool proof, while practicing stock picking. Of course he has the resources and skill to back up his decisions, which most don't have.


The difference is that Buffett's full-time job is investment, and he's been doing it since he was a wee boy. He says that most people would be better off investing in index funds, and he's right. Some people study finance and stocks and know the system sufficiently to be able to pick individual stocks and make money, and those people aren't as suited for index funds.

For most people (I include myself here), there are other things to focus on, so index funds it is. You save a lot of time by investing in index funds - time that I use for fitness and education, for example. Maybe I could pick good individual stocks if I devoted many hours to doing the research, but I'd have to give up a lot in the process.
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#5

Index fund investing - is it defeatism?

I'm a fan of index funds for the average investor who doesn't have the time or technical expertise to beat the big boys who trade for a living. Still, stocks are wildly overpriced right now, which would include an index fund. It is best to be cash heavy right now, we are headed for another correction. Credit card debt levels are at 2008 pace, people are still overpaying for housing relative to earnings and wages/unemployment have still been running on fumes. As someone who has worked in the financial industry for some time, I strongly recommend being cash heavy right now and invest in index funds later. The time to invest is when everyone else is panicking, and hence the bargains for you if you waited. Any free cash you have right now should be held for the correction that is coming or invested in starting your own business.

John Michael Kane's Datasheets: Master The Credit Game: Save & Make Money By Being Credit Savvy
Boycott these companies that hate men: King's Wiki Boycott List

Try not to become a man of success but rather to become a man of value. -Albert Einstein
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#6

Index fund investing - is it defeatism?

In essence, an astute investor should know as many methods of investing to get the best return on his investment dollar.
Most don't do this and default into one school of thought. Then, ultimately reap the rots of ignorant decision making.
Intelligent Investors make and take the time to learn the ins and outs of Dividend Investing, Bonds, ETFs, Mutual Funds, Asset Allocation, and even yes trying to hit home runs with betting long term on moated companies.

Yes, many specialize and focus on their best traits. But, people who want their money to grow make sure their money is where it needs to be per the situation at hand.

You must realize that Vanguard is a company made to make money off of you. In Canada it's even worse. But if the performance out paces the fees it may be a good thing.

In short, you need to be on the ball with this stuff or as the say, Investing is the Easiest way to Lose Money.
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#7

Index fund investing - is it defeatism?

Quote: (07-14-2017 11:30 AM)John Michael Kane Wrote:  

I'm a fan of index funds for the average investor who doesn't have the time or technical expertise to beat the big boys who trade for a living. Still, stocks are wildly overpriced right now, which would include an index fund. It is best to be cash heavy right now, we are headed for another correction. Credit card debt levels are at 2008 pace, people are still overpaying for housing relative to earnings and wages/unemployment have still been running on fumes. As someone who has worked in the financial industry for some time, I strongly recommend being cash heavy right now and invest in index funds later. The time to invest is when everyone else is panicking, and hence the bargains for you if you waited. Any free cash you have right now should be held for the correction that is coming or invested in starting your own business.


Couldn't have said it any better myself.
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#8

Index fund investing - is it defeatism?

Oddly enough, OP, there's no discussion of your track record when it comes to investments. Care to share that info with us?

"I'm not worried about fucking terrorism, man. I was married for two fucking years. What are they going to do, scare me?"
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#9

Index fund investing - is it defeatism?

@Australia Sucks: You are making a mountain out of a molehill.

You have already hit on the main point, not everyone is willing to put in the work needed to beat the indexes. As much as I like reading 10K's and reducing portfolio vol, there are other and better things to do in life.
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#10

Index fund investing - is it defeatism?

not_dead_yet I did not post my track record because I did not want to be seen to be boasting or getting into a dick measuring contest. Besides if I claim good performance then people will be skeptical anyways (no, I am not going to p.m. you my personal financial details) so it seems like a no-win situation. I will say I have been investing in Australian shares for around 10 years, I have a six figure stock portfolio (I am in my 20s) and I have done well and substantially outperformed the market over that time period. I will not be more specific than that.
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#11

Index fund investing - is it defeatism?

Quote:Quote:

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?

Most didn't form the good foundation and discipline to be level headed investors. Bad habits die hard.
Most don't like doing thorough research. Most don't know how to read a balance sheet.
Most don't look at the right metrics for valuing a company.

