Indexing: Does Empirical Data Prove It's Superior To Active Trading Over Long Term?

Discussion in 'Data Sets and Feeds' started by ByLoSellHi, Feb 25, 2007.

  1. I respect John Bogle tremendously.

    There is a voluminous and well respected body of research that empirically shows that indexing is a highly rational and efficient investing strategy over long time frames.

    But would Bogle and this corollary body of research support the notion that active trading is a zero sum game over long time frames?

    And if so, does that mean you have to be an accurate, precise market timer to win the active management game, to wit, being able to accurately pick market tops and bottoms, intermediate and otherwise?
  2. (1) Most longer-term investors would be better served by being passively indexed to a major benchmark instead of engaging in "fundamental B.S.". (2) Most longer-term investors would be better served by having their accounts at Vanguard because they truly are a lower-cost operation. The cost savings really add up over the long-term. (3) Bogle would never endorse short-term trading/investing.
  3. <i>"But would Bogle and this corollary body of research support the notion that active trading is a zero sum game over long time frames?"</i>

    True for most, but not all. By the same token, buy & hold doesn't always work. Ask the victims' of Vanguard funds who loaded up on tech in 1999 - 2001. Where are their NASDAQ issues now? Zero consolation to them the Dow is at new highs.
  4. Then you will like Bogle's quote on the topic you raise.

    Bogle wrote in about this in "Bogle on Mutual Funds" Specifically look at one to the Caveat Empor entitled "The What if Protfolio" where he compares three of them.

    One is based upon three mutual fund results; another is based on the stocks of those three mutual funds; and the last is based upon the S & P.

    He looks at compounding the three for 10 years using a 10,000 investment.

    One is worth 1,590,600 dollars, another is 25,500 dollars and the third is 44,800 dollars.

    As you can see indexing is a very poor idea compared to owning stocks.

    The guy you admire certainly didn't invest,personally, in indexes or mutual funds. He invested in stocks; that's what all the owners of Vanguard did from the get go.

    See page 295 in the book he wrote and where he made the comparison.

    Traders who make money trade stocks and futures to make money. Print out some daily charts on equities and zig zag the moves. Do the same for a five minute ES chart. For stocks it is easy to average 2.5 % a day on an annualized basis. Compound that. For the ES 5 minute chart just check out the multiple of the daily range that the zigzags give you.

    Sell1buy2 speaks of his holy grail that makes what Bogle made annually. Is is simply an indicator trading system based upon the RSI.

    Don and co make 36% a year on thier long term investments that come from appying their PROP trading business profits.

    It is kinda tough to get down to only making what the mutual funds and associated indexes make. try just a tick a day on the ES and see how that works out.