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Investing for dummies?
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[link=https://www.nytimes.com/2017/09/22/business/apple-investment.html]https://www.nytimes.com/2…/apple-investment.html[/link]
“The majority of common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills. These results highlight the important role of positive skewness in the distribution of individual stock returns, attributable both to skewness in monthly returns and to the effects of compounding. The results help to explain why poorly-diversified active strategies most often underperform market averages.”
“Individual common stocks tend to have rather short lives. The median time that a stock is listed on the CRSP database between 1926 and 2016 is seven and a half years.”
“Approximately 25,300 companies that issued stocks appearing in the CRSP common stock database since 1926 are collectively responsible for lifetime shareholder wealth creation of nearly $35 trillion dollars, measured as of December 2016. However, just five firms (Exxon Mobile, Apple, Microsoft, General Electric, and International Business Machines) account for ten percent of the total wealth creation.”
[link=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447]https://papers.ssrn.com/s…fm?abstract_id=2900447[/link]
The world is fat-tailed. Fascinating. -
516 Replies
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What I got from reading this:
Most of the US stock market gain is attributed to only a small percentage of stocks. The vast majority actually underperform.
Theoretically, if you can pick only the “home run” stocks, you will have extreme positive gains.
However, for all those who aren’t gifted and/or lucky investors (pretty much everyone): just stick to simple and easy broad diversification, which ultimately still do better than treasury bills.
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Another paradox of the market.
If everyone believes stocks are a good deal, they aren’t.
The equity risk premium is bid down to near zero. The business cycle and volatility eat up the rest.
When stocks look good they aren’t and when they look terrible they are a great investment.Lost decade of the stock market 2000-2010?
NASDAQ 2000?
Speculation is most dangerous when it looks easiest. Buffett
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Listen to warren buffet and white coat investor. Invest in low-cost index funds like vanguard VOO.
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Will Envision or RP or Mednax be on the list someday? 😉
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Quote from drad123
Will Envision or RP or Mednax be on the list someday? 😉
only if they ever do well enough to be bought out by one of the actual winners. [:D]
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Quote from doctorrads
Listen to warren buffet and white coat investor. Invest in low-cost index funds like vanguard VOO.
Indexing does capture the winners but also the losers. You do get the market return 4-6% equity risk premium in the long run with the so called “least amount of risk”.
Is it worth the volatility and risk?
Yearly standard deviation of 18-20% and occasional drawdowns which require a decade to recover from? I wonder.-
Invest passively and live your life actively.
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Quote from yesterdaysnews
Invest passively and live your life actively.
I like this saying.
There will always be ways to make more money. With enough time and energy, anyone can beat index funds. One example I can think of is as doctors, we have the basic knowledge of which pharmaceutical drugs will likely move onto the next clinical trial. (another generic form of protonix? sure. cancer drug? less likely). If you do the research, you can find out the date of when the drug moves to the next trial, which is also when the company’s stock gets a spike in value. If you can buy before the spike and sell right afterwards, you can get very rich, very fast.
But the time and energy it takes to actively keep up on research isn’t worth my time. Radiologists will already make enough.
Passive investment is the sweet spot between maximum money for minimum time.-
Quote from oodnap
Quote from yesterdaysnews
Invest passively and live your life actively.
With enough time and energy, anyone can beat index funds.
Passive investment is the sweet spot between maximum money for minimum time.
I disagree with the first statement as it requires certain personal characteristics which are not common. However I agree with the latter statement for people who are not in the first group or do not want to spend any time on this if they are in the first group
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To the poster above on Warren Buffet
Warren buffet does not invest in index funds
Index funds are good for people who dont know anything or care to learn
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Quote from kpack123
To the poster above on Warren Buffet
Warren buffet does not invest in index funds. Therefore he doesn’t think they are good?
I think he has stated that only a select few have beaten the market and indexing is a great way for most to invest.Index funds are good for people who dont know anything or care to learn?
This sounds like opinion. An opinion that happens to be false.
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The returns of 54,015 non-overlapping samples of 10 year holding periods for individual stocks
CRSP data
most common outcome for individual stocks- 100% loss.
How can beta be a measure of risk when it assumes a normal distribution. This graph is not normal.
Measuring risk in investing is much like measuring disease in medicine. -More “art” than science.
I think there is much more to profit than mere risk.-
whenever a conversation turns to CAPM or its related variables such as beta, I can’t contribute much because my understanding is rudimentary at best. I see where you’re coming from with your question about beta’s validity when it assumes a normal distribution, but I don’t know enough to reaffirm or refute. If you have any resources to recommend for learning about investing, I’d be all ears.