Most don't care. Most like to think they are Value Investors when they are really Growth Investors, when they are actually Riverboat Gamblers...
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#12

Index fund investing - is it defeatism?

Quote:Quote:

not_dead_yet I did not post my track record because I did not want to be seen to be boasting or getting into a dick measuring contest. Besides if I claim good performance then people will be skeptical anyways (no, I am not going to p.m. you my personal financial details) so it seems like a no-win situation. I will say I have been investing in Australian shares for around 10 years, I have a six figure stock portfolio (I am in my 20s) and I have done well and substantially outperformed the market over that time period. I will not be more specific than that.

For Focus investing. The Vital Winners Count. There are guys with 5 Picks who are crushing the market.
This is why a lot of people cannot pull the trigger and bet big on convicted well researched/analyzed stocks.
If you are out performing the stock market. Kudos, hopefully your better picks are in front of you.

But, some people get cocky and get reckless with their new money. Boring is Beautiful.
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#13

Index fund investing - is it defeatism?

If you've outperformed your average index fund, it means you probably have a long-term strategy that works well for you, and you invest time to do research before making trades. These are good things as an individual investor. Most people who are individual investors who get in trouble invest without a sound strategy, or panic at the first sign of trouble. That's why the average person shouldn't try to be a day trader. They will be beaten by the big boys and disciplined folks every time.

Austraila, what sectors have you invested in that have outperformed and why? How much time do you spend managing your money? I'm going to guess that you spend a substantial amount of time doing research, which is why you have gotten sound results. Most people that dabble in trading don't bother to research long-term trends, and just start playing stocks roulette.

John Michael Kane's Datasheets: Master The Credit Game: Save & Make Money By Being Credit Savvy
Boycott these companies that hate men: King's Wiki Boycott List

Try not to become a man of success but rather to become a man of value. -Albert Einstein
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#14

Index fund investing - is it defeatism?

Digimata that is my whole point. People on this forum are willing to put the work into improving their game, their fitness, their diet, their location, etc but many of these same guys don't want to put in the work to boost their investment returns which could add huge dollars to their net worth over a 10 or 20 year time frame.

For example investor A invests $30,000 in a passive stock market index fund which ends up generating a return of 7% net (after brokerage, tax, etc) per annum compounded over the next twenty years because he does not want to put in the extra time for a small amount of money.

Investor B learns how to invest and spends time actively investing and does a good job of it. He generates a net return of 11% per annum compounded over the next 20 years. After 20 years A has $116,090 and investor B has $241,869. That is already a huge difference. Now imagine if both investors in addition to investing an initial lump sum of $30,000, invested an additional $10,000 per annum of their savings into stocks every year. The difference at the end would be staggering and would be many hundreds of thousands of dollars. Is that not worth putting in some work for? While very few individual investors over the long run can get 25%+ per annum returns, outperforming the market by a modest margin over the long-term is quite attainable.
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#15

Index fund investing - is it defeatism?

John Michael Kane I have spent a modest amount of time- I guess it depends on your definition of modest, but lets just say I am not pouring over balance sheets and cash flow statements every night - managing my portfolio (although I do a lot of general economic and business background reading). Its not like I think about my investments every week. Besides I enjoy reading annual reports and company presentations, reading investment forums, etc.

I have a very long holding period (for example my biggest position I have held since 2008 and subsequently added to without having ever sold a single share of it) and a concentrated portfolio currently 3 stocks (I do have other assets though such as real estate, etc). A combination of a very concentrated portfolio coupled with long holding periods allows me to achieve strong returns with modest time input.

Another thing I will point out is that when you invest in small cap stocks its often easy to get access to the management and directors. For example many companies with a market capitalization of $200 million or $300 million do not even have investor relations departments/employees and often the CEO, CFO or chairman is easy to get in touch with by phone or email. As long as your questions are intelligent, reasonable and well researched they often will patiently answer your questions because most smaller companies don't get too many shareholders or analysts trying to talk to management or directors so they are happy to talk to you. Smaller companies also often have less divisions/products than large companies so there is sometimes less analysis work to be done. These two factors mean that individual investors can more easily have good knowledge of small and mid cap stocks compared to larger companies.

