Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
If the market wizards are depending on the investing public to make wise decisions they will be sadly disappointed. Our crystal ball is not just cloudy, it is cracked. Test data demonstrates time and time again that it is not that we suffer from a lack of knowledge, but that we misinterpret what we know, or, even more troubling, what we think we know is just not so.
Here is a Link that presents some data and discusses our knowledge/interpretation shortfalls:
In a closing paragraph, the author concludes that " We suffer from a lack of information rather than a lack of ability.” I disagree. I believe we have plenty of information but fall short in our ability to properly interpret that huge information base.
A very long time ago I served in the US Army. At one stage in my military career I administered, scored, and discussed results with the troops taking these tests. In all aspects, the outcomes were disappointing. We think we know more than we actually do.
The good news is that I believe we often recognize our shortcomings and adjust accordingly. I suspect that is why, in the investment world, we overwhelmingly default to Index products. Unlike those on MFO, many folks don't check the financial marketplace on a regular basis. They are satisfied with near market returns minus some modest fees.
In several,ways, these folks are smarter and more efficient than those who choose to invest time and effort in this challenging task. The outputs of that daunting task have not proven to substantially reward its practionaires with outsized profits. It is not that we lack information, and not that we lack ability. It is that we are trying to predict the unpredictable.
Most of the posters from my observation found at MFO are students of the markets and skilled investors while for the most part the average retail investor is perhaps better served by indexing. For me, I feel it has been benefical to devote the time and energy necessary to become a student that actively engages the markets within my risk tolerance, of course. After all, I was an econ major and not an engineer major as my high school buddy was who indexes. The markets are something that I have become to know and he doesn't nearly as well as I. One of the measures I use to gague my investment success is to compare my results with those of the Lipper Balanced Index. If my returns generally beat the index then I consider myself successful. Thus far, my better returns over the Index through the years have indeed put additional money in my pocket that otherwise would not be there. When the margin factor of my success is applied to my principal that is what I figure I have been paid for my time and energy that it has taken to become a good accomplished student and successful investor.
I am finding that I have been paid pretty well through the years. And, besides, it is something that I have come to enjoy doing ... and, that accounts for something. So, when it something that you enjoy and are making good money at it what is there not to like? For others, this might not be the case.
Congratulations on your investing success story. But not many share your experience. According to much investor research and many research conclusions, it is a rather rare happening.
That observation is "in line with research by Brad Barber of UC Davis and Terrance Odean of UC Berkeley who found that only about 1% of active traders outperformed the market. The more frequently people trade, the worse they do,"
It's terrific that you are in that rare 1% grouping. Here is the Link that I extracted that quote from:
There are dozens of such reports, all with similar conclusions. I particularly selected that reference because of its title. The title says it all: "Almost No One Can Beat The Market". Indeed you are in a very rarified atmosphere.
You make an excellent closing observation. Many MFOers greatly enjoy the investment challenge. That's a terrific reason to actively participate. Unfortunately, the assembled performance data demonstrates that it is a costly practice for the major fraction of most of us. Perhaps it would be less costly and more healthful to commit to some outdoor physical exercise or to do some indoor book reading.
But there are exceptions that motivate us. Again, a hearty well done to you!
It's traffic that you are in that rare 1% grouping.
@MJG - I'm not sure whether you intended tragic or terrific. I'm comfortable with either.
@Old_Skeet - You make good points. And I always enjoy your thoughts. But be warned: It's fruitless to argue here. MJG simply doesn't have much respect for the power of the human mind.
I'm thinking what MJG did not disclose is that there are those, within the troops, that tested well and excelled. It was the group as a whole that provided the disapointing testing results. And, so it goes. This is why it is probally better for the average retail investor to simply index as John Bogle suggest. But, there again there are some that excel ... and, I'm thinking (surmise) it is more than one percent.
Congratulations on your investing success story. But not many share your experience. According to much investor research and many research conclusions, it is a rather rare happening.
That observation is "in line with research by Brad Barber of UC Davis and Terrance Odean of UC Berkeley who found that only about 1% of active traders outperformed the market. The more frequently people trade, the worse they do."
It's traffic that you are in that rare 1% grouping. Here is the Link that I extracted that quote from:
That's what the 1% figure from Barber, Odean, et al. is referring to. (It's notable that the quote is from the Marketwatch columnist, not the academics, and cites no paper. In other places in the column, the columnist gives links. That omission allows me a bit of play in pulling actual research to conclude that "active" trader meant "day" trader.)
Day trading is the purchase and sale of the same stock by an investors on a day. We argue that these intraday trades are almost certainly speculative. ...
We are not the first to study day trading, though the sample of day traders we study is much large and the time-series much longer than those in prior studies. The one exception to this generalization being [another paper by] Barber, Lee, Liu, and Odean who identify a small subset of day traders (less than 1% of the day trading population) predictably earn profits.