The article you’ve shared ends with this:
“While the overall stock market outperforms Treasury bills, most individual common stocks do not…
…These results reaffirm the importance of portfolio diversification, but focus attention on the fact that poorly diversified portfolios may omit the relatively few stocks that generate large positive returns.”
To me, that’s reaffirmation for
1) stock market > treasury bills, and
2) invest in index funds-
Quote from oodnap
The article you’ve shared ends with this:
“While the overall stock market outperforms Treasury bills, most individual common stocks do not…
…These results reaffirm the importance of portfolio diversification, but focus attention on the fact that poorly diversified portfolios may omit the relatively few stocks that generate large positive returns.”To me, that’s reaffirmation for
1) stock market > treasury bills, and
2) invest in index funds
Yes in the past this has been true.
Who owns the market?
Increasingly, it’s retirement plans.
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Are shareholders just employees who provide money instead of labor?
When shareholders are widely dispersed, how can they keep managers in check? Only by selling shares or casting votes. (ie. they can’t.)
The real mechanism for corporate governance is the active involvement of the owners.
Louis V. Gerstner, Jr.
No. Set it and forget it is not a panacea- more like a recipe for disaster.
Ownership becomes diluted as ownership dispersion increases. The index fund and lower trading costs are dispersing ownership at a high rate.
Could this explain crazy executive compensation?
“Will the real owners please stand up?”
Since the 1990s, CEO compensation in the US has outpaced corporate profits, economic growth and the average compensation of all workers. Between 1980 and 2004, Mutual Fund founder John Bogle estimates total CEO compensation grew 8.5% year, compared to corporate profit growth of 2.9%/year and per capita income growth of 3.1%
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“Something is rotten in the state of Denmark.” Hamlet (1.4), Marcellus to Horatio
[link=http://webuser.bus.umich.edu/jpwalsh/PDFs/Bogle%20-%202008%20-%20Reflections%20on%20CEO%20compensation%20–%20AMP%20paper.pdf]http://webuser.bus.umich….20–%20AMP%20paper.pdf[/link] -
yeah, and the intermediaries – people who run the various funds – have conflicts of interest. For instance if Fidelity starts giving GE a hard time for poor governance, then maybe GE and other companies sympathetic to GE quit using Fidelity to run their retirement plans.
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To the poster above on Warren Buffet
Warren buffet does not invest in index funds
Index funds are good for people who dont know anything or care to learn
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I always get a kick out of how all the rads I know think they are another Buffet. Get a grip. Being able to read xrays doesn’t mean you are also capable of being some savant investor.
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Don’t confuse brains with a bull market.
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Id like to see kpac post his trades in real time with exit points , stop losses etc.
until then , useless to say how etfs are for dummies.-
I agree with kpack. Index funds are for people who don’t know anything about investing. In fact, even Warren Buffett says this. Buffett also says that investing in long bonds (which most rads here on AM probably do) is “idiotic” in recent years, with which I agree.
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No one has timed the market more than once. Fools keep trying.
The vast majority of doctors cannot pick stocks like a Peter Lynch, and they will not put in the time it takes to even have a shot at beating the Wilshire 5000 with dividends reinvested. And if one is ae putting the amount of time in that needs to be done to pick stocks in a significant portfolio, one is probably neglecting radiology.
But keep trying, the “stock pickers” are what makes index funds returns so good.
I had a neighbor 15 years ago who claimed that index funds were passe, and that with all the new technology and computers, he could beat the market..used options and all sorts of tools. He was so convincing, I almost though he was on to something, but being a Boglehead, I knew he was FOS. They lived in a nice home, nice wife, private schools, luxury cars, country club..all the trappings of materialistic wealth. Then 2008 financial crisis hit. Lost [i]everything[/i]. Including his and her retirement money. Divorced.
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To wisdom
I dont trade much
Im a buy and holder with reinvesting dividends
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To wisdom
I dont trade much
Im a buy and holder with reinvesting dividends
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duplicate
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Quote from DiogenesDog
I agree with kpack. [b]Index funds are for people who don’t know anything about investing. [/b] In fact, even Warren Buffett says this. Buffett also says that investing in long bonds (which most rads here on AM probably do) is “idiotic” in recent years, [b]with which I agree[/b].
Knowing a little bit can be very dangerous. Knowing nothing is usually better.
If someone can beat the market [b]constantly[/b] with significant margin, they are wasting their time and energy in radiology.
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Quote from DiogenesDog
Index funds are for people who don’t know anything about investing. In fact, even Warren Buffett says this.
Huh?
“Consistently buy an S&P 500 low-cost index fund. I think it’s the thing that makes the most sense practically all of the time.”
“The trick is not to pick the right company. The trick is to essentially buy all the big companies through the S&P 500 and to do it consistently.”
“Costs really matter in investments. If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”
~Warren Buffett on index fund investing
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Those statements are not inconsistent dergon.
