Newbie Guide: How to Find a Good Agent for Investment & Insurance?

[Rommie2k6]

1) Money market is cash equivalent... cash have no place in a portfolio.

when we talk about portfolio management, we do it in its entirety aka looking at all the different assest classes. Your protection assest (aka Term or WL) is considered part of portfolio. It is not just your investment tools that is your portfolio

Cash equivalents are for emergency fund not investment portfolio. Unless you are a retiree with a 80% bond portfolio then maybe 10-20% cash is warranted.

2) Fixed income is the bond fund... did you miss it?

Read below

3) Real estate in the form of REITs... yes it has been shown that it is a good class to diversify. However, I would not consider it a "core" asset class... something good to have but not necessary. This is why I left it out.

Real Estate may not be just in the form of REITs but also in a real assest form of physical real estate, resulting in passive income. Why leave it out when it serves to augment the portfolio?

Because the typical person does not have enough money to hold real physical property in a portfolio. Given a small condo can be worth 500k and a 10% allocation to REIT/property, this means that the net worth the investor must be 5 MIL. For those with only 500k, investing all the money in property is stupid because of the lack of diversification.

4) Gold/commodities is a grey area. First, there are conflicting studies on whether or not such asset class makes a good diversifier. Traditionally, they have had low correlation with other asset class, but in recent years that has not been the case due to speculators driving the commodity market. Secondly, the contango problems has made it impossible to invest in this asset class properly, because spot price cannot be tracked well. If you are familar with such things, then you will understand. Thus, I am ambivalent to this asset.

With the gold rush in the last 3-5 years, I agree with you that gold is rather speculative rather than a real demand. However as a real assest, Gold will serve to be a good asset class in the long run, since we are talking about a long-term portfolio, aren't we?[/quote]

If you want to talk about gold, one thing that we can conclude is that the role gold plays in many studies is that it smooths the long-term volatility but does not significant improve long-term expected performance. Gold has close to zero real return. That is why I said it is not essential. Good to have but not necessary, since with long time horizon, portfolio volatility is less of a concern.

6) I am ambivalent to global bonds because there is the FX risk. The purpose of bonds is steady returns, why take on additional FX risk? We are not sure if the interest premium of global bonds will pay off in the long term vs local bonds. Again, it is a "good to have" but not a "core" asset class.
7) Emerging and High-Yield bonds, also known as junk bonds to me have no place in asset allocation. They may have higher yields but have equity like performance. So they are neither behave like normal bonds or stocks... not here nor there. What purpose would they serve in a portfolio?

Well your emerging bonds in recent years have seen a similar defaut risk as your investment grade bonds but however giving a much better yield due to the increased stability which shows my point that investment is something that continually evolves and needs adaptation.

You will need to cite your evidence that junk bonds have the same default risk as investment grade bonds. The very definition of junk bonds is INCREASED default risk.

Why is there no academic research to show for it now is because academics are often behind the curve. Why I have no sure-fire way to prove what I say. History has shown time and again that academic research is not the Gospel truth.

Again your strawman attack on the self-correcting nature of research. I won't entertain you any further.

If passive investing is the BEST method, then why the continual debate about it versus active investing in the academic front as well? Reason is that THERE IS ALSO NO CONCLUSIVE EVIDENCE TO PROVE that one is more superior than the other.

If given a fact that one with LITTLE TIME, inability to digest vast information, YES then I agree with you that by investing into index funds is probably a much better choice. It gives you the BEST average returns BUT that doesn't mean active investing is inferior.

Continued debate in the finance industry is because they have a vested interest to charge high management fee for a non-existent value-added service of beating the market. Continued research in the academic front is to expand the horizons of knowledge, maybe one day there will be method that can beat the method but IT DOES NOT EXIST today. The burden of proof is on active investors to provide a methodology and show that it works at a statistically significant level.

As you have admitted as well, there ARE funds/people/managers who CONSISTENTLY BEAT the index OVER AN EXTENDED TIME. You are merely in your comfort zone because you FEEL SINCE THERE IS NO CONCLUSIVE EVIDENCE/PROOF, I shall stick to index. Pretty much of your kiasee mentality as well? No?

Personal attacks are boring, shows your emptyness. It is not a feeling that there is no conclusive evidence/proof, IT IS A FACT. Coin toss is always a good investment analogy. If a predict coin tosses correctly 1000X in a row, am I lucky or skillful?

 

[LancelotDuLac]

Again your strawman attack on the self-correcting nature of research. I won't entertain you any further.


Continued debate in the finance industry is because they have a vested interest to charge high management fee for a non-existent value-added service of beating the market. Continued research in the academic front is to expand the horizons of knowledge, maybe one day there will be method that can beat the method but IT DOES NOT EXIST today. The burden of proof is on active investors to provide a methodology and show that it works at a statistically significant level.


Personal attacks are boring, shows your emptyness. It is not a feeling that there is no conclusive evidence/proof, IT IS A FACT. Coin toss is always a good investment analogy. If a predict coin tosses correctly 1000X in a row, am I lucky or skillful?