Yes "most people" are uninformed gamblers but the point is that Rooshv forum members do not represent the general population. We are not most people, Rooshv forum members are getting more out of life than the average schmuck and so we should extend that to our investments.
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#16

Index fund investing - is it defeatism?

Quote: (07-14-2017 11:53 AM)Digimata Wrote:  

@Australia Sucks: You are making a mountain out of a molehill.

You have already hit on the main point, not everyone is willing to put in the work needed to beat the indexes. As much as I like reading 10K's and reducing portfolio vol, there are other and better things to do in life.

He's right...
This is the Voice of the General Public. Even RooshV Members.

Raising awareness for people to be the best they can be is a waste of time man. Been there done that.
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#17

Index fund investing - is it defeatism?

Australia Sucks, no brother you missed my point completely. I'm with you completely but you are only seeing the things you want to see.

My point is that others do not care or they value other things more. Intangible things that can't be valued out of spreadsheets.

Look at it this way, what is a day worth to a man who is 18 and completely healthy vs a 80 year old terminal cancer patient with 1 month to live?

You might value outperforming the index of choice by 100 basis points over a 20 year period, others couldn't care less. They just want to relax and bang hotties.
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#18

Index fund investing - is it defeatism?

Austrialia Sucks, I dont mean to be negative but I really dont agree with your position. I think the stock market is an evil thing and should be avoided where possible by workers. The stock markets only purpose is to help the rich and elite get richer. It has a negative affect on average workers. You can get all excited by your little victory, but then you could easily have lost that money you started with, and many have. Much of it will be luck.

Your view is too narrow and you are only looking at the success you have had but you do not see the large negative affect the stock market is having on society. It is like one slave saying to another "You should invest in our slave-owners, they only beat us once a day, you can make more than some other slaves". Yes, the slaves will invest in the system that keeps them down and competing against one another.

You are thinking that you have done well and outperformed an average guy who invests in index funds, but the elites are outperforming all of us by a factor of 1000s.

We talk all day long about he negative affects of global corporations, the financial systems and the elite culture. Then someone comes along and says its all good lets play the game we might make a little pocket money if we sell-out our values.

Any penny you dont put into the system is one less penny they have control over.
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#19

Index fund investing - is it defeatism?

in b4 op blows his life savings in an account
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#20

Index fund investing - is it defeatism?

OP, pls watch this documentary as it will enlighten you somewhat on the workings of the market




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#21

Index fund investing - is it defeatism?

Quote: (07-14-2017 12:33 PM)kavi Wrote:  

Austrialia Sucks, I dont mean to be negative but I really dont agree with your position. I think the stock market is an evil thing and should be avoided where possible by workers. The stock markets only purpose is to help the rich and elite get richer. It has a negative affect on average workers.
........
Your view is too narrow and you are only looking at the success you have had but you do not see the large negative affect the stock market is having on society. It is like one slave saying to another "You should invest in our slave-owners, they only beat us once a day, you can make more than some other slaves". Yes, the slaves will invest in the system that keeps them down and competing against one another.
........
We talk all day long about he negative affects of global corporations, the financial systems and the elite culture. Then someone comes along and says its all good lets play the game we might make a little pocket money if we sell-out our values.
.......
Any penny you dont put into the system is one less penny they have control over.

Thanks for your view comrade. When does the proletariat revolution begin? Fucking commie.

I kid, but bro if all you have is an opinion and a youtube link your argument is on shaky ground already brother.

Anyways, enough digressing.
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#22

Index fund investing - is it defeatism?

Kavi, yes in the grand scheme of things I am still a "pleb" so to speak and I will never become an elite, but you are not really offering a solution/alternative. Being a pleb with a net worth of $2 million dollars is still better than being a pleb with a net worth of zero. You can't change the world that much, you just have to make the most of things.

Kavi what do you do with your money? Let me guess its all it bitcoins? Or is it all in gold bars buried in a secret location in your backyard?
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#23

Index fund investing - is it defeatism?

Man, I tried to start a business. Going is tough though...
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#24

Index fund investing - is it defeatism?

Taleb himself, when interviewed on Econtalk, said indexing is kind of your 2nd or 3rd best option. No need for being a competition zealot.
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#25

Index fund investing - is it defeatism?

^and what's the best option?
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