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I agree. Some people equate buying investments with risk higher than the index with genius, particularly in bull markets. If you have higher risk, you should expect higher (not excess) profits. You should also expect higher losses. Even Warren has trouble beating the index. A WSJ article this weekend says he averaged 7.7% yearly returns over the last 10 years. The SP 500 averaged 8.5% (with dividends). Ops! In other words, Warren didnt do as well as us dumb idiots who bought the index. Studies have shown that it is incredibly difficult to beat the market over the long term. I decided long ago it was not worth putting in my time and effort to try and be one of them. I do have a small amount that I play around with. Perhaps I’ll put some in GE. A contrarian might also wait until you bottom feeders are all in and then short.
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I actually did buy GE this week in my IRA
It will be up 50% at least in the next few years
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Definitely. And sears is sure to rebound as well
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That was a funny reply, Angrybirds.
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Best time to make money is when the blood runs in the streets
GE pieces are worth twice of what it is trading now
No brainer
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GE Price to book is 1.9
Decent but that is actually higher than it should be because they are going to shed some stuff this quarter and next
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I don’t disagree, I bought GE too. Still, there is a lot more that can go wrong with them and I consider it speculation and only allocate a small % of investment $ to that kind of play.
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I just started trading on forex. Good returns thus far. But I consider it a gambling account. My strategy is to make a small bet and to increase it if I am losing. Goal to get 20% monthly returns.
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Any good Forex trading strategies or signal systems out there? I cannot find anything reputable.
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Quote from TAP
Even Warren has trouble beating the index. A WSJ article this weekend says he averaged 7.7% yearly returns over the last 10 years. The SP 500 averaged 8.5% (with dividends). Ops! In other words, Warren didnt do as well as us dumb idiots who bought the index.
Cherrypicking periods is an example of being clueless. Buffett has significantly outperformed the market over his very long investing career. The only reason why he isn’t leaps and bounds ahead in the last decade is because he’s limited to very large acquisitions to move the needle. Investing gets harder the more capital you are investing. If he was investing with the capital of most radiologists, he would be making 30-50% returns, as he did during the early part of his career.-
Arguing what buffet may or may not do is useless. We are not him.
Im up for people posting their trades in here along with reasoning and performance.
The only rads I know who are beating the market are the ones who heavily invested in FANG 2 years ago, disproportionate to portfolio size 10 percent of portfolio in amazon etc -
I dont think using the most recent 10-year average is cherry picking. Your next few sentences indicate you dont believe that. WSJ shows Buffetts results over market have been going down the last 20 years. The WSJ suggests that, yes, it likely is size. I regret having mentioned him. I agree with Wisdom that Buffetts performance is not relevant to us. He buys, manages, influences companies. We cant do that. My main point again is that studies have shown that there is are exceedingly few people that can beat the market over the long term. I am highly skeptical that, as this forum suggests, a disproportionate percentage of this small number are radiologists.
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Dude there are supercomputers literally of millions of finance professionals and stuff analyzing every corner of the stock market these days. Buffet made his money back in the dark ages where value plays were harder to find. There are no market beating buffet Jrs on this joke of a forum.
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Funny that some people compare bunch of radiologists to Warren Buffet.
No wonder why many physicians are still working at the age of 70 and don’t have enough savings to retire. All of them thought that they were a Warren Buffet at some point during their career.
I recommend everyone this book:
“Fooled by Randomness” by Nassim Nicholas Taleb.
It is very relevant to recent boom in stock market. If you bought some Facebook stocks a few years ago and have made a very good profit, don’t think you are better than Warren Buffet. You were just simply “Lucky”.
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There is a lot of misinformation on this forum. Nearly all of the studies that I have seen comparing index funds to mutual funds use size able mutual funds with expense ratios. Individual investors have a much larger number of securities to pick from as they do not have the disadvantage of a large amount of capital to employ. They also do not have an expense ratio as a drag on returns. Transaction costs with the exception of taxes are negligible and one doesn’t pay taxes in a retirement account. Index funds are the best choice for most but not for all. It also is egotistical to believe that another cannot be skilled at multiple disciplines, such as investing and radiology, because you are incapable of it
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Show us your brokerage statements for the last 20 years.
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Anything that this disproves their thesis is called cherry picking. The learned this mindset from boggleheads.
We can say that gold has outperformed US broad index funds over the last 20 years (which it has), and they say that’s also cherry picking.
We can say that San Francisco/LA/Honolulu real estate values have doubled every 10 years over the last 40 years, they will tell you that 40 years is nothing, its overvalued, reversion to the mean, blah blah. The most super conservative and dogmatic people are on that forum.
Also, they think that having to wait to start receiving cash flow until you’re old or dead is a sound investment strategy.