Again you avoid my direct question It is an ESTABLISHED FACT that ACADEMIC RESEARCH is based by using AVERAGES for their hypothesis testing. No academic conclusion is done based on comparision with the upper tail distribution aka top 5% because like you have spouted time and again, the academics dismiss the fact of LONG-TERM better performance than market as irrelevant due to inability of being able to decide whether it is luck or skill. It's again a human mental block problem.

It is not just a debate in the financial industry but at the academic front as well, with your keen interest in this topic, do you not examine both sides of the coin?

The burden of proof is on active investors to provide a methodology and show that it works at a statistically significant level

The point is as perfectly illustrated above in my top post, since you seem to have a keen interest in the debate on active vs passive investing. Academic research works on your average statistics as pointed out Sooooooo many times. Why do you elude this very REAL FACT as well.

If outperformance can be achieved at a significant statistical level, then it means your average JOE can do it? The discussion here is not about whether your average JOE can achieve out-performance through active management but WHETHER ACTIVE MANAGEMENT CAN OUT-PERFORM PASSIVE INVESTING.

The point about active management is that it is not just a pure science but also an art at the same time. You ask for a particular methodology whic works at a statistical level- Investment is dynamic, it changes, the only constant is change.

Like research done on "gut feeling", science has proved that it is behavourial patterns that is so strongly ingrained in you that it becomes your subconcious but as to how to conclusively prove how to do it, there is no way to do it. Not everything is hard science my dear friend.

As with academic research, it is based on parameters of assumptions to achive a conclusion. But when it is applied in the real world, due to complexities and lack of a perfect scenario, the academic research fails in some aspect. From the way you write, you seem like a smart enough fella to comprehend such simple academics.

Which is why I say, be open about alternative viewpoints and loosen up. How you speak and retort will result in how others reciprocate. There is no need to resort to dissing and slamming, just present your viewpoints as a counter-reason.

 

[LancelotDuLac]

Actually, the best thing to do in investments about exotic products is to dismiss them. Why? Cause the common person will not have time to do his own research, and if it is really that good, sooner or latter it will be validated by the academic community.

Your first posts was pretty OK, but I am afraid the latter posts have degenerated in a bunch of strawman attacks and the fallacies of being "open-minded". You seem to have a problem about the studies done on investment, but you resort to hand waving arguments without addressing anything specific.



Actually, times change but many things in investment still remain the same. The 1980s were a period of high inflation with local stocks returning double digit annualized returns. If you compare the real returns (that account for inflation), you will find that FD and SG stocks will yield around the same real returns in the 1980s and today.

http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN005221.pdf

You often quote others saying what they say are rubbish. Since I'm free these 2 weeks, I can afford to spend some time to point out your untruths as well.

Read Page 16 and see that the average inflation in 1980s were no much different than what we see today.

 

[LancelotDuLac]

It is conclusive research. The majority of journal papers out there share this alleged "opinion". Of course stuff like Modern Portfolio Theory is at best a theory and so they are not cast in stone like the Laws of Thermodynamics. Still, I would rather take financial theory established from 20+ years of research than to believe in some book that some dude wrote. Your strawman attack on the interpretation of statistics is irrelevant. If you want to make a point that their interpretation of the results is wrong, address it specifically. Bring up specific examples to discuss.



The coin toss analogy is appropriate. Your analogy is downright misleading. Scoring As in an exam is not a zero sum game. Trying to actively beat the market is a zero sum game. There is really not much value "fund managers" can add to managing investments, but of course the entire of Wall Street would like you to think otherwise (if not they'll be out of jobs). Active investments can never win because the market is efficient. Now if you don't believe in the Efficient Market Hypothesis then so be it, we have nothing to discuss.

Let's see based on some simple details I remember. 90-95% of fund managers underperform the index. Of those 5-10% of fund managers than do outperform, none of them retain their stellar ranking in the next consecutive few years. Even the great Buffet underperformed the index at one point in time.



Backtesting... big deal. Have you mixed up correlation with causation? If my mood is perfectly correlated with stock market movements, does that means that I can use it to predict future movements? Backtesting is easy... one can always come up with a strategy/formula that can fit past data, but such models fail miserably in predicting future data.

And yes, the 5% are most likely to be lucky. There is no skill involved here (my opinion), or to take a more neutral stand it cannot be determined as of yet if there is indeed skill involved here. At least none that we can conclusively prove. Yet.



Erm... ya... right. And it snows in Singapore too... If you want to overturn the current sentiments in financial research, you'll have to do much more than hide behind your book. No offense, but are the contents in that book even verified or peer reviewed?

EDIT: I can't help but poke fun at your 30% compounded annual returns claim. I'm sorry that's like so obviously crap that one must be sleeping to even believe it. Assuming you are 30 years old and retire at 60. For the next 30 years you RSP $500/mth into this guru-trading strategy with 30% compounded annual returns. By retirement you will have $145 MILLION dollars!

With reference to your coin toss analogy, with reference to the way you speak- it's total BULL****. You are comparing investments which has various parameters of information versus a simple coin toss which a dear gentleman previously had talked, which saves me alot of typing.

This is not conclusive. Research shows that a majority of funds underperform the market, and yes that's a fact. However, the interpretation of the statistics (that outperformance is due to luck) is an opinion, and we all know the famous quote about damned lies and statistics.

The key thing is, you can't just compare aggregate performances, without looking into the qualitative aspects of why these people and funds are under/outperforming the market. The coin toss analogy is inappropriate; there's so much more analysis to investing, and so much more to the markets whereas a coin toss is purely random. There are people who get As in every module, whereas statistically you have a 90% chance of not getting A. Are they simply lucky? Of course not; generally they study harder/smarter, or are just more intelligent. Likewise, there are qualitative differences between the well-performing fund managers/investors and the poor ones. To just take aggregate figures and make sweeping statements without qualitative analysis is poor usage of statistics (though it might work pretty well depending on the agenda of the author).

Now I'd like to reiterate that I agree that laymen are probably better off with passive funds, but those who are willing to and able to learn, will find that active investing can be rewarding.

Part of trading research is backtesting, and even a simple dual moving average crossover system can have >30% compounded returns over many years. There are many systems that work, but, as you probably know, >90% of day traders lose money. Are the successful 5% or so of them purely lucky? Not if they exhibit common traits and characteristics, such as discipline, comprehensive system with an edge, good trader psychology, constantly researching to make the system better, etc. At the same time, the losers exhibit common qualitative traits too, and one can logically see why these people lose money. It's the same thing as the A students compared to the B and C students. Luck can be a factor, but it isn't the only factor.

To be honest, I used to be a strong believer of passive-only investing too. But having read and considered both sides of the active vs passive debate, to me it's very clearcut that you can beat the market. I recommend the market wizard series, 'Way of the Turtle' by Curtis Faith, and Van Tharp's books. Check them out, and you might find yourself changing your perspective on this issue.

With reference to EMH, there are oppossing academic viewpoints on it as well.

With reference to the great Warren Buffet, so what if he underperformed the index at 1 point? Over a long run basis, he still beat the market, didn't he?

And as agreed by you as well, he is not the only one who is doing it albeit those who are out-performing are in the minority probably 5-10%, at best up to 20%

 

[HandsTied]

How Derren Brown flipped heads in 10 consecutive coin tosses, and helped someone win at the horses 5 times in a row.

Part 1:

It's worth watching all the parts, but for those impatient, the answer lies here in Part 5:

 

[Rommie2k6]

That's my point, you simply dismiss a new concept because
1) it's new
2) no academic research done on it

Hence it's deemed as useless? Doesn't your kiasee mentality reflect here as well?

Yes, it is useless. I have a perfectly fine working washing machine (index fund) and you are trying to sell me some new device that nobody has seen before (your exotic products), which is not patented, not certified and nobody is willing to vouch that it works... except you the salesman. Which one do you think I will pick?

 

[Rommie2k6]

Open sharing without prejudice is how one improves.
New financial literature is being researched on continously, which is why i bring forward my points of keeping an open mind.

In case you are wondering, I do not dismiss passive investing as inferior to active investing but I just cannot stand the fact that you advocate PASSIVE investing as the BEST/SUPERIOR method because academic conclusions have no clear verdict as well. (since you seem to be a great believer in academic conclusions)

At the current state of knowledge, passive/index investing IS THE BEST option out there, by virtue of two simple facts (a) that most active funds will underperform especially with increasing time and (b) we cannot pick the winning active fund. New literature is being published every day, but we haven't come to the state where can can conclusively say that any method is better than index investing on a statistically significant level.

If you know of anyone, cite your evidence. If not, shut up.

 

[Rommie2k6]

Thanks for affirming the fact that there are funds that outperforms for a 20-30 year period, again illustrating my point of the EXISTENCE of out-performance in the long run. I thought a Singapore related topic would be easier for the general readers to digest.

Throwing the ball to your court of strawman arguements, evidence of investment gurus losing to the market since the 1950s? I'm pretty confused by your rock-and-fro now. So it's all losers? But then again you admitted there were out-performers? Hmm, so interesting.

You are either a retard or pushing your products. Personally, I think it is both. Yes, about 1-5%(MAX) of a single fund will outperform the index over the long-term.

So I ask you: HOW DO YOU KNOW WHICH ONE WILL OUTPERFORM WHEN YOU MAKE THE SELECTION IN YEAR 1??? You cannot... nobody and no technique has shown that such a selection is possible.

And to your 2nd para, if you cannot figure out simple maths like 5% outperform and the remaining 95% underperforming then seriously I wonder what kind of idiots banks are hiring now.

There are always winners and losers be it in anything in life. Winners are few and losers are many.

You can choose to be average or better than average
You can choose to be top
You can choose to be well loser?

Why are the top the top? It is proven that the top people do not get there by luck. This applies to everything in life, be it in investment, work, studies etc......

What a bunch of BS. Logical fallacies and truism. In investment, skill and luck cannot be easily differentiated. That's an ESTABLISHED FACT. Your handwaving arguments on what applies to life DOES NOT APPLY HERE.

