When index investing shines (and when it doesn’t)

Discussion in 'Share Investing Strategies, Theories & Education' started by Redwing, 5th Aug, 2018.

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  1. The Falcon

    The Falcon Well-Known Member

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    That's it?

    Thats the beauty of investing, at the end of the day its your money to punt.
     
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  2. Ross Forrester

    Ross Forrester Well-Known Member

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    Yes. But I would take out a put option on all of my money invested to protect myself.

    Just evil.
     
  3. pwnitat0r

    pwnitat0r Well-Known Member

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    Sounds good in theory, but you can't buy put options over everything in the ASX.

    I guess If I was to go consult your business, you'd be purely evil and just looking to extract as much money out of me as possible? Seeing as you seem to have no ethics....
     
  4. Nodrog

    Nodrog Well-Known Member

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    Good on you for having such strong conviction in your Mgr / strategy. It means you’ll likely stick with it through good times and bad. And that’s where the vast majority fail. Plus no one can say for certain your fund Mgr won’t outperform especially if they’re smaller in FUM and not restricted to large caps.

    I regularly get told that investing in my favoured old LICs will underperform a total index approach. But don’t care as that’s what I like to invest in for dividend reliability / stability and SANF. That said I do have some exposure to index ETFs but far less than LICs.

    Measure performance against “your” benchmark, not someone else’s.
     
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  5. Cityman

    Cityman Well-Known Member

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    Totally agree - what gets me is this fascination (for most people) to spend so much time trying to beat the market, when the market historical returns and more than fine and will take them to financial freedom in the long-term.

    Most people are much better off investing basically, and spending their time and effort on themselves and increasing the $$ they can put into the basic assets then trying to concoct some sort of complicated situation for themselves or splitting hairs between instruments which are (for all intents and purposes) the same thing.

    One significant time frame of under performance can really set you back.
     
  6. pwnitat0r

    pwnitat0r Well-Known Member

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    It's actually $140.

    $1,400 would be 1.4% which would be a significant hurdle charged by most active managers regardless of performance.

    Nodrog and Cityman: there's nothing complicated about my strategy. My money is invested (personal and super) I'm saving a minimum amount each year and I will continue to invest it.

    I was just trying to share. I thought a MER of 0.14% (NOT 1.4%) would appeal to those who like index funds as one of the main reasons for index funds is the low MER. However, you're right... when you have people who run businesses advising people on tax and superannuation suggesting ethics would fly our the window in performance-only fees, it's obvious my time is better spent elsewhere. Then again, such person probably receives trailing commissions for recommending clients into certain products. If we assume they're inherently evil, we can only assume they push their clients into their products that pay the highest commissions.
     
    Last edited: 8th Aug, 2018
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  7. timetoact

    timetoact Well-Known Member

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    I have been working on a plan for the next downturn which includes a bit of both worlds.

    My value investing immediately after the GFC resulted in returns that creamed the index. I think my worst stock returned 50% in 2 years with an overall capital gain of ~300% in about 3 years.

    Since then my stock picking (apart from CSL) has been below average.

    I am starting to move my holdings to cash in preparation for the next downturn. I may miss 10-20% in gains at the peak but this is peanuts compared to the gains to be made in a major downturn, which to me seems inevitable in the next few years.

    When it eventually happens I will value invest for a few years and then shift to index funds for the balance of the cycle. Rinse and repeat. The trick is to not get greedy at the top.
     
  8. dunno

    dunno Well-Known Member

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    Hi @pwnitat0r

    MER of 0.14 is applied to the “Assets under Management” $1,000,000 x .14% = $1,400

    The numbers I present were to try and demonstrate to you that

    If you’re out performance is made up of a mixture of some managers out performing and some underperforming, the total result of the fees paid to all managers under the 0% MER + performance model will most likely be higher than a straight low MER on passive.

    You can substitute any numbers you like – but if you have a mixture of over and underperforming managers you will likely pay higher than a low-cost passive fund for equivalent overall return.

    Prove it to yourself, I challenge you to show a scenario without overall outperformance that delivers lower fees than passive. (the only way you will achieve it is if the managers have virtually index tracking returns. The more the variability the more you will pay in fees)

    0% and performance fee will be beneficial IF you only pick outperforming manager(s)

    If you want to pick active managers – I don’t have a problem with that – that’s the whole active vs passive debate and I don’t have a side.

    As an "active fee" structure, 0% MER + performance fee is not a bad proposition for the client. Its nice to see the new entrants try and disrupt and capture themselves some share of funds. I hope they are successful fund managers over the long term, not least for their investors sake. The biggest risk is the manager will not be able to sustain the fund without fees during a normal period of underperformance that all approaches incur.

    0% + performance fee cannot work for a passive fee structure because there is never any out performance, so the fund would never earn any fees.
     
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  9. willair

    willair Well-Known Member Premium Member

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    That's good to see -300%-would you mind saying which company that was..From what I read most never calculate the appropriate selling time -just watch when directors and management start to sell or buy..
    [​IMG]

    Just look at the numbers on this asx listed company -if you bought in at 19 cents plus entry costs ,and waited for the right media and brokers opinions and a history of the company's financial history then and now ..I bought in at 13-00 cents sold at about
    $1-45 plus -and still have the same number I started with -plus a win after tax profit..
     
    Last edited: 8th Aug, 2018
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  10. timetoact

    timetoact Well-Known Member

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    Most of it was thanks to MCC.
    Bought multiple parcels as low as about $2.50 from memory.
    Eventually got bought out by Peabody for $16.
    Was a great trading stock too, I traded quite a few parcels for ~10% gains in short time frame.
    They had about $300m cash (again, from memory) in the bank but the share price got slaughtered in the crash. Seemed like a no-brainer.

    But I doubled money on a whole stack, BHP, RIO, SUN.

    Plus CSL, bought 2 parcels sub $30 and a lot more over the years since. Haven't sold any and they have just hit $200.

    "Buy when there is blood in the street"
     
  11. willair

    willair Well-Known Member Premium Member

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    That's all you have to do -- is invest within your circle of competence and the cash is pouring in with mug punters ,rather then the other way around and going out quickly ..imho..
     
  12. APINDEX

    APINDEX Well-Known Member

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    Interview wth Tony @ EGP for those that may be interested.. I found it relatively interesting his belief and ideas behind the performance fee only model are interesting and with Fidelity launching zero fee funds it certainly looks like the only way for fees is down?

    The Australian Investors Podcast | Rask Finance & Rask Invest


    Even if you are the most ardent believer in active management I think all investors owe a huge debt of gratitude to St. Jack for the fee compression that is currently take place in the markets..
     
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  13. willair

    willair Well-Known Member Premium Member

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  14. Redwing

    Redwing Well-Known Member

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    I spent 7 years working in finance and managed a $1.3 billion portfolio — here are the 5 best pieces of investing advice I can give you

    • Former investment manager Chelsea Brennan was managing a $1.3 billion portfolio when she left her seven-year career in finance.
    • During her time on Wall Street and working at a hedge fund, she learned how to invest wisely.
    • She shared her best investing advice, which includes knowing your goals without assuming you have it all figured out, the importance of index funds, and being prepared for the long road ahead and worst-case scenarios.
     
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  15. Beelzebub

    Beelzebub Well-Known Member

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  16. Redwing

    Redwing Well-Known Member

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    @timetoact this was back in 2018, but Coronavirus definitely tripped the market up in Feb/March 2020