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But those real estate investors had to make payments. Many crashed in 2008. It only takes a year, or two underwater, to kill investors, mercilessly.
Renters without jobs?
Hard times ahead for you rebirth, if your stories are true.
How are those atms doing? Automatic Covid machines?
You entertain me.
I still can’t believe you are even real; like a cartoon.
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I’ve received 100% of my distributions for April (both active rentals and passive real estate partnerships)
Money printing will only make me wealthier. Tenants have free money in their pockets, and with all this inflation they are creating, my 30 year, low interest, FIXED mortgage payment will soon be worth 2 big macs! Lenders lose.
I will reach my total passive cash flow for 2019, by May of 2020 🙂
Keep rooting for ‘hard times” for me. It seems that the only thing naysayers are good at is making me rich. -
Great timing on your part to ask. ATM distribution came like clockwork around the 25th of the month (top line). Next line is a tenant paying rent. Third line is a small carryback that the syndication sponsor reimbursed us (that large apartment syndication returned a >32% IRR net to us investors). Life is good my friend [;)][attachment=0]
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Quote from drad123
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[link=https://www.nytimes.com/2017/09/22/business/apple-investment.html]https://www.nytimes.com/2…/apple-investment.html[/link]“The majority of common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month
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.That’s kind of a silly way of looking at it. Yes, if someone was to buy ‘all stocks that were ever traded’, they will buy just as many dogs as winners. Most indices require a certain market cap to list a stock, so you are going to automatically weed out the penny stocks and the 1920s era fraudulent railroad schemes.
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One person showing a brokerage statement will not prove or invalidate my discussion above as to why the referenced studies are not directly applicable to individual investors
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Very true
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I’m going to prove it tomorrow, SCOTUS decision gonna be a big boon for my main holding (nearly 100%)
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Quote from fw
Quote from drad123
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[link=https://www.nytimes.com/2017/09/22/business/apple-investment.html]https://www.nytimes.com/2…/apple-investment.html[/link]“The majority of common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns less than one-month
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.That’s kind of a silly way of looking at it. Yes, if someone was to buy ‘all stocks that were ever traded’, they will buy just as many dogs as winners. Most indices require a certain market cap to list a stock, so you are going to automatically weed out the penny stocks and the 1920s era fraudulent railroad schemes.
I think you missed the point of the article. Returns are positively skewed. I you buy the market you will buy many more dogs than winners but still come out with the market return which is better than the majority of active traders and active fund managers.
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One thing Ive noticed over the years
The index fund argument always comes up when the market is high
…….. but you never hear a damn word about how great they are when the market has a down period
What Ive learned is good companies with increasing dividends beat the market year in and year out without exception
Index funds are ok for those who dont want to take the the time an effort to educate themselves
Thats just how it is
Sorry if the truth hurts your feelings
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Btw
Just made a quick 2500$ on my GE investment from last week
Fees- 7.99 times 2 for trading
No taxes owed because I bought it in my IRA
If it goes back to 14 I will buy it back
Index funds rule…… Right???
Just keep telling yourself that
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This is short term trading. Not buy and hold.
You could have bought qqq. I m up 8 percent on a single stock I bought 2 weeks ago. Means nothing as my other 35 are moving in line or less that market over all-
Its in an IRA
Its 2500$ gain in less week with no tax consequences
I would not do this in my taxable accounts
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Ive always set aside 20% of my IRA money to play with
Just my thing to stay in touch with the day to day market events
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Quote from kpack123
Btw
Just made a quick 2500$ on my GE investment from last week
Fees- 7.99 times 2 for trading
No taxes owed because I bought it in my IRA
If it goes back to 14 I will buy it back
Index funds rule…… Right???
Just keep telling yourself that
Market efficiency implies that stock prices fully reflect all publicly available information instantaneously; thus no investment strategies can systematically earn abnormal returns.
The [b]joint hypothesis problem[/b] refers to the fact that testing for market efficiency is problematic, or even impossible. Any attempts to test for market (in)efficiency must involve asset pricing models so that there are expected returns to compare to real returns. It is not possible to measure ‘abnormal’ returns without expected returns predicted by pricing models. Therefore, anomalous market returns may reflect market inefficiency, an inaccurate asset pricing model or both.
In sum, joint hypothesis problem implies that market efficiency per se is not testable.
FAMA, E.F., 1991. Efficient Capital Markets: II. The Journal of Finance, 46(5), pp. 1575.
Paradox rearing its ugly head again?
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Robert Monks
A few more ideas about why corporate management seems to be winning in America- shareholders and employees? Not so much.