 

[Rommie2k6]

Again you avoid my direct question It is an ESTABLISHED FACT that ACADEMIC RESEARCH is based by using AVERAGES for their hypothesis testing. No academic conclusion is done based on comparision with the upper tail distribution aka top 5% because like you have spouted time and again, the academics dismiss the fact of LONG-TERM better performance than market as irrelevant due to inability of being able to decide whether it is luck or skill. It's again a human mental block problem.

It is not just a debate in the financial industry but at the academic front as well, with your keen interest in this topic, do you not examine both sides of the coin?

So you claim that most of the research does not go deep into the upper tail distribution. That is true. But I do not see anything wrong with that... and it does not invalidate my prior points that index fund are still the best options out there.

What makes you think that your exotic products will belong to that upper tail? If you think you are so smart, go do your own research on the upper tail performers and try to find the common property that makes them upper tail performers.

The burden of proof is on active investors to provide a methodology and show that it works at a statistically significant level

The point is as perfectly illustrated above in my top post, since you seem to have a keen interest in the debate on active vs passive investing. Academic research works on your average statistics as pointed out Sooooooo many times. Why do you elude this very REAL FACT as well.

If outperformance can be achieved at a significant statistical level, then it means your average JOE can do it? The discussion here is not about whether your average JOE can achieve out-performance through active management but WHETHER ACTIVE MANAGEMENT CAN OUT-PERFORM PASSIVE INVESTING.

Because your stupid point on averages is totally irrelevant to the validity of my arguments. See the above reply.

In case you haven't realized this thread is targeted to retail investors, people who have better things to do in life. For them index fund is the BEST option.

But again to answer your point in RED. Yes, active management can outperform passive investing. By the laws of probability, there will always be somebody who will win the index. BUT, the probability of doing so drops to 0% as we increase the time horizon to infinity (it reaches about 1-5% at 30 years). In other words, it is damn bloody unlikely that active management can outperform passive investing for one who investing for retirement. AND, even if it does, we have no way to pick the manager who will outperform. Henceforth, the typical retail investor who picks active management will 99% underperform an investor who picks retail funds.

The point about active management is that it is not just a pure science but also an art at the same time. You ask for a particular methodology whic works at a statistical level- Investment is dynamic, it changes, the only constant is change.

Like research done on "gut feeling", science has proved that it is behavourial patterns that is so strongly ingrained in you that it becomes your subconcious but as to how to conclusively prove how to do it, there is no way to do it. Not everything is hard science my dear friend.

As with academic research, it is based on parameters of assumptions to achive a conclusion. But when it is applied in the real world, due to complexities and lack of a perfect scenario, the academic research fails in some aspect. From the way you write, you seem like a smart enough fella to comprehend such simple academics.

Which is why I say, be open about alternative viewpoints and loosen up. How you speak and retort will result in how others reciprocate. There is no need to resort to dissing and slamming, just present your viewpoints as a counter-reason.

Since you cannot go against 5 decades of academic research in economics, you decide to hand wave it out because not everything is hard science. PATHETIC.

If you want alternative viewpoints, you have to PROVIDE CREDIBLE POINTS NOT CRAPPY STORIES. Nobody will take you seriously with your kind of pathetic arguments.

 

[Rommie2k6]

With reference to your coin toss analogy, with reference to the way you speak- it's total BULL****. You are comparing investments which has various parameters of information versus a simple coin toss which a dear gentleman previously had talked, which saves me alot of typing.

Actually the coin toss analogy is a very good one for the stock market. It was meant to illustrate the difficulty in differentiating skill from luck. Obviously people like you just refuse to learn.

With reference to EMH, there are oppossing academic viewpoints on it as well.

With reference to the great Warren Buffet, so what if he underperformed the index at 1 point? Over a long run basis, he still beat the market, didn't he?

And as agreed by you as well, he is not the only one who is doing it albeit those who are out-performing are in the minority probably 5-10%, at best up to 20%

Yes, it is true that EMH comes in many flavors and there is some debate still ongoing. However, the performance of index funds being superior to active management has arguments in both a 100% EMH market and 0% EMH market. Go read the post about this before commenting, it was targeting one of the FSM crappy article.

I would say outperformers are 5% MAX, which is backed up by academic research. Buffet also recommends index fund for the retail investor, I don't know why active management fanatics like you always want to quote Buffet and shoot yourself in the foot.

 

[Rommie2k6]

http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN005221.pdf

You often quote others saying what they say are rubbish. Since I'm free these 2 weeks, I can afford to spend some time to point out your untruths as well.

Read Page 16 and see that the average inflation in 1980s were no much different than what we see today.

Ok maybe I got the time period wrong, it should have been the 1970s?

Since you are so free, why don't you check? Pull out the data of MSCI Singapore Index with dividends reinvested and calculate the returns for the 1970s (high inflation) to the 1990s (low inflation). I'm quite sure the 1970s stock market return would be higher than the 1990s. Unfortunately for FD we have no data, because the SGS website only goes back to 1988.

EDIT: I did the FD vs Inflation rate for you. I used the 3-mth T-Bill as a proxy for FD rates. Surprisingly the correlation with Singapore CPI rate is not good. But then I remembered that our interest rates is tied to the US (explaining why we are getting sky high inflation today but screwed up FD rates. To my surprise our interest rates track US inflation better... LOL).