From Bloomberg - "Nir Kaissar is a Bloomberg Gadfly columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young."
I've found in my near 25 years with Price that they are often early in their market prognosis - sometimes painfully early. But that they are seldom wrong.
I specifically quoted from the Link that you discussed because of its brevity. MFOErs are busy folks and might not be inclined to read extensive documentation. Barber and Odean generated many documents that illustrated the futility of frequent trading. These included summarizes of their own studies as well as industry and academic works. Their documentation is often very extensive.
The conclusion from this 54 page report is presented immediately below for individual investors:
"They trade frequently and have perverse stock selection ability, incurring unnecessary investment costs and return losses. They tend to sell their winners and hold their losers, generating unnecessary tax liabilities. Many hold poorly diversified portfolios, resulting in unnecessarily high levels of diversifiable risk, and many are unduly influenced by media and past experience. Individual investors who ignore the prescriptive advice to buy and hold low-fee, well-diversified portfolios, generally do so to their detriment."
That's not me talking. It is Barber and Odean. Actually, I'm more optimistic than they are. There are many exceptions with returns far above a disappointing average.
I'm familiar with the paper you just cited. Its Table 1 summarizes other papers. Only in that table, in the entry where it summarizes the paper I quoted, does one find the 1% figure you attached to Skeet.
So once again I ask, why are you lumping Skeet in with day traders?
If you're not, then the 1% quote is irrelevant. For that matter, do you have any evidence that the paper you just cited is relevant to Skeet? It says that "Many hold poorly diversified portfolios." Really, do you think that this sounds anything like Skeet?
You might want to take a closer look at another paper cited (indirectly) by the Marketwatch column: the 2010 Barras, Scaillet, and Wermers paper. You'll need to read the paper itself, not just the two sentences in the article referenced in Marketwatch.
The authors "find that 75% of funds exhibit a zero alpha (net of expenses)". So it's still not that hard for fund managers to outperform the market by enough to cover expenses - something that index funds can't do.
Old_Skeet did not have any intentions what-so-ever to start a riff in this thread. But, know it seems one might be forming (let's hope not). In addition, I have a few comments.
I am not a day trader by any means; however, form time-to-time I will position my portfolio to take advantage of what I am finding to be the faster moving currents within the markets and weight accordingly and to reduce risk as well when I feel it is warranted. In today's time it is hard to beat (from my perspective) the flash crowd through day trading activity although a few might be successful most, by my thinking, will fail. I have seen a good number of what I consider to be relative smart people lose a good bit of money day trading with some experiencing life changing events (and not for the good). Day trading is not for me and I have never ventured into any form of activity that might be considered day trading. Asset positioning is something very different. My high school engineer buddy was a day trader that lost a considerable amount day trading. Today, he is an indexer.
Since, some of my portfolio holdings have changed since December 2015 that was recently posted for reference by mfs, I'll update it with current positions and post it under the thread "What Are You Buying Selling and/or Pondering?" in the near future. Know, since my retirement I have been moving towards expanding my footprint in hybrid type funds for more than one reason. From my thinking this is making my portfolio more adaptive to the ever changing market conditions and increasing the portfolio's capacity to generate income. For those that might be able to do a look back to some of the old published portfolios I am sure you will easily find there has indeed been some holding changes.
Thanks for the update. It was not my intention to turn you into the object of attention. It was simply that (knowing you are thoughtful in your investing), I could not see you being compared, however favorably, to 99% of day traders. (That wasn't fair to the day traders)
Your fine granularity of fund selection is not quite my cup of tea (I try to seek out distinctive managers and trust them to do the heavy lifting, missteps and all, within reason), but I do read what you're writing. I appreciate that you explain your thinking, rather than simply writing "here's a fund I like".
Hi @Old_Skeet, I'm just wondering why you chose the Lipper Balanced fund to benchmark your performance. Since it's an index created out of the largest 30 balanced funds and weighted by AUM (I believe), you end up comparing your portfolio to other mostly active funds. Presumably those funds, in total, have a similar asset class weighting to yours even though the range of the funds that make up the index seems to be fairly big. It also means the very large funds, like American Funds Balanced and Vanguard Wellington, carry more weight in the index than most others. I didn't do all the math so I can't say for sure but it looks possible that these two funds account for more than 35% of the index.
I track my performance against a collection of benchmarks, partly because my asset allocation adjusts more than yours does over time, but I just use a 60% Total Stock Market or Total World Stock Market and 40% Total Bond Market as my 'balanced' benchmarks. I'm wondering whether you might have better reasons than I did for choosing the Lipper Index?
Thanks in advance and congratulations on your results!!
These exchanges suggest a considerable misunderstanding of my posts. I'll accept responsibility that I did not clearly state my position or intent. Sorry about that failure. Someday I'll learn to express myself more precisely.
In no way did I mean to be critical of anyone's investment policy or tactics. That's far above my pay grade. We all have specific investment objectives that are unique to each of us. More power to the individual investor. We choose our own pathway to wealth and happiness.
I failed to clearly distinguish the difference between an active investor and a day trader. A day trader is definitely an active trader, but all active traders are not day traders. I'm not sure that I can precisely define an active trader. How many trades per year or what average holding period defines an active trader? Any inputs to this question are highly encouraged.
The 1% number that has been linked to my posts comes from an earlier reference that I made on these postings. For completeness, I repeat it here:
That brief article opened wth the following paragraph:
"Year after year, decade after decade, evidence has piled up that neither individual nor professional investors can outperform broad market indexes consistently over long periods of time."
The author specifically noted that only about 1% of the active investing public (that included active individual investors and mutual fund managers) generate positive Alphas relative to a fair representative benchmark.
I assumed that that statistic is approximately accurate. It need not be exactly right! That statistic speaks to the hard challenges for all investors. It is goodness to be in that limited grouping. Old Skeet managed to fall into this highly successful, elite group. More power to him. I only meant to praise him for overcoming difficult odds. Hooray for Old Skeet!!
Sorry that my writing style did not make my good feelings for Old Skeet's success more positive.. I wish his success for all of us.
In only two places did the author specifically note the 1% figure:
"Fewer than 1% of mutual fund managers persistently beat the market based on superior market-timing or stock-picking skills," and
"research by Brad Barber of UC Davis and Terrance Odean of UC Berkeley who found that only about 1% of active traders outperformed the market."
The bottom line is that there's nothing in the column that specifically notes only about 1% of the investing public generate positive alpha. Just the opposite:
"The more frequently people trade, the worse they do." (Another quote from the column.) So the investing public at large (including both active traders and others who trade less) does better than these "active" traders alone, i.e. more than 1% beat the market.
It's not even close.
Since the 1% line about active traders was attributed in the column to Odean and Barber, why not go to the source? In the Table 1 that I mentioned above, is an entry summarizing an Odean and Barber paper. It states that "the average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually."
Think about that. The average individual investor outperforms active traders by 5%. The terminology from research paper perfectly aligns with your terminology ("individual investors") and terminology in the column ("active traders").
Thank you for your question. I am sorry for the delayed response but I was out of pocket most of the day due to another family member's medical issues. I hate to be short with an answer but I also did not want my response to linger.
I use the Lipper Balanced Index for several reason. 1) It is easy to reference and track along with 2) it represents the combined performance of the most widely held hybrid funds plus 3) I have used it for a good number of years and have historical data that centers around it.
Since, my portfolio is pretty much a balanced portfolio with an equity allocation ranging form 45% to 55% equity. I use my market barometer which I have written about previsouly to drive an equity weighting matrix which in turn is used as an aid to help me throttle my equity allocation within my portfolio.
With this ... I felt the Lipper Balanced Index was a good choice for a bogey and, again, it has been my standard for a good number of years.
Not Old_Skeet, but is this what your looking for: @DavidV There has been news of late that centers around possible war with North Korea and its effect this is currently having on a richly priced stock market. No doubt, my thinking is, big money has the markets levered up and with this recent news of possible war money is being called home to delever their exposure in the stock market. Over the past three weeks Old_Skeet's barometer has move from a reading of 143 to 146 to 152 for its weekly close. The barometer measures certain elements of the S&P 500 Index. A barometer reading of 150 represents the mid point of fair value. A reading of 143 would indicate that the Index was about 5% overvalued and now with a reading of 152 just slightly undervalued. The barometer has three feeds. An earnings feed, a breath feed and a technical score feed. With this, it combines both fundmentals and technicals to produce a numerical reading. Generally, a higher barometer reading indicates there is more investment value in the 500 Index over a lower barometer reading.
I had to go back in the stack and look for post that contained writtings about the barometer. Below are a few of the links dating back to February 2017 where the barometer was discussed in some detail. There are some others but you will have to troll to find them.
Recently, mfs posted one of Old_Skeet's portfolio's dating back to December of 2015 that was linked back in 2016. For easy reference I am providing this same link beow.
As there has been a good bit of changes in the holdings since then I am linking through this post the most current portfolio's holdings. A good bit of money has been moved left within the portfolio (since December of 15) into more conserative investments as the stock market has become more richly priced. Some sleeves and their holdings have been increased while others have been reduced. The growth area of the portfolio is where I am the most active with positioning naturally some takes place within the other sleeves as well. In tracking my portfolio through Morningstar Portfolio Manager it has had an investment return (excluding cash) year-to-date through July 2017 of 9.1% and for my bogey (The Lipper Balanced Index) 8.4%.
So, where did the money go?
From the reduction in the number of funds held in the growth & income area, the domestic equity sleeve was reduced from six funds to three funds. In the growth area funds were reduced from six to three in the global growth sleeve and from four to three in the large/mid cap sleeve. These monies were used to expand the holdings in the income area form thirteen funds to eighteen along with restablishing my CD ladder. So, indeed a good bit of money was moved left within the portfolio while some was added to current positions in the growth & income and growth areas plus there were also a holding change made within the global hybrid sleeve and some funds were moved from one sleeve to another. So, with this one can see Old_Skeet had indeed been active.
Sleeve Management System ... Here is how it works.
Now being in retirement here is a brief description of my sleeve management system which I organized to help better manage the investments held within mine & my wife’s combined portfolios. Currently, the master portfolio is comprised of two taxable investment accounts, two self directed retirement accounts, a health savings account plus two bank accounts. With this, I came up with four investment areas. They are a cash area which consist of two sleeves … an investment cash sleeve and a demand cash sleeve. The next area is the income area which consists of two sleeves … a fixed income sleeve and a hybrid income sleeve. Then there is the growth & income area which has more risk associated with it than the income area and it consist of four sleeves … a global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. An finally there is the growth area, where the most risk in the portfolio is found and it consist of five sleeves … a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve, a specialty/theme sleeve plus a special investment (spiff) sleeve. Each sleeve (in most cases) consists of three to nine funds with the size and the weight of each sleeve can easily be adjusted, from time-to-time, by adjusting the number of funds and amounts held. By using the sleeve system one can get a better picture of their overall investment landscape and weightings by sleeve and area. In addition, I have found it beneficial to Xray each fund, each sleeve, each investment area, and the portfolio as a whole quarterly. Again, weightings can be adjusted form time-to-time as to how I might be reading the markets along with using a market barometer that drives an equity allocation weighting matrix as an aid to help set the stock allocation weighting. All funds pay their distributions to the cash area of the portfolio with the exception being those in my health savings accounts where reinvestment occurs. With the other accounts paying to the cash area builds the cash area of the portfolio to meet the portfolio’s monthly cash disbursement amount (if necessary) with the residual being left for new investment opportunity. Generally, in any one year, I take no more than a sum equal to one half of my portfolio’s average five year return. In this way, principal builds over time. In addition, most buy/sell trades settle from, or to, the cash area with some net asset value exchanges between funds taking place between funds.
Last revised: 07/31/2017 Master Portfolio
Here is how I have my asset allocation broken out in percent ranges, by area. My neutral allocation weightings are cash 20%, income 30%, growth & income 35%, growth & other assets 15%. I do an Instant Xray analysis on the portfolio quarterly (sometimes monthly) and make asset weighting adjustments as I feel warranted based upon my assessment of the market, my risk tolerance, cash needs, etc. Currently, according to Morningstar Instant Xray, I am about 20% in the cash area, 25% in the income area, 35% domestic stock area, 15% foreign stock area & 5% in the other asset area. In addition, I have the portfolio set up in Morningstar’s Portfolio Manager by sleeve and as a whole for easy monitoring plus I use brokerage account statements along with some other Morningstar reports for information and tools helpful in managing the portfolio.
Cash Area (Weighting Range 15% to 25% with neutral weighting being 20%) Demand Cash Sleeve… (Cash Distribution Accrual & Future Investment Accrual) Investment Cash Sleeve … (Savings & Time Deposits)
Income Area (Weighting Range 25% to 35% with neutral weighting being 30%) Fixed Income Sleeve: BAICX, CTFAX, FMTNX, GIFAX, LALDX, LBNDX, NEFZX, THIFX & TSIAX Hybrid Income Sleeve: APIUX, AZNAX, CAPAX, DIFAX, FISCX, FKINX, ISFAX, JNBAX & PGBAX
Growth & Income Area (Weighting Range 30% to 40% with neutral being 35%) Global Equity Sleeve: CWGIX, DEQAX & EADIX Global Hybrid Sleeve: CAIBX, PMAIX & TIBAX Domestic Equity Sleeve: ANCFX, FDSAX & SVAAX Domestic Hybrid Sleeve: ABALX, AMECX, DDIAX, FBLAX, FRINX, HWIAX & LABFX
Growth Area (Weighting Range 10% to 20% with neutral weighting being 15%) Global Sleeve: ANWPX, SMCWX & THOAX Large/Mid Cap Sleeve: AGTHX, SPECX & VADAX Small/Mid Cap Sleeve: PCVAX, PMDAX & TSVAX Specialty & Theme Sleeve: LPEFX, PGUAX & NEWFX Spiff Sleeve: None at this time.
Comments
If the market wizards are depending on the investing public to make wise decisions they will be sadly disappointed. Our crystal ball is not just cloudy, it is cracked. Test data demonstrates time and time again that it is not that we suffer from a lack of knowledge, but that we misinterpret what we know, or, even more troubling, what we think we know is just not so.
Here is a Link that presents some data and discusses our knowledge/interpretation shortfalls:
http://www.newsweek.com/how-ignorant-are-americans-66053
In a closing paragraph, the author concludes that " We suffer from a lack of information rather than a lack of ability.” I disagree. I believe we have plenty of information but fall short in our ability to properly interpret that huge information base.
A very long time ago I served in the US Army. At one stage in my military career I administered, scored, and discussed results with the troops taking these tests. In all aspects, the outcomes were disappointing. We think we know more than we actually do.
The good news is that I believe we often recognize our shortcomings and adjust accordingly. I suspect that is why, in the investment world, we overwhelmingly default to Index products. Unlike those on MFO, many folks don't check the financial marketplace on a regular basis. They are satisfied with near market returns minus some modest fees.
In several,ways, these folks are smarter and more efficient than those who choose to invest time and effort in this challenging task. The outputs of that daunting task have not proven to substantially reward its practionaires with outsized profits. It is not that we lack information, and not that we lack ability. It is that we are trying to predict the unpredictable.
Best Regards
Most of the posters from my observation found at MFO are students of the markets and skilled investors while for the most part the average retail investor is perhaps better served by indexing. For me, I feel it has been benefical to devote the time and energy necessary to become a student that actively engages the markets within my risk tolerance, of course. After all, I was an econ major and not an engineer major as my high school buddy was who indexes. The markets are something that I have become to know and he doesn't nearly as well as I. One of the measures I use to gague my investment success is to compare my results with those of the Lipper Balanced Index. If my returns generally beat the index then I consider myself successful. Thus far, my better returns over the Index through the years have indeed put additional money in my pocket that otherwise would not be there. When the margin factor of my success is applied to my principal that is what I figure I have been paid for my time and energy that it has taken to become a good accomplished student and successful investor.
I am finding that I have been paid pretty well through the years. And, besides, it is something that I have come to enjoy doing ... and, that accounts for something. So, when it something that you enjoy and are making good money at it what is there not to like? For others, this might not be the case.
Old_Skeet
Congratulations on your investing success story. But not many share your experience. According to much investor research and many research conclusions, it is a rather rare happening.
That observation is "in line with research by Brad Barber of UC Davis and Terrance Odean of UC Berkeley who found that only about 1% of active traders outperformed the market. The more frequently people trade, the worse they do,"
It's terrific that you are in that rare 1% grouping. Here is the Link that I extracted that quote from:
http://www.marketwatch.com/story/almost-no-one-can-beat-the-market-2013-10-25
There are dozens of such reports, all with similar conclusions. I particularly selected that reference because of its title. The title says it all: "Almost No One Can Beat The Market". Indeed you are in a very rarified atmosphere.
You make an excellent closing observation. Many MFOers greatly enjoy the investment challenge. That's a terrific reason to actively participate. Unfortunately, the assembled performance data demonstrates that it is a costly practice for the major fraction of most of us. Perhaps it would be less costly and more healthful to commit to some outdoor physical exercise or to do some indoor book reading.
But there are exceptions that motivate us. Again, a hearty well done to you!
Best Wishes
@Old_Skeet - You make good points. And I always enjoy your thoughts. But be warned: It's fruitless to argue here. MJG simply doesn't have much respect for the power of the human mind.
I'm thinking what MJG did not disclose is that there are those, within the troops, that tested well and excelled. It was the group as a whole that provided the disapointing testing results. And, so it goes. This is why it is probally better for the average retail investor to simply index as John Bogle suggest. But, there again there are some that excel ... and, I'm thinking (surmise) it is more than one percent.
Skeet
That's what the 1% figure from Barber, Odean, et al. is referring to. (It's notable that the quote is from the Marketwatch columnist, not the academics, and cites no paper. In other places in the column, the columnist gives links. That omission allows me a bit of play in pulling actual research to conclude that "active" trader meant "day" trader.)
Quoting from Barber, Lee, Liu, Odean, "Do Day Traders Rationally Learn About Their Ability" (October 2010):
Prospectus (of sorts) for Unison advisors LLC :
http://unisonadvisors.com/Unison-ADV-Part-II.pdf
It is dated 2012, at which time Mr. Kaissar appeared to be the primary owner.
"As of March 26, 2012, Unison managed $18,241,839 on a discretionary basis and $0 on a non- discretionary basis"
For comparison, T. Rowe Price (whom Mr. Kaissar tales a mild swing at) recently reported assets under management of $861.6 Billion. https://www3.troweprice.com/usis/corporate/en/press/t--rowe-price-group-reports-first-quarter-2017-results/jcr:content/article-pdf/pdffile/jcr:content
I've found in my near 25 years with Price that they are often early in their market prognosis - sometimes painfully early. But that they are seldom wrong.
I specifically quoted from the Link that you discussed because of its brevity. MFOErs are busy folks and might not be inclined to read extensive documentation. Barber and Odean generated many documents that illustrated the futility of frequent trading. These included summarizes of their own studies as well as industry and academic works. Their documentation is often very extensive.
Here is a Link to one such survey study:
https://poseidon01.ssrn.com/delivery.php?ID=324008102071125095121123001096091092127013047085066030022006029120125110111114126108121034058014030047028087107017083080083069058066022051042120001093126080002011009017091099018123028093003020089116098026071106066082068022120015066030076121110&EXT=pdf
The conclusion from this 54 page report is presented immediately below for individual investors:
"They trade frequently and have perverse stock selection ability, incurring unnecessary investment costs and return losses. They tend to sell their winners and hold their losers, generating unnecessary tax liabilities. Many hold poorly diversified portfolios, resulting in unnecessarily high levels of diversifiable risk, and many are unduly influenced by media and past experience. Individual investors who ignore the prescriptive advice to buy and hold low-fee, well-diversified portfolios, generally do so to their detriment."
That's not me talking. It is Barber and Odean. Actually, I'm more optimistic than they are. There are many exceptions with returns far above a disappointing average.
Best Wishes
So once again I ask, why are you lumping Skeet in with day traders?
If you're not, then the 1% quote is irrelevant. For that matter, do you have any evidence that the paper you just cited is relevant to Skeet? It says that "Many hold poorly diversified portfolios." Really, do you think that this sounds anything like Skeet?
Old_Skeet's New Portfolio Asset Allocations (2016)
http://mutualfundobserver.com/discuss/discussion/24926/old-skeet-s-new-portfolio-asset-allocations-2016
You might want to take a closer look at another paper cited (indirectly) by the Marketwatch column: the 2010 Barras, Scaillet, and Wermers paper. You'll need to read the paper itself, not just the two sentences in the article referenced in Marketwatch.
The authors "find that 75% of funds exhibit a zero alpha (net of expenses)". So it's still not that hard for fund managers to outperform the market by enough to cover expenses - something that index funds can't do.
that seems remarkable to me, depending on how big the universe of such managers is / what the definition of hard is
Old_Skeet did not have any intentions what-so-ever to start a riff in this thread. But, know it seems one might be forming (let's hope not). In addition, I have a few comments.
I am not a day trader by any means; however, form time-to-time I will position my portfolio to take advantage of what I am finding to be the faster moving currents within the markets and weight accordingly and to reduce risk as well when I feel it is warranted. In today's time it is hard to beat (from my perspective) the flash crowd through day trading activity although a few might be successful most, by my thinking, will fail. I have seen a good number of what I consider to be relative smart people lose a good bit of money day trading with some experiencing life changing events (and not for the good). Day trading is not for me and I have never ventured into any form of activity that might be considered day trading. Asset positioning is something very different. My high school engineer buddy was a day trader that lost a considerable amount day trading. Today, he is an indexer.
Since, some of my portfolio holdings have changed since December 2015 that was recently posted for reference by mfs, I'll update it with current positions and post it under the thread "What Are You Buying Selling and/or Pondering?" in the near future. Know, since my retirement I have been moving towards expanding my footprint in hybrid type funds for more than one reason. From my thinking this is making my portfolio more adaptive to the ever changing market conditions and increasing the portfolio's capacity to generate income. For those that might be able to do a look back to some of the old published portfolios I am sure you will easily find there has indeed been some holding changes.
Peace ... and, it's time to move on.
Skeet
Your fine granularity of fund selection is not quite my cup of tea (I try to seek out distinctive managers and trust them to do the heavy lifting, missteps and all, within reason), but I do read what you're writing. I appreciate that you explain your thinking, rather than simply writing "here's a fund I like".
I track my performance against a collection of benchmarks, partly because my asset allocation adjusts more than yours does over time, but I just use a 60% Total Stock Market or Total World Stock Market and 40% Total Bond Market as my 'balanced' benchmarks. I'm wondering whether you might have better reasons than I did for choosing the Lipper Index?
Thanks in advance and congratulations on your results!!
THOMSON REUTERS LIPPER Index POLICIES
These exchanges suggest a considerable misunderstanding of my posts. I'll accept responsibility that I did not clearly state my position or intent. Sorry about that failure. Someday I'll learn to express myself more precisely.
In no way did I mean to be critical of anyone's investment policy or tactics. That's far above my pay grade. We all have specific investment objectives that are unique to each of us. More power to the individual investor. We choose our own pathway to wealth and happiness.
