Indexing vs Active Management - Page 2

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What did I tell ya? /DX had some going up, /6A had some going down. Fucking wish I could've shorted /ES which a real account instead of demo.

I'm in drunk asshole mood.

whoosel,

In 100 words or less:

Why should we believe you have any idea what you are doing in the stock market?

On October 19 2012 12:09 2c0ntent wrote: huge blow ups since 1987, USA-centric list Great crash of 1987 90's tech bubble burst 08/09 banking system collapse These three were 90% driven by the policies of our financial giants. And they're now further emboldened by the government's demonstrated willingness to bail them out on a massive scale for plain old irresponsible practices. The world's economies and finances are more interconnected than ever before and that is NOT diversification of our economic risk, it is expansion of it. For instance, a revolution in china which shut down a lot of their manufacturers would shit on our economy in a big way. That wasn't a risk 20 years ago. I don't think a prediction without a timeline is bogus. Statistics like, "10% of these vehicles spontaneously explode while being driven, killing the occupants" are still useful in decision making.

It is well known that globalisation was a contributing factor to the GFC. People/companies/governments who were diversified across continents found out they weren't to the extent they thought. Which is why in modern text books you will read about the contagion effect. The point is that you can't diversify against this risk hence why it is called systematic risk (if you want any sort of growth anyway).

But that wasn't in dispute and hadn't been brought up until now anyway. The prediction of a blow up was the topic. As you have shown blow ups happen and will continue to happen, it's the boom/bust cycle. But as far as I can see it is of limited value if you don't know when. Is the strategy to just stay in T-bills forever? What if you hold T-bills only for 5 years and nothing happens and you think fuck it maybe I was wrong, you let your bills expire and buy stocks and then BAM melt down. If you could of predicted the dot.com bust then you could of got out and put your money in other stocks. If you had predicted the Asian currency crisis you could have offloaded any of those currencies and positions. But how can it help an investor to know a blow up is coming if you don't know how wide spread it is or when?

As for that statistic it's not that helpful if it was from 10 years and the cars no longer do that. I find vague predictions really annoying from media analysts, "gold will go up", ok not that helpful if you trade it daily. Without qualifiers everyone is trying to look like a genius but it's useless information to act on. "Gold will go up...oh I meant within 20 years". There are plenty of good predictions and statistics (obviously) but they need context.

On October 19 2012 18:08 RiKD wrote: I'm in drunk asshole mood. whoosel, In 100 words or less: Why should we believe you have any idea what you are doing in the stock market?

This question goes out to anybody:

How does anyone expect to beat inflation+taxes+costs+fees+bots+pros in today's stock market unless you are a pro?

On October 20 2012 09:17 RiKD wrote: Show nested quote + On October 19 2012 18:08 RiKD wrote: I'm in drunk asshole mood. whoosel, In 100 words or less: Why should we believe you have any idea what you are doing in the stock market? This question goes out to anybody: How does anyone expect to beat inflation+taxes+costs+fees+bots+pros in today's stock market unless you are a pro?

Well, you don't! You have to be a pro, but what defines a pro? Is it a hedge fund manager, the farmer who buys contracts and negates his losses, a central bank chairman, or a "retail" trader who makes a living?

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On October 19 2012 18:08 RiKD wrote: I'm in drunk asshole mood. whoosel, In 100 words or less: Why should we believe you have any idea what you are doing in the stock market?

You shouldn't. You should investigate on your own and invest your money accordingly. Just telling you what I'm up to and why I'm doing it. I like when I have to re-eval what I'm doing because of a comment that questions/pokes holes in my though process.

night which of taleb's books would you recommend starting with if you had to choose one? (sry for semi-offtopic)

On October 20 2012 13:03 2c0ntent wrote: Show nested quote + On October 20 2012 00:58 Funktion wrote:   On October 19 2012 12:09 2c0ntent wrote: huge blow ups since 1987, USA-centric list Great crash of 1987 90's tech bubble burst 08/09 banking system collapse These three were 90% driven by the policies of our financial giants. And they're now further emboldened by the government's demonstrated willingness to bail them out on a massive scale for plain old irresponsible practices. The world's economies and finances are more interconnected than ever before and that is NOT diversification of our economic risk, it is expansion of it. For instance, a revolution in china which shut down a lot of their manufacturers would shit on our economy in a big way. That wasn't a risk 20 years ago. I don't think a prediction without a timeline is bogus. Statistics like, "10% of these vehicles spontaneously explode while being driven, killing the occupants" are still useful in decision making. It is well known that globalisation was a contributing factor to the GFC. People/companies/governments who were diversified across continents found out they weren't to the extent they thought. Which is why in modern text books you will read about the contagion effect. The point is that you can't diversify against this risk hence why it is called systematic risk (if you want any sort of growth anyway). But that wasn't in dispute and hadn't been brought up until now anyway. The prediction of a blow up was the topic. As you have shown blow ups happen and will continue to happen, it's the boom/bust cycle. But as far as I can see it is of limited value if you don't know when. Is the strategy to just stay in T-bills forever? What if you hold T-bills only for 5 years and nothing happens and you think fuck it maybe I was wrong, you let your bills expire and buy stocks and then BAM melt down. If you could of predicted the dot.com bust then you could of got out and put your money in other stocks. If you had predicted the Asian currency crisis you could have offloaded any of those currencies and positions. But . Hm.. what. I was giving context for why I suggested that there is still huge and growing blow up risks in our economy. Stay in t-bills and don't leave them, while investing the rest of your non-nestegg / essential money in aggressive positions. The point of doing so is to avoid exposure to the risk of your life savings being blasted off at any time, ever. You can invest based on a prediction without a definite timeline for the prediction. There are many tools for this activity.. I am still learning but here: Forward contracts, future contracts, a bunch of options strategies (ie buying way out of the money puts if you expect a meltdown but don't know when)   how can it help an investor to know a blow up is coming if you don't know how wide spread it is or when? As for that statistic it's not that helpful if it was from 10 years and the cars no longer do that. I find vague predictions really annoying from media analysts, "gold will go up", ok not that helpful if you trade it daily. Without qualifiers everyone is trying to look like a genius but it's useless information to act on. "Gold will go up...oh I meant within 20 years". There are plenty of good predictions and statistics (obviously) but they need context I outlined 3 major crashes that were all the result of mismanagement and manipulation of the financial market and accounting policies, ie the two major systems of rules that humans have developed for keeping track of and supporting economic activity. Then I pointed out that these risks have further grown because not only is there still plenty of bad policy in the way we run economies, but every national economy is exposed to risks from outside of their borders in ways that they never were previously. Presentation of the imaginary statistic, "10% of these vehicles spontaneously explode while being driven, killing the occupants" was meant to show that even if there is NO TIMELINE attached to the prediction, you can make exposure decisions based upon it. Please take a moment to digest my words before you argue because I had to repeat myself a lot here, otherwise I'm glad to continue.. I've learned some things and clarified my own thoughts along the way thanks to our exchange but yeesh. Maybe I'm just not communicating well the first time.. I'll try to improve

I had a response written out but it doesn't matter. Anyway I've read your posts and given considered responses. For what it's worth I'm RG 146 compliant and a few months from completing my degree in Applied Finance. So I hope I know a little bit about this stuff (for example what forwards, futures and options are).

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thx, been meaning to check out those books forever

Just reading through a paper and thought this might be interesting considering the OP content:

32. Is it true that very few Spanish mutual funds outperform their benchmark? Isn’t it strange?

A32. Yes. During the period 1998-2007, only 30 of the 935 mutual funds with over 10 years of history obtained a higher return than the benchmark used; and just two of them obtained a higher return than the Overall Index of the Madrid Stock exchange. During 1998-2007 and 1992-2007, the average returns on mutual funds were lower than the returns on state bonds (at any term considered). During the past 10 years, the average return of the funds was lower than inflation. Despite these results, at 31st December 2007, 8,264,240 shareholders had €238.7 billion invested in the 2,907 existing investment funds.

Can get the paper from:
http://ideas.repec.org/p/ebg/iesewp/d-0817.html

when people measure the performance of mutual funds in that way, is the management fee taken into account? Would be pretty rofl if so many mutual funds are failing to beat the indices before fees..

Certain fees get deducted from assets, so are factored into the returns.

Should of posted the original paper instead of the 100 questions one, it's here: http://ideas.repec.org/p/ebg/iesewp/d-0746.html if you just want the main findings just read the conclusion.

Some snippets:
For funds that have existed 10 years - The information provided in Figure 4 is similar to the one in Figure 3 but it is expressed in Euros: it shows how much 1 Euro invested in December 1997 in each of the 935 funds was worth by December 2007. One Euro became €5.95 in the case of the most profitable fund and €0.19 in the least profitable.

Consequently, we can conclude that, from the €180.027 billion mutual funds that could have appreciated following the benchmarks we employed, the shareholders only got €80.184 billion. Using the poor historical information offered by CNMV on fees charged by mutual funds, we can calculate the total of fees and charges (explicit commissions) in 1992-2006 at €34 billion. The other €66 billion (100-34) is due to hidden commissions and investment decisions.

A surprising fact is that in the case of many mutual funds, the sales rep’s salary is higher than the manager’s.

Here is a paper on US/UK mutual funds: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=955807

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/dx still going up
/6a still going down

/6A went up, quite unsure of it at this point. Just letting it do it's thing.