Source for Singapore 3-mth T-Bill was from SGS website.
Source for Singapore CPI data was from: http://www.singstat.gov.sg/stats/themes/economy/hist/cpi.html
Source for US CPI data was from: ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

Results shown below:

 

[LancelotDuLac]

Yes, it is useless. I have a perfectly fine working washing machine (index fund) and you are trying to sell me some new device that nobody has seen before (your exotic products), which is not patented, not certified and nobody is willing to vouch that it works... except you the salesman. Which one do you think I will pick?

Did I promote those products to be better? Read through all that I've posted and any half-decent/ neutral fella can see I do not advocate anything at all. I keep an open mind so that I am never entrenched in a particular fixed mindset.

The problem with you Rommie2k6 is that you have

1) a mental block that every person who is working in the finance sector and writes here contrary to your views has a hidden/vested agenda

2) because you are so entrenched in your mindset, a crippling fear overcomes you because of current academic findings are not able to show in a scientific/methodological manner of how to achieve over-performance by those performers.

Why i even bothered to come in to spend time to talk about this is because you propangate a half-truth that investing is easy and doesn't take much time which is not really all that true.

Index-investing method gives I guess better than average returns relative to the majority (70-80%?) of the investors because the problem is that retail investors are

1) dumb about investments in the first place (they buy without even understanding how it works, or based on hearsay)
2) they didn't spend time to understand what they invest in
3) lack of discipline (sentimental buying and panic selling)

And as echoed by you, for the retail investor who HAS LITTLE TIME, NO INTEREST IN LEARNING MORE, index investing is better off for them because they suffer from less cost and prob better than average returns in the long run. (I never disagree? I believe I posted same sentiments about it)

But as pointed out in these last 20-odds posts, a serious investor's effort and time spent is way more than just little.

And talking about academics, most of us with decent brains would acknowledge that not everything is hard science.

Investment does contain an element of art in it, which is why you have differing level of expertise and performance because if it was so straight forward you would have majority out-performing.

Out-performance by periods of 20-30 years is by luck? I seriously doubt so, its because the academics are unable to prove like what you say in a methodical and statistical manner hence the "waving hands" that it is by luck.

 

[LancelotDuLac]

Actually the coin toss analogy is a very good one for the stock market. It was meant to illustrate the difficulty in differentiating skill from luck. Obviously people like you just refuse to learn.

Yes, it is true that EMH comes in many flavors and there is some debate still ongoing. However, the performance of index funds being superior to active management has arguments in both a 100% EMH market and 0% EMH market. Go read the post about this before commenting, it was targeting one of the FSM crappy article.

I would say outperformers are 5% MAX, which is backed up by academic research. Buffet also recommends index fund for the retail investor, I don't know why active management fanatics like you always want to quote Buffet and shoot yourself in the foot.

Let me give you a much better analogy than your simplistic coin toss,
Using Weiqi or Japanese GO (market), a supercomputer (passive investing) would beat majority of players but yet would lose to a minority of top players (active management).

Theoretically, the supercomputer should be beating everyone due to
a) input of alogrithims and permutations hence by right it knows every possible outcome

Yet due to the complexity of the game (just like the market, highly complex), top players are able to beat it regularly (refers to beating the index on a frequent basis).

So do the top players do it by skill or luck?

Likewise if active managed funds have been out-performing by an extended period, you claim it is still by luck?

With also reference to what you say about Modern Portfolio Theory (which happens to be a Nobel prize winning theory) about being a theory and not cast in stone, the same goes for EMH and passive investing. Until there is a CONCLUSIVE verdict, neither you or me can say one way is better than the other.

A growing conclusion in the academic front is the influence and impact of behavorial finance science in investment which indirectly implicates that one can beat the market due to irrational behaviour.

As to Warren Buffet, He has also argued against EMH, saying the preponderance of value investors among the world's best money managers rebuts the claim of EMH proponents that luck is the reason some investors appear more successful than others.

The reason he endorsed passive investing (as provided by you) is in my guess that if a retail investor (lack of proper background, time and analytical ability) would be better off but he did not endorse passive investing.

Hence the great debate goes on and on....... I ain't a active management fanatic, I think both sides of the coin has it's own merits but to enshrine that passive investing in THE ONLY WAY TO GO and dismiss alternative methods is BULL****

 

[LancelotDuLac]

So you claim that most of the research does not go deep into the upper tail distribution. That is true. But I do not see anything wrong with that... and it does not invalidate my prior points that index fund are still the best options out there.

What makes you think that your exotic products will belong to that upper tail? If you think you are so smart, go do your own research on the upper tail performers and try to find the common property that makes them upper tail performers.

Because your stupid point on averages is totally irrelevant to the validity of my arguments. See the above reply.

