What are the arguments against index investing?

Discussion in 'ETFs' started by Sotnis, Feb 4, 2016.

  1. Visaria

    Visaria

    Would have thought that survivorship bias is a positive reason to invest in indexes...the weak and crappy companies (the stock market makes its judgement and sends the share price down) are weeded out every quarter to make room for the strong and successful.
     
    #41     Feb 21, 2016
  2. newwurldmn

    newwurldmn

    Sure. that's a risk. There is no free lunch.

    Overtime stocks perform well because typically companies (as a whole) earn more than their fixed income and their equity costs of capital. While valuations are volatile (over the course of a lifespan) aggregate earnings continue to grow as the economy grows and the world becomes more efficient.
     
    #42     Feb 21, 2016
  3. newwurldmn

    newwurldmn

    It's a social argument mostly put forward by guys like Warren Buffet who make their living picking stocks (allocating capital to whom they think should win).
     
    #43     Feb 21, 2016
  4. heypa

    heypa

    If you are going to hold for a good number of years don't forget inflation. See if you can find a long term chart of the DOW adjusted by the government lying inflation figures. Divide the last number for the Dow on the inflation adjusted chart by two for a more realistic result.
     
    #44     Feb 23, 2016
  5. drcha

    drcha

    There is a wonderful series by Ploutos on Seeking Alpha called Five Simple Ways to Beat the Market. His suggests are indeed extremely simple. One could also look at a very simple momentum system, such as that proposed by Faber in The Ivy Portfolio (he does not claim to beat the market, only to obtain the same returns as the market with less volatility, which is really the same thing as beating the market).

    Although there is a lot of underperformance around, one needs to remember that pension funds and mutual funds have charters. They cannot invest however they want to, and changing anything to adapt to market conditions is like turning a battleship. However, the individual investor has a different set of opportunities and can be more nimble, and may be able to beat the market using simple methods.
     
    #45     Feb 24, 2016
    Visaria likes this.
  6. ha, ha ,ha...Only a few lucky "Beat the Market", most lose by not being in the market.
     
    #46     Feb 24, 2016
  7. Some win, some lose in the market. While others who not in market win or lose.
    It is just how many lost or win . :)
    It is a number game.
     
    #47     Mar 3, 2016
  8. yiehom

    yiehom

    My friend, you just called Mr Buffet , his professor Graham and all the likes, silly.
    Please apologize.

     
    #48     Sep 27, 2017
  9. Truth_

    Truth_

    The amount of capital available needs to be in a "sweet" spot for the retail investor to outperform an index. Most are under-capitalized and look for lottery ticket stocks.

    Earlier in the thread it was mentioned that the odds of selecting a stock to beat the S&P was 1:500. This is wrong. It is 50:50. As a general proposition, half the stocks in the S&P outperform, half under-perform (I realize this is not 100% accurate due to weightings and extremes of performance values, but for this post it is close enough to explain the concept).

    What 3 to 5 sectors will outperform the index?
    What 5 stocks in each sector will outperform their peers?
    Now you have a basket of 15 to 25 stocks that have good odds of exceeding the index while having the gremlin of risk duct taped into its chair.

    The problem is many individuals do not have the capital. To buy a small holding of 10,000 $USD per stock requires 250M. Throwing a thousand bucks into an index without thinking is so much easier. Oh yes, the self-defined basket of 25 requires significant time to manage, the capacity to think, the capacity to not self-deceive, and a lot of people are just lazy.

    Mr. Buffett has commented on the other extreme, of having too much capital, so that there are not enough opportunities, but if you are in that situation, you are not reading this.
     
    Last edited: Sep 27, 2017
    #49     Sep 27, 2017
    ironchef and themickey like this.
  10. Visaria

    Visaria

    25 stocks ....$10k per stock..$250k
     
    #50     Sep 27, 2017