I failed to clearly distinguish the difference between an active investor and a day trader. A day trader is definitely an active trader, but all active traders are not day traders. I'm not sure that I can precisely define an active trader. How many trades per year or what average holding period defines an active trader? Any inputs to this question are highly encouraged.
The 1% number that has been linked to my posts comes from an earlier reference that I made on these postings. For completeness, I repeat it here:
http://www.marketwatch.com/story/almost-no-one-can-beat-the-market-2013-10-25
That brief article opened wth the following paragraph:
"Year after year, decade after decade, evidence has piled up that neither individual nor professional investors can outperform broad market indexes consistently over long periods of time."
The author specifically noted that only about 1% of the active investing public (that included active individual investors and mutual fund managers) generate positive Alphas relative to a fair representative benchmark.
I assumed that that statistic is approximately accurate. It need not be exactly right! That statistic speaks to the hard challenges for all investors. It is goodness to be in that limited grouping. Old Skeet managed to fall into this highly successful, elite group. More power to him. I only meant to praise him for overcoming difficult odds. Hooray for Old Skeet!!
Sorry that my writing style did not make my good feelings for Old Skeet's success more positive.. I wish his success for all of us.
Best Wishes
"The more frequently people trade, the worse they do." (Another quote from the column.) So the investing public at large (including both active traders and others who trade less) does better than these "active" traders alone, i.e. more than 1% beat the market.
It's not even close.
Since the 1% line about active traders was attributed in the column to Odean and Barber, why not go to the source? In the Table 1 that I mentioned above, is an entry summarizing an Odean and Barber paper. It states that "the average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually."
Think about that. The average individual investor outperforms active traders by 5%. The terminology from research paper perfectly aligns with your terminology ("individual investors") and terminology in the column ("active traders").
Thank you for your question. I am sorry for the delayed response but I was out of pocket most of the day due to another family member's medical issues. I hate to be short with an answer but I also did not want my response to linger.
I use the Lipper Balanced Index for several reason. 1) It is easy to reference and track along with 2) it represents the combined performance of the most widely held hybrid funds plus 3) I have used it for a good number of years and have historical data that centers around it.
Since, my portfolio is pretty much a balanced portfolio with an equity allocation ranging form 45% to 55% equity. I use my market barometer which I have written about previsouly to drive an equity weighting matrix which in turn is used as an aid to help me throttle my equity allocation within my portfolio.
With this ... I felt the Lipper Balanced Index was a good choice for a bogey and, again, it has been my standard for a good number of years.
Thanks again, for your inquiry.
Skeet
@DavidV
There has been news of late that centers around possible war with North Korea and its effect this is currently having on a richly priced stock market. No doubt, my thinking is, big money has the markets levered up and with this recent news of possible war money is being called home to delever their exposure in the stock market.
Over the past three weeks Old_Skeet's barometer has move from a reading of 143 to 146 to 152 for its weekly close. The barometer measures certain elements of the S&P 500 Index. A barometer reading of 150 represents the mid point of fair value. A reading of 143 would indicate that the Index was about 5% overvalued and now with a reading of 152 just slightly undervalued. The barometer has three feeds. An earnings feed, a breath feed and a technical score feed. With this, it combines both fundmentals and technicals to produce a numerical reading. Generally, a higher barometer reading indicates there is more investment value in the 500 Index over a lower barometer reading.
Pursuant to your inquiry.
I had to go back in the stack and look for post that contained writtings about the barometer. Below are a few of the links dating back to February 2017 where the barometer was discussed in some detail. There are some others but you will have to troll to find them.
http://www.mutualfundobserver.com/discuss/discussion/31155/the-markets-and-more-january-31-2017#latest
http://www.mutualfundobserver.com/discuss/discussion/31176/the-markets-more-february-3-2017#latest
http://www.mutualfundobserver.com/discuss/discussion/31302/the-markets-and-more-tuesday-february-14-2017#latest
http://www.mutualfundobserver.com/discuss/discussion/31322/the-markets-and-more-wednesday-february-15-2017#latest
I hope this information is helpful.
Old_Skeet
http://mutualfundobserver.com/discuss/discussion/24926/old-skeet-s-new-portfolio-asset-allocations-2016
As there has been a good bit of changes in the holdings since then I am linking through this post the most current portfolio's holdings. A good bit of money has been moved left within the portfolio (since December of 15) into more conserative investments as the stock market has become more richly priced. Some sleeves and their holdings have been increased while others have been reduced. The growth area of the portfolio is where I am the most active with positioning naturally some takes place within the other sleeves as well. In tracking my portfolio through Morningstar Portfolio Manager it has had an investment return (excluding cash) year-to-date through July 2017 of 9.1% and for my bogey (The Lipper Balanced Index) 8.4%.
So, where did the money go?
From the reduction in the number of funds held in the growth & income area, the domestic equity sleeve was reduced from six funds to three funds. In the growth area funds were reduced from six to three in the global growth sleeve and from four to three in the large/mid cap sleeve. These monies were used to expand the holdings in the income area form thirteen funds to eighteen along with restablishing my CD ladder. So, indeed a good bit of money was moved left within the portfolio while some was added to current positions in the growth & income and growth areas plus there were also a holding change made within the global hybrid sleeve and some funds were moved from one sleeve to another. So, with this one can see Old_Skeet had indeed been active.
Sleeve Management System ... Here is how it works.
Now being in retirement here is a brief description of my sleeve management system which I organized to help better manage the investments held within mine & my wife’s combined portfolios. Currently, the master portfolio is comprised of two taxable investment accounts, two self directed retirement accounts, a health savings account plus two bank accounts. With this, I came up with four investment areas. They are a cash area which consist of two sleeves … an investment cash sleeve and a demand cash sleeve. The next area is the income area which consists of two sleeves … a fixed income sleeve and a hybrid income sleeve. Then there is the growth & income area which has more risk associated with it than the income area and it consist of four sleeves … a global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. An finally there is the growth area, where the most risk in the portfolio is found and it consist of five sleeves … a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve, a specialty/theme sleeve plus a special investment (spiff) sleeve. Each sleeve (in most cases) consists of three to nine funds with the size and the weight of each sleeve can easily be adjusted, from time-to-time, by adjusting the number of funds and amounts held. By using the sleeve system one can get a better picture of their overall investment landscape and weightings by sleeve and area. In addition, I have found it beneficial to Xray each fund, each sleeve, each investment area, and the portfolio as a whole quarterly. Again, weightings can be adjusted form time-to-time as to how I might be reading the markets along with using a market barometer that drives an equity allocation weighting matrix as an aid to help set the stock allocation weighting. All funds pay their distributions to the cash area of the portfolio with the exception being those in my health savings accounts where reinvestment occurs. With the other accounts paying to the cash area builds the cash area of the portfolio to meet the portfolio’s monthly cash disbursement amount (if necessary) with the residual being left for new investment opportunity. Generally, in any one year, I take no more than a sum equal to one half of my portfolio’s average five year return. In this way, principal builds over time. In addition, most buy/sell trades settle from, or to, the cash area with some net asset value exchanges between funds taking place between funds.
Last revised: 07/31/2017 Master Portfolio
Here is how I have my asset allocation broken out in percent ranges, by area. My neutral allocation weightings are cash 20%, income 30%, growth & income 35%, growth & other assets 15%. I do an Instant Xray analysis on the portfolio quarterly (sometimes monthly) and make asset weighting adjustments as I feel warranted based upon my assessment of the market, my risk tolerance, cash needs, etc. Currently, according to Morningstar Instant Xray, I am about 20% in the cash area, 25% in the income area, 35% domestic stock area, 15% foreign stock area & 5% in the other asset area. In addition, I have the portfolio set up in Morningstar’s Portfolio Manager by sleeve and as a whole for easy monitoring plus I use brokerage account statements along with some other Morningstar reports for information and tools helpful in managing the portfolio.
Cash Area (Weighting Range 15% to 25% with neutral weighting being 20%)
Demand Cash Sleeve… (Cash Distribution Accrual & Future Investment Accrual)
Investment Cash Sleeve … (Savings & Time Deposits)
Income Area (Weighting Range 25% to 35% with neutral weighting being 30%)
Fixed Income Sleeve: BAICX, CTFAX, FMTNX, GIFAX, LALDX, LBNDX, NEFZX, THIFX & TSIAX
Hybrid Income Sleeve: APIUX, AZNAX, CAPAX, DIFAX, FISCX, FKINX, ISFAX, JNBAX & PGBAX
Growth & Income Area (Weighting Range 30% to 40% with neutral being 35%)
Global Equity Sleeve: CWGIX, DEQAX & EADIX
Global Hybrid Sleeve: CAIBX, PMAIX & TIBAX
Domestic Equity Sleeve: ANCFX, FDSAX & SVAAX
Domestic Hybrid Sleeve: ABALX, AMECX, DDIAX, FBLAX, FRINX, HWIAX & LABFX
Growth Area (Weighting Range 10% to 20% with neutral weighting being 15%)
Global Sleeve: ANWPX, SMCWX & THOAX
Large/Mid Cap Sleeve: AGTHX, SPECX & VADAX
Small/Mid Cap Sleeve: PCVAX, PMDAX & TSVAX
Specialty & Theme Sleeve: LPEFX, PGUAX & NEWFX
Spiff Sleeve: None at this time.
Total Number of Mutual Fund Positions = 46