In case you haven't realized this thread is targeted to retail investors, people who have better things to do in life. For them index fund is the BEST option.
But again to answer your point in RED. Yes, active management can outperform passive investing. By the laws of probability, there will always be somebody who will win the index. BUT, the probability of doing so drops to 0% as we increase the time horizon to infinity (it reaches about 1-5% at 30 years). In other words, it is damn bloody unlikely that active management can outperform passive investing for one who investing for retirement. AND, even if it does, we have no way to pick the manager who will outperform. Henceforth, the typical retail investor who picks active management will 99% underperform an investor who picks retail funds.



Since you cannot go against 5 decades of academic research in economics, you decide to hand wave it out because not everything is hard science. PATHETIC.

If you want alternative viewpoints, you have to PROVIDE CREDIBLE POINTS NOT CRAPPY STORIES. Nobody will take you seriously with your kind of pathetic arguments.

While I would love to do up a thesis on that topic as I love finance alot, however I am not paid for it and I do still need to make a living and feed my family. The academic society is always more concerned with thesis and theory that work for the majority but few are unwillingly to delve into a highly concentrated topic due to the lack of funding and interest and higher complexity.

If you are talking about the man-in-the-street who has little time or lack of interest to learn more and DOING IT ON THIER OWN and only access to your traditonal products, then I would agree with you that index investing is a better option for this group of people on a general basis.

But by dismissing the fact that REAL finance professionals are unable to add value to a retail investor for out-performance is a narrow view point.

If it was up to me, I would very much prefer this industry to be a consultation fee-based system which would weed out the unethical and lack-of-brains people.

 

[Rommie2k6]

Did I promote those products to be better? Read through all that I've posted and any half-decent/ neutral fella can see I do not advocate anything at all. I keep an open mind so that I am never entrenched in a particular fixed mindset.

The problem with you Rommie2k6 is that you have

1) a mental block that every person who is working in the finance sector and writes here contrary to your views has a hidden/vested agenda

2) because you are so entrenched in your mindset, a crippling fear overcomes you because of current academic findings are not able to show in a scientific/methodological manner of how to achieve over-performance by those performers.

You can't with the argument with reason so you attack me as a person (see: Ad hominem).

Why i even bothered to come in to spend time to talk about this is because you propangate a half-truth that investing is easy and doesn't take much time which is not really all that true.

You have yet to show a single valid point to substantiate your claim. IF you have, show it. I have already listed down in some detail the steps need to construct and maintain a portfolio. It does NOT requires alot of time (except maybe a few more hours at the start to setup the system).

But as pointed out in these last 20-odds posts, a serious investor's effort and time spent is way more than just little.

Define serious investor. Full time investor? This post is not targeted at full time investor but people with other jobs. And even for full time investor like a fund manager, they (most of the time) cannot win the market.

And talking about academics, most of us with decent brains would acknowledge that not everything is hard science.

Investment does contain an element of art in it, which is why you have differing level of expertise and performance because if it was so straight forward you would have majority out-performing.

Easy to talk... where's your proof? Since we are focusing on investing limit your discussion to here. Since when has index investing (which is based on solid research) failed? I do not know of any incidents... do you?

Out-performance by periods of 20-30 years is by luck? I seriously doubt so, its because the academics are unable to prove like what you say in a methodical and statistical manner hence the "waving hands" that it is by luck.

You don't get it do you? I don't give a crap about what YOU think. I don't give a crap about what I think too. The only things that matter is what are the established facts? And the fact is outperformance over a long time horizon cannot be conclusively attributed to skill solely... it is not distinguishable from the luck component.

And your last statement shows your lack of understanding. Research has never said "it's due to luck only", the point is "we cannot tell conclusively whether it is due to luck or skill". There IS a difference. If you can't catch it then too bad.

 

[Rommie2k6]

While I would love to do up a thesis on that topic as I love finance alot, however I am not paid for it and I do still need to make a living and feed my family. The academic society is always more concerned with thesis and theory that work for the majority but few are unwillingly to delve into a highly concentrated topic due to the lack of funding and interest and higher complexity.

Yeah yeah whatever... when pushed to the wall, you have nothing to back up your statements.

If you are talking about the man-in-the-street who has little time or lack of interest to learn more and DOING IT ON THIER OWN and only access to your traditonal products, then I would agree with you that index investing is a better option for this group of people on a general basis.

Ok, fair enough let's not dwell on this any longer.

But by dismissing the fact that REAL finance professionals are unable to add value to a retail investor for out-performance is a narrow view point.

Really... then explain why 95% of fund managers who are supposed to "add value" cannot win the market over a long 20-30 year time horizon? It seems that for REAL finance professionals only 5% of them can SEEMINGLY add-value. But how do I know which finance professional is going to be "the one"

Deja vu... I've said this before. It's obviously that you are not reading my responses.

 

[Rommie2k6]

Likewise if active managed funds have been out-performing by an extended period, you claim it is still by luck?

With also reference to what you say about Modern Portfolio Theory (which happens to be a Nobel prize winning theory) about being a theory and not cast in stone, the same goes for EMH and passive investing. Until there is a CONCLUSIVE verdict, neither you or me can say one way is better than the other.

First, your analogy is bad. In those games, everyone is actively managing because they have to play a game and make the next move. Passive managing in those context would be not making any move and letting "market response" guide you (unfortunately there are no market response in such games). In investing, passive management just tracks the index (i.e. the "market response"). It doesn't need to "think" on how to make the next move.