“Down with big brother!” Winston Smith-
When Chris Holden and his C-suite minions take 100 to 200 million compensation off the backs of radiologists in addition to compensating shareholders 6-7 percent real for buying our labor (hospital contract) maybe some on this site will come to know that something is terribly wrong in America.
20 dollars per rvu- Yahoo!
Rads will come to know what has been happening to the common man for the last 30 years. Financialization and corporate unaccountable tyranny.
“All animals are equal, but some animals are more equal than others.”
Orwell, Animal Farm, on abuse of language and logic in the name of control.
Envision Newspeak
“in partnership with local radiologists who share our vision” partnership?
“superior quality and service come from experience” experience?
“being a part of the communities we serve as well.” they are never around, never to be found.
“radiology services with cloud-based technology that aims to improve provider utilization and efficiency” utilization is not addressed
“leverages our innovative radiology care model” yeah, the permanent non partnership track on the RVU treadmill.
“Radiology groups remain largely fragmented and there is increasing strategic value in integrating this specialty with our emergency medicine, hospital medicine, anesthesia and womens and childrens specialties and subspecialties to create an increasingly compelling offering to health systems who are focusing on care coordination and outcomes. Compelling? try monopolistic, they jack up prices to insurers and screw providers- 20 per RVU
“we are masters of clinical operations, and we have the infrastructure to support and accomplish our partners strategic objectives.” We read on the hospital provided PACS and the hospital sends data electronically to McKesson- set it and forget it. LOL Some infrastructure-
All the more reason to establish multiple income streams
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Quote from DiogenesDog
Cherrypicking periods is an example of being clueless. Buffett has significantly outperformed the market over his very long investing career. The only reason why he isn’t leaps and bounds ahead in the last decade is because he’s limited to very large acquisitions to move the needle. Investing gets harder the more capital you are investing. If he was investing with the capital of most radiologists, he would be making 30-50% returns, as he did during the early part of his career.
This is speculative. The world is different and much more competitive place. An information advantage is much harder to acquire now. -
And werent you the one who asked if would post a real time trade?
I guess the bottom line is we all adopt an investment style thats in our comfort level……. then we convince ourselves that it is the best and only way for anyone to possibly invest
The difference is some of us are more intellectually honest with ourselves and learn from what we do right and wrong and try to improve performance while others take the lazy way out and convince themselves that any attempt at resisting is futile
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I wonder what would happen to lot of the stocks if indexing went out of vogue. Like it is a good way to invest now just because everyone thinks it is a good way to invest.
Tangential question – I wonder what proportion of a given stocks trades are from indexing transactions. I have no clue.
I believe people can beat the market. I also think there are some people who have beaten the market just by luck. i.e. just by dumb luck 5% would be in top 5% over any given time period ……
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Quote from illinois
I wonder what would happen to lot of the stocks if indexing went out of vogue. Like it is a good way to invest now just because everyone thinks it is a good way to invest.
Tangential question – I wonder what proportion of a given stocks trades are from indexing transactions. I have no clue.
I believe people can beat the market. [b]I also think there are some people who have beaten the market just by luck. [/b]i.e. just by dumb luck 5% would be in top 5% over any given time period ……
Let me rephrase it for you: Most people who have beaten the market, did it just by luck.
I also wonder what happens if everyone buys index funds. It seems the number of people who are investing in index funds (especially for their retirement plans) is going up. There is a saying that if you make money in stock market it is because someone else is losing. Now the question is if everyone follows the same pattern of buying and holding index funds, who is going to lose money?
Look at the volume and market cap of some of the index funds, mutual funds and ETFs. It is crazy high. I don’t have the number. But for example APPLE stock is a great portion of many of index funds. My best guess is that most of APPLE Stock is owned through index funds.
This was not the norm 20 years ago. As a result, I am not sure index funds are good anymore. It was a good concept when most people used to buy and sell individual stocks. So there were losers and there were winners and people could make SOME money by buying and holding INDEX funds by taking profit out of those who lost money in trading individual stocks. However, these days that many people trade mostly or only index funds, it is not going to benefit the index fund owners as much as before.Summary: My best guess is that the index funds are not going to be as useful/as profitable as before.
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yeah. I am not sure re saying re someone is losing- unless the loss is computed in opportunity cost
I think definitely with FOREX someone is winning while another is losing. In other words I don’t think the entire FOREX can go up in a day( I guess except with deflation in a sense) but I think the stock market can. -
It seems like we have this discussion every year or two. Also, people seem to gang up on Kpack every time because they disagree with his investment style.
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When the market is high people convince themselves that indexing is easy and requires no thought and its just as good as the smart gurus
Thats all we are seeing now
Give this market a year or 2 of breaking even or negative and the indexers will crawl back into their CDs
Seen this rodeo 3 times before
Again indexers are people who are too lazy or too disinterested in learning how to invest
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….. and my personal favorite is having a resident or newbie grad with more debt than equity tell me not only how to invest but that there is only one way to invest because they read it in biggleheads or white coat investor
Thats my favorite
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As for the guy above
You have no idea what the tax laws will look in 20 years when I need to tap into my IRA….. if I ever need to tap into it
Nor do you understand the way to avoid taxes by gifting and other mechanisms that will kick into play at that time
If you are happy with 9% returns annually then good for you but please dont give advice….. because given the fact that market has tripled in the past 20 years……. 9% actually sucks
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A good return for the past 10 years would be 12-13% per year
Some of us have actually done better than that
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Basically the market is up 200%
You are up 100%
And you are blowing your own horn
Think about what is wrong with indexing and that picture
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I will pay the extra taxes on the 200%
You keep the 100%
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Quote from kpack123
Basically the market is up 200%
You are up 100%
And you are blowing your own horn
Think about what is wrong with indexing and that picture
I only wish that wisdom were the kind of thing that flowed from the vessel that was full to the one that was empty.
Plato, [i]Symposium[/i], 175d
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Ha, ha, kpack thinks he can provide alpha/beat market when the leading professional investors, hedge fund managers, pension fund managers who do this for a living cant consistently.
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Do the math
You are up a little over 100% over 10 years
The market is up around 200%
How are you doing Really really well?
To keep up with the market you need to be closer 12-13%
Not trying to be a smart arse just stating the obvious
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Do the math
You are up a little over 100% over 10 years
The market is up around 200%
How are you doing Really really well?
To keep up with the market you need to be closer 12-13%
Not trying to be a smart arse just stating the obvious
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Duplicate post
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Quote from kpack123
As for the guy above
[b]You have no idea what the tax laws will look in 20 years when I need to tap into my IRA….. if I ever need to tap into it [/b]
Nor do you understand the way to avoid taxes by gifting and other mechanisms that will kick into play at that time
If you are happy with 9% returns annually then good for you but please dont give advice….. because given the fact that market has tripled in the past 20 years……. 9% actually sucks
The tax laws may be worse. You never know.
What do you mean by “don’t need to tap into it”? You will leave it there? What is the point of making all this money that you are bragging about and not using it?-
Not needing it means
I have had an income replacement plan in effect for the last 15 years
My goal was to Replace my physician salary with non medical related income because I didnt want to be dependent on my physician based income forever and wanted the cash flow to maintain the lifestyle I choose
I have no debt. My houses are paid off. My kids education funded. So I figured I need 350K annually without touching any of my principle to do what I want to do pretty much for the rest of my life and leave the rest to my kids grandkids charity whatever.
In order to do that I did the following
1. In non retirement accounts Im mostly invested in dividend paying stocks specifically stocks with a track record of increasing dividends…. my goal 10,000 per month which would give me 120K per year
2. I started investing in real estate and rental properties. Currently I have over 30 total units and a small office building….. the goal was 15,000 cash slow per month thats 180K per year
So 120K +180K =300K
3. In order to get the rest Ive started a bike and outdoor/fitness shop and last year opened up a Pet day care
Hopefully that puts me over the top
So if it does I really wont need my retirement savings
I can take out the minimum and gift it or do whatever I want with it
When I and my wife kick the bucket it goes to my kids grandkids charity etc
Thats basically the plan
Im 80% there as of age 50
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Quote from kpack123
Not needing it means
I have had an income replacement plan in effect for the last 15 years
My goal was to Replace my physician salary with non medical related income because I didnt want to be dependent on my physician based income forever and wanted the cash flow to maintain the lifestyle I choose
I have no debt. My houses are paid off. My kids education funded. So I figured I need 350K annually without touching any of my principle to do what I want to do pretty much for the rest of my life and leave the rest to my kids grandkids charity whatever.
In order to do that I did the following
1. In non retirement accounts Im mostly invested in dividend paying stocks specifically stocks with a track record of increasing dividends…. my goal 10,000 per month which would give me 120K per year
2. I started investing in real estate and rental properties. Currently I have over 30 total units and a small office building….. the goal was 15,000 cash slow per month thats 180K per year
So 120K +180K =300K
3. In order to get the rest Ive started a bike and outdoor/fitness shop and last year opened up a Pet day care
Hopefully that puts me over the top
So if it does I really wont need my retirement savings
I can take out the minimum and gift it or do whatever I want with it
When I and my wife kick the bucket it goes to my kids grandkids charity etc
Thats basically the plan
Im 80% there as of age 50
Great. That’s impressive. Good Luck.
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Quote from kpack123
“You have no idea what the tax laws will look in 20 years when I need to tap into my IRA….. if I ever need to tap into it .”
As per IRA statute you will pay ordinary income tax instead of preferred dividend/capital gains rates when you take out the money. Withdrawal is mandatory at 70.5 years of age- Roth IRA is an exception.
As a rough approximation, the benefits of tax deferral are equivalent to facing a zero rate of tax on investment income.
Investment Company InstituteNor do you understand the way to avoid taxes by gifting and other mechanisms that will kick into play at that time
If you are happy with 9% returns annually then good for you but please dont give advice….. because given the fact that market has tripled in the past 20 years……. 9% actually sucks
I am not advising you on what to do.
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[attachment=0]
High frequency traders top the list
Quote from illinois
I wonder what would happen to lot of the stocks if indexing went out of vogue. Like it is a good way to invest now just because everyone thinks it is a good way to invest.
Tangential question – I wonder what proportion of a given stocks trades are from indexing transactions. I have no clue.
I believe people can beat the market. I also think there are some people who have beaten the market just by luck. i.e. just by dumb luck 5% would be in top 5% over any given time period ……
Active investors are the entities that set prices in a market. Passive investors cannot set prices, first because they do not have any fundamental notion of the correct prices to set, and second because their transactions are [i]forced[/i] to occur immediately in order to preserve the passivity of their allocationsthey cannot simply lay out desired bids and asks and [i]wait[/i] indefinitely for the right prices to come, because the right prices may never come. To lay out a desired bid and ask, and then wait, is to [i]speculate[/i] on the future price, and passive funds dont do that. They take whatever price is there.
99% of the market could be passive.
“Why dont more active investors instead choose the passive option, which would allow them to avoid paying the costs of having a well-functioning market, and which would net them a higher average return in the final analysis?
The answer, in my view, is two-fold:
(1) The Powers of Persuasion and Inertia: For every active manager, there will always be some group of investors somewhere that will be persuaded by her argument that she has skill, and that will be eager to invest with her on the promise of a higher return, even though it is strictly impossible for the aggregate group of managers engaged in that persuasive effort to actually [i]fulfill[/i] the promise. Moreover, absent a strong impetus, many investors will tend to stay where they are, invested in whatever theyve been invested inincluding in active funds that have failed to deliver on that promise.
(2) The Framing Power of Fee Extraction: Fees in the industry get neglected because they are extracted in a psychologically gentle way. Rather than being charged as a raw monetary amount, they are charged as a percentage of the amount invested. Additionally, rather than being charged abruptly, in a shocking one-time individual payment, they are taken out gradually, when no one is looking, in [i]teensy-weensy[/i] daily increments. As a result, an investor will end up framing the $10,000 fee she might pay on her $1,000,000 investment not as a literal payment of $10,000 that comes directly out of her own pocket, but rather as a negligible skim-off-the-top of a much larger sum of money, taken out when no one is looking, in miniscule incremental shavings that only accumulate to 1% over the course of a full year.”
[link=http://www.philosophicaleconomics.com/2016/05/passiveactive/]http://www.philosophicale…2016/05/passiveactive/[/link]
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Quote from drad123
[attachment=0]
High frequency traders top the list
Quote from illinois
I wonder what would happen to lot of the stocks if indexing went out of vogue. Like it is a good way to invest now just because everyone thinks it is a good way to invest.
Tangential question – I wonder what proportion of a given stocks trades are from indexing transactions. I have no clue.
I believe people can beat the market. I also think there are some people who have beaten the market just by luck. i.e. just by dumb luck 5% would be in top 5% over any given time period ……
[b]Active investors are the entities that set prices in a market. Passive investors cannot set prices,[/b] first because they do not have any fundamental notion of the correct prices to set, and second because their transactions are [i]forced[/i] to occur immediately in order to preserve the passivity of their allocationsthey cannot simply lay out desired bids and asks and [i]wait[/i] indefinitely for the right prices to come, because the right prices may never come. To lay out a desired bid and ask, and then wait, is to [i]speculate[/i] on the future price, and passive funds dont do that. They take whatever price is there.
That may be but that doesn’t mean that they have [b]no impact on prices[/b]. If I listed a stock for sale and an index didn’t exist to buy it, then maybe I would drop my price…..
interesting graph btw re HFT-
Quote from illinois
Quote from drad123
[attachment=0]
High frequency traders top the list
Quote from illinois
I wonder what would happen to lot of the stocks if indexing went out of vogue. Like it is a good way to invest now just because everyone thinks it is a good way to invest.
Tangential question – I wonder what proportion of a given stocks trades are from indexing transactions. I have no clue.
I believe people can beat the market. I also think there are some people who have beaten the market just by luck. i.e. just by dumb luck 5% would be in top 5% over any given time period ……
[b]Active investors are the entities that set prices in a market. Passive investors cannot set prices,[/b] first because they do not have any fundamental notion of the correct prices to set, and second because their transactions are [i]forced[/i] to occur immediately in order to preserve the passivity of their allocationsthey cannot simply lay out desired bids and asks and [i]wait[/i] indefinitely for the right prices to come, because the right prices may never come. To lay out a desired bid and ask, and then wait, is to [i]speculate[/i] on the future price, and passive funds dont do that. They take whatever price is there.
That may be but that doesn’t mean that they have [b]no impact on prices[/b]. If I listed a stock for sale and an index didn’t exist to buy it, then maybe I would drop my price…..
interesting graph btw re HFT
You are confusing demand with the active/passive debate.
Prices depend on demand not whether the buyer is man or woman, active or passive, black or white.
In general buyers push prices up and sellers push prices down assuming all parties are motivated to complete a transaction and the market is competitive.-
I never said that black/white/man/woman had anything to do with this….
I said I wondered what would happen to a lot of stock prices if indexing diminished. i.e. would they overall be less/more, would some stock prices be higher and others lower etc…?
you said that active investors set the prices. I said that may be but that doesn’t mean they have no impact on prices. Meaning that if indexing diminished there may be an affect on stock prices and the bit about setting prices doesnt preclude that.
I am not sure what information your statement re ‘general buyers…. ‘ adds or what argument it is intended to bolster
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Quote from illinois
I never said that black/white/man/woman had anything to do with this….
I said I wondered what would happen to a lot of stock prices if indexing diminished. i.e. would they overall be less/more, would some stock prices be higher and others lower etc…?
you said that active investors set the prices. I said that may be but that doesn’t mean they have no impact on prices. Meaning that if indexing diminished there may be an affect on stock prices and the bit about setting prices doesnt preclude that.
I am not sure what information your statement re ‘general buyers…. ‘ adds or what argument it is intended to bolster
I never said that black/white/man/woman had anything to do with this…. These were examples of the point I was trying to make- was this not clear use of the English language?
Let me clarify- if indexing goes out of vogue and people go back to actively managed funds (stay in the market) there will be no change in overall market prices- the “Index”.
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I think that indexing probably emphasizes some stocks eg members of sp 500. In other words the choice of an index is an active process and I doubt there would be the exact same allocation of money if there were no indexes….
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Quote from illinois
I think that indexing probably emphasizes some stocks eg members of sp 500. In other words the choice of an index is an active process and I doubt there would be the exact same allocation of money if there were no indexes….
I agree allocation would be different. There are many ways to index.
Individual security prices would be different based on what was in vogue with active managers and individual investors. Total stock market index would be unchanged- unless active investors chose “alternative” unlisted investments.
My 2 cents.
An Index is just a partition of the stock market. How can there be no index? DJIA index was founded in 1885. There was a time when there were no index funds- John Bogle’s Vanguard fund was founded in 1974. He was the first.
FYI
Capitalization weighting is the standard and the method I use- Vanguard S&P500 and Vanguard Total stock market Index.
The traditional method of capitalization-weighting indices might by definition imply overweighting overvalued stocks and underweighting undervalued stocks, assuming a price inefficiency.
Joint hypothesis problem again?
The capitalization-weighted market portfolio is not efficient.
The CAPM model is not an efficient pricing model.
Both the cap-weighted market portfolio and the CAPM model are inefficient.
Other methods are price weighting- ex. DJIA
Research Affiliates has pioneered fundamental weighting- stocks are weighted by one of many economic fundamental factors, especially accounting figures which are commonly used when performing corporate valuation, or by a composite of several fundamental factors.
A key belief behind the fundamental index methodology is that underlying corporate accounting/valuation figures are more accurate estimators of a company’s intrinsic value, rather than the listed market value of the company.
ie. kpack123 and his dividend growth factor.
Fundamental weighting is blurring the line between active and passive investing.
Fundamentally based indices have higher turnover and therefore higher costs than cap weighting.
Financial economists Walkshäusl and Lobe investigate the performance of global and 50 country-specific (28 developed and 22 emerging) fundamentally weighted indices compared to capitalization-weighted indices.
They find evidence that fundamental indexing produces economically and statistically significant positive alphas. This holds for global and country-specific versions which are heavily weighted in the world portfolio.
Reporting results for U.S. data for 43 years from 1962 to 2004, they find that fundamental indices outperform the capitalization-weighted S&P 500 by an average of 1.97 percentage points a year with similar volatilities.
[link=http://www.efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2009-Milan/papers/483.pdf]http://www.efmaefm.org/0E…9-Milan/papers/483.pdf[/link]
Finance is fascinating in its paradoxical nature and infinite complexity- just like the body or human mind.
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Quote from kpack123
Btw
Just made a quