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Consuelo Mack's WealthTrack : Guest: Charles Ellis: The Index Revolution:
FYI: An exclusive interview with Financial Thought Leader, consultant and author Charles Ellis on why investing in low cost, passive index funds, not actively managed ones is the best choice for most individual investors. Regards, Ted http://wealthtrack.com/ellis-index-revolution/
My point is, if he is correct, then we should just put everything into VTSAX and leave it at that. So are we investing in all of these other funds because we actually think he is incorrect? Or do we realize that he is right and we just do the illogical because we enjoy it?
My point is, if he is correct, then we should just put everything into VTSAX and leave it at that. So are we investing in all of these other funds because we actually think he is incorrect? Or do we realize that he is right and we just do the illogical because we enjoy it?
++++++ Regarding, "if he is correct, then we should just put everything into VTSAX".
He actually suggested putting 50% of stocks into a foreign stock market index fund, such as the Total International Stock Market Index fund.
So just for example, half in VTSAX and half in VTIAX.
Also, he said, 'if you feel you want more smaller companies in your portfolio, you could add an index fund devoted to small caps'
Yes, he said "you could". He wouldn't argue with that. So VSMAX would be an okay addition "if you want". Ellis did mention international funds, but Bogle has said that they are unnecessary. You can live and prosper without them. If you are trying to pick out the few needles from the haystack, to borrow Ted's expression, he would in fact argue against that. Ted, I have looked at that book on Amazon a couple of times, but was persuaded not to buy it by the multiple reviews that stated that the book takes one simple idea and repeats it over and over again. One reviewer said the book could have been a pamphlet. Ellis is not, as you are Ted, a proponent of indexing AND active investing. He is a proponent of indexing to the exclusion of active investing. Period. btw, has anyone read the book Heads I win, Tales I Win?
Ok Ted, I just ordered it from Amazon. 1 cent plus $3.99 shipping. I'm afraid it's going to just be one idea repeated over and over again, but on your recommendation I will give it a chance.
Warren Buffet also recommended broadly diversified index funds for most investors.
I watched Ellis interview and thought it was pretty good. To achieve excess alpha consistently Year after year has been proven challenging and there are few money managers who can do that. David Swansen of Yale comes to mind. Ellis's argument is why pay high fees when active management failed to beat the market return for majority of the time. Over the long term high fee is the single most predictable drag on return.
I think majority of MFO posters here uses both active and passive approaches. In certain sectors or asset classes, it makes sense but S&P 500 stocks I think not.
I saw the interview and compared to his other appearances, I thought Charlie sounded more dogmatic about indexing than usual. Or maybe it was just how it sounded to me. But he makes some excellent points and I agree in principle with much of them. However ...
I don't use index funds because I'm not a huge fan of market-cap weighting.
However, I am quite selective in my choice of active funds. First, I need to be comfortable with the investment managers, portfolio positioning, and relative performance (hopefully) over a LONG timeframe and multiple market cycles. If that passes my sniff test, my criteria then are low fees (in my view), no load, and no 12(b)-1 fees ... ie, "things I can control."
Do we actually think he is incorrect, or are we just having fun?
Though most won't admit it, I definitely believe people here are having fun along with trying to increase returns using managed funds. We look for the perfect funds (often the hot new funds) to build the perfect portfolio because it is fun. If any of you play Fantasy Football or any other Fantasy sporting game you know a similiar allure.
I very much think managed fund collection is the same as building your fantasy football team. For those who play, you will know what I mean. Pick the best quarterback, running back, wide receiver combination and watch your team perform. See if they get more points then your opponent. Or buy the best large cap, small cap, international manager and watch your team perform. Not performing as you thought? Trade that quarterback for a better performer. Small cap fund not doing well this year? Trade it or buy another.
By the way for you fantasy players, pick up Tyrod Taylor as your second quarterback. Huge sleeper this year. Go Bills!!!
This post simply adds more grist to the Indexing mill.
Many other posts that address this debate have appeared on MFO recently. Here is an internal Link to one of my more recent contributions to this matter:
Like Ted, although I'm fully fimilar with the primary arguements that tilt towards an Index portfolio, my portfolio is a mix of both passive and active products. I like the excitement.
Over many decades, Ellis has advocated an Index approach. Nothing new there. But I did learn something new from the referenced video. I had never heard of comparing a bond with an expected lifetime earning income. Taken the validity of that analogy, Ellis concludes that a portfolio should only have a very lightweight commitment to a bond component.
I'm a natural for an Index portfolio. I don't wake up worrying the stock market. Stock price volatility doesn't influence my decisions whatsoever. I don't know the current value of my portfolio. I'll check its value once a year to determine what my minimum required withdrawal rate demands in terms of action.
I satisfy the Ellis definition and model of a very, very long-term investor. Nothing much troubles me. I prepared well for my and my wife's retirement years.
I kind of agree with Mike M. Hard to put into words, but investing should be fun.
You should enjoy doing it. That's the big draw for many of us. We enjoy it, But if you don't find something fun - or at least interesting - than you're not apt to pay much attention or be very good at it.
The index war rages on. I can't get too excited about it. Indexing has good and bad stretches relative to other approaches, as do all investments. Often it's the approach that has worked well lately that becomes the gospel - until something changes.
Buffet recommends index funds because most people don't have the interest or aptitude or time to pick active or individual stocks. Ellis is coming from a different angle. My 401k is all index because that is the only option. My other accounts are a mix, mostly active funds and individual stocks. I am worried about the risks of just going with the herd. There is no consideration for downside protection. And what about valuations? I guess I could buy a value tilt index but then it is just relative value. If I add money to a value index fund when the market is hitting new all time highs, am I getting a good value. If I buy IVE today, are there really 361 stocks with good valuations in the s and p 500?
Thank you all for a very nice and informative discussion.
I like Charlie Ellis. He is a winner by any measurement standard. I believe his revised 2010 edition of “Winning the Loser’s Game” is a superb, easy to digest, introduction to a wealth generating investment approach.
Most investment advisors and financial writers serve a useful purpose. Most often, they make astrologists look good. They have the rare talent for extrapolation and seeing trends based on a single data point. Most of their forecasts are sheer nonsense. Following most of their advice is equivalent to following Custer into the Little Big Horn.
But they do sell their advice and a ton of books. I suspect they make far more money from selling their advice than from putting it to the test with hard cash. Certainly count me as less than euphoric over their products.
Given the historical volatility of equity returns, it is always treacherous business to make a one-year prediction. There are just too many random-like plus and minus one-year returns in excess of 20%. In the longer decade-long timeframe, market returns are much better behaved and far more predictable. That’s why I’m a buy-and-hold investor. It relieves me from the duty of having to make unreliable yearly forecasts which almost always are wrong in both scope and direction.
Comments
Do we actually think he is incorrect, or are we just having fun?
Regards,
Ted
Regardss,
Ted
https://www.amazon.com/s/ref=nb_sb_noss_2?url=search-alias=aps&field-keywords=The+losers+Game
Regarding, "if he is correct, then we should just put everything into VTSAX".
He actually suggested putting 50% of stocks into a foreign stock market index fund, such as the Total International Stock Market Index fund.
So just for example, half in VTSAX and half in VTIAX.
Also, he said, 'if you feel you want more smaller companies in your portfolio, you could add an index fund devoted to small caps'
Ted, I have looked at that book on Amazon a couple of times, but was persuaded not to buy it by the multiple reviews that stated that the book takes one simple idea and repeats it over and over again. One reviewer said the book could have been a pamphlet.
Ellis is not, as you are Ted, a proponent of indexing AND active investing. He is a proponent of indexing to the exclusion of active investing. Period.
btw, has anyone read the book Heads I win, Tales I Win?
Regards,
Ted
I watched Ellis interview and thought it was pretty good. To achieve excess alpha consistently Year after year has been proven challenging and there are few money managers who can do that. David Swansen of Yale comes to mind. Ellis's argument is why pay high fees when active management failed to beat the market return for majority of the time. Over the long term high fee is the single most predictable drag on return.
I think majority of MFO posters here uses both active and passive approaches. In certain sectors or asset classes, it makes sense but S&P 500 stocks I think not.
I don't use index funds because I'm not a huge fan of market-cap weighting.
However, I am quite selective in my choice of active funds. First, I need to be comfortable with the investment managers, portfolio positioning, and relative performance (hopefully) over a LONG timeframe and multiple market cycles. If that passes my sniff test, my criteria then are low fees (in my view), no load, and no 12(b)-1 fees ... ie, "things I can control."
I very much think managed fund collection is the same as building your fantasy football team. For those who play, you will know what I mean. Pick the best quarterback, running back, wide receiver combination and watch your team perform. See if they get more points then your opponent. Or buy the best large cap, small cap, international manager and watch your team perform. Not performing as you thought? Trade that quarterback for a better performer. Small cap fund not doing well this year? Trade it or buy another.
By the way for you fantasy players, pick up Tyrod Taylor as your second quarterback. Huge sleeper this year. Go Bills!!!
This post simply adds more grist to the Indexing mill.
Many other posts that address this debate have appeared on MFO recently. Here is an internal Link to one of my more recent contributions to this matter:
http://www.mutualfundobserver.com/discuss/discussion/29128/attacking-active-fund-managers-yet-again
Like Ted, although I'm fully fimilar with the primary arguements that tilt towards an Index portfolio, my portfolio is a mix of both passive and active products. I like the excitement.
Over many decades, Ellis has advocated an Index approach. Nothing new there. But I did learn something new from the referenced video. I had never heard of comparing a bond with an expected lifetime earning income. Taken the validity of that analogy, Ellis concludes that a portfolio should only have a very lightweight commitment to a bond component.
I'm a natural for an Index portfolio. I don't wake up worrying the stock market. Stock price volatility doesn't influence my decisions whatsoever. I don't know the current value of my portfolio. I'll check its value once a year to determine what my minimum required withdrawal rate demands in terms of action.
I satisfy the Ellis definition and model of a very, very long-term investor. Nothing much troubles me. I prepared well for my and my wife's retirement years.
Best Wishes.
You should enjoy doing it. That's the big draw for many of us. We enjoy it, But if you don't find something fun - or at least interesting - than you're not apt to pay much attention or be very good at it.
The index war rages on. I can't get too excited about it. Indexing has good and bad stretches relative to other approaches, as do all investments. Often it's the approach that has worked well lately that becomes the gospel - until something changes.
Thank you all for a very nice and informative discussion.
I like Charlie Ellis. He is a winner by any measurement standard. I believe his revised 2010 edition of “Winning the Loser’s Game” is a superb, easy to digest, introduction to a wealth generating investment approach.
Most investment advisors and financial writers serve a useful purpose. Most often, they make astrologists look good. They have the rare talent for extrapolation and seeing trends based on a single data point. Most of their forecasts are sheer nonsense. Following most of their advice is equivalent to following Custer into the Little Big Horn.
But they do sell their advice and a ton of books. I suspect they make far more money from selling their advice than from putting it to the test with hard cash. Certainly count me as less than euphoric over their products.
Given the historical volatility of equity returns, it is always treacherous business to make a one-year prediction. There are just too many random-like plus and minus one-year returns in excess of 20%. In the longer decade-long timeframe, market returns are much better behaved and far more predictable. That’s why I’m a buy-and-hold investor. It relieves me from the duty of having to make unreliable yearly forecasts which almost always are wrong in both scope and direction.
Enough pontificating for now.
Best Wishes.