Secondly, stick to the facts. The conclusive verdict is that passive investing wins active investing in the majority (we are talking >95%) for the timeframe of a normal working person. YES, I can say it is better. And there were studies done on rolling periods of 20 years (I think) of top fund managers, most of which (about 90%) are no longer top fund managers in the next year, showing that their outperformance is not consistent (i.e. by pure skill or mostly skill).

So let's say for the sake of illustration 10% of fund managers will outperform the index over a 20-yr period and out of these 10%, only another 10% will remain top performers in the subsequent year... this means that 0.1 x 0.1 = 0.01 or 1% of the fund manager has arguably outperformed the market by skill and not luck (to a very rough approximation). So, if my portfolio contains 4 funds like in my example, I need to find 4 fund managers who are in this 1% category. The odds of finding these 4 skillful fund managers would be 0.000001%. I don't think the number of unit trust in Singapore is sufficiently large that you will sample all 4 skillful fund managers. LOL!

A growing conclusion in the academic front is the influence and impact of behavorial finance science in investment which indirectly implicates that one can beat the market due to irrational behaviour.

Really? Where is this growing front? What is the consensus of this amongst the community? Show me evidence. I don't care about your opinions.

As to Warren Buffet, He has also argued against EMH, saying the preponderance of value investors among the world's best money managers rebuts the claim of EMH proponents that luck is the reason some investors appear more successful than others.

So because a few famous or successful people say they don't believe in EMH makes it untrue? What kind of logic is this? It's obvious you have no education in science (which worries me since this is the kind of people that the bank employs - oops sorry for the digression). Yes, we know that EMH is problematic. But we don't have a framework to replace it yet.

EMH is just like Newton's laws. We know there are problems with it (e.g. at very high velocity), but we know in the majority of cases in real life application IT WORKS. Then it was replaced with Einstein's relativity. BUT Einstein's special relativity does not make Newton's law "wrong", it just simply shows you clearly the regime when Newton's law will not make proper predictions.

If you have a problem with EMH, then you have to propose a revised/new framework that is consistent with the predictions of EMH and the predictions that EMH are having problem with. Nobody has done this to my knowledge.

The reason he endorsed passive investing (as provided by you) is in my guess that if a retail investor (lack of proper background, time and analytical ability) would be better off but he did not endorse passive investing.

Yes, he did for retail investors.

Hence the great debate goes on and on....... I ain't a active management fanatic, I think both sides of the coin has it's own merits but to enshrine that passive investing in THE ONLY WAY TO GO and dismiss alternative methods is BULL****

The debate is closed long time ago. As before, YOU HAVE YET TO SHOW ANY CREDIBLE ALTERNATE APPROACHES TO INDEX INVESTING. You don't even have a name of the strategy/methodology that you think would outperform index investing, much less the evidence to back it up. Unless you are arguing that one day in the future, there will be an active management technique that consistently beats the index over the long term, then yes I agree with you it may be possible. However, as of TODAY, there is no such technique, and discussion on future possibilities is quite pointless because we are here to learn how does one invest for retirement using the available instruments we have today.

I think this is probably one of the most empty discussions I had on this forum. At least, some of the others provided more substantive points.

 

[LancelotDuLac]

Really? Where is this growing front? What is the consensus of this amongst the community? Show me evidence. I don't care about your opinions.

So because a few famous or successful people say they don't believe in EMH makes it untrue? What kind of logic is this? It's obvious you have no education in science (which worries me since this is the kind of people that the bank employs - oops sorry for the digression). Yes, we know that EMH is problematic. But we don't have a framework to replace it yet.

EMH is just like Newton's laws. We know there are problems with it (e.g. at very high velocity), but we know in the majority of cases in real life application IT WORKS. Then it was replaced with Einstein's relativity. BUT Einstein's special relativity does not make Newton's law "wrong", it just simply shows you clearly the regime when Newton's law will not make proper predictions.

If you have a problem with EMH, then you have to propose a revised/new framework that is consistent with the predictions of EMH and the predictions that EMH are having problem with. Nobody has done this to my knowledge.



Yes, he did for retail investors.



The debate is closed long time ago. As before, YOU HAVE YET TO SHOW ANY CREDIBLE ALTERNATE APPROACHES TO INDEX INVESTING. You don't even have a name of the strategy/methodology that you think would outperform index investing, much less the evidence to back it up. Unless you are arguing that one day in the future, there will be an active management technique that consistently beats the index over the long term, then yes I agree with you it may be possible. However, as of TODAY, there is no such technique, and discussion on future possibilities is quite pointless because we are here to learn how does one invest for retirement using the available instruments we have today.

I think this is probably one of the most empty discussions I had on this forum. At least, some of the others provided more substantive points.

http://en.wikipedia.org/wiki/Efficient-market_hypothesis

Please do read in its entirety, there are more in the summary.

A nice summary of what EMH is about and counter-criticism of it.
Includes something by Mr Warren Buffet.

A key work on random walk was done in the late 1980s by Profs. Andrew Lo and Craig MacKinlay; they effectively argue that a random walk does not exist, nor ever has. Their paper took almost two years to be accepted by academia and in 1999 they published "A Non-random Walk Down Wall St." which collects their research papers on the topic up to that time.

Warren Buffet has also argued against EMH, saying the preponderance of value investors among the world's best money managers rebuts the claim of EMH proponents that luck is the reason some investors appear more successful than others

Due to conventional wisdom or self-correcting nature as you like to point out, it is hard for the standing thoughts to be replaced.

Which has always been my intial points about
1) being open minded
2) Discernment
3) Investment is ever-changing
4) Flaws of academic works

Your favorite quote of plse show me of a standard methodical systematic method- well there isn't because for the very simple fact that investment is not a pure science. It is taking into account of available information and analysing it and making the most informed decision. And the truth is not everyone has the same amount of information.

or how do I pick the correct fund/advisor? - Well which is why investing is more than just simple. Research and analysis, as with portfolio management ideology-> Instead of pure passive or pure active, a hybrid manner can also be established till you can be more assured of that particular fund and advisor works?

And like you echo before, today's winner could be tmr's losers. Hence it is a continual effort which refutes your point that investment is easy as ABC.

 

[Cashcow]

Just let ts be happy.

Let him win the silly argument that he is ALWAYS right and we are WRONG.

 

[Rommie2k6]

A nice summary of what EMH is about and counter-criticism of it.
Includes something by Mr Warren Buffet.

A key work on random walk was done in the late 1980s by Profs. Andrew Lo and Craig MacKinlay; they effectively argue that a random walk does not exist, nor ever has. Their paper took almost two years to be accepted by academia and in 1999 they published "A Non-random Walk Down Wall St." which collects their research papers on the topic up to that time.

Warren Buffet has also argued against EMH, saying the preponderance of value investors among the world's best money managers rebuts the claim of EMH proponents that luck is the reason some investors appear more successful than others

Stop cherry picking your data and read the proper summary:

There are three major versions of the hypothesis: "weak", "semi-strong", and "strong". Weak EMH claims that prices on traded assets (e.g., stocks, bonds, or property) already reflect all past publicly available information. Semi-strong EMH claims both that prices reflect all publicly available information and that prices instantly change to reflect new public information. Strong EMH additionally claims that prices instantly reflect even hidden or "insider" information. There is evidence for and against the weak and semi-strong EMHs, while there is powerful evidence against strong EMH.

EMH has its problems/limitations yes, but nobody has found a better model to displace it, and just because there are problems doesn't mean that it is completely wrong and should be thrown out of the window. So please clarify which version of EMH you are disputing? As to the non-random walk publication, have you read the book yet? Which form of EMH were they disputing? I have not read it so I cannot comment. And bear in mind that a published journal/book is not sufficient to justify consensus amongst the experts. Neither is a quote from Buffet, he didn't even mention which version of EMH he was talking about. But again this is all irrelevant, since it has not much effect on choosing index investing over active.

And again, we are back to index investing. I have already shown you earlier that it doesn't really matter whether EMH is correct or semi-correct. Index funds are still the best option in either scenario. In a strong EMH environment, it is impossible for active management to win. In a weak EMH environment, one must be skillful enough to win the market, and the article I have provided much earlier calculates it to be around 30%. This means that 70% must lose. Also bear in mind this is before taxes, fees and commissions, which would be much higher in an actively managed portfolio. At the end of the day, even if you outperform the market by +1% and the fees/commission add up to 1% ER, your net gain is 0%. Meaning that you have wasted your skill for nothing. To the best of my knowledge, the consensus out there is that active management still cannot outperform index funds after all these expenses.

Due to conventional wisdom or self-correcting nature as you like to point out, it is hard for the standing thoughts to be replaced.

Which has always been my intial points about
1) being open minded
2) Discernment
3) Investment is ever-changing
4) Flaws of academic works

There is a difference between being open-minded to new investment research versus listening to the some idiot who is making a bunch of weak arguments. The limitations with academic work does not negate any of their conclusions, and that has been proven consistently that in the last 50 decades, passive management stills outperform active management.

Your favorite quote of plse show me of a standard methodical systematic method- well there isn't because for the very simple fact that investment is not a pure science. It is taking into account of available information and analysing it and making the most informed decision. And the truth is not everyone has the same amount of information.

So in other words, whether or not you want to admit it, you have said that there is no method superior to index investing at this time.

or how do I pick the correct fund/advisor? - Well which is why investing is more than just simple. Research and analysis, as with portfolio management ideology-> Instead of pure passive or pure active, a hybrid manner can also be established till you can be more assured of that particular fund and advisor works?

General vagaries and nothing specific as usual. Since nothing can be confirmed at this time, it best to leave it with index fund. The risk of underperformance by active management outweighs the benefits of outperformance.

And like you echo before, today's winner could be tmr's losers. Hence it is a continual effort which refutes your point that investment is easy as ABC.

What kind of twisted quote is this? That statement was meant to be used against you. In index fund there is no risk, because today's performance will be consistent with tomorrow's - it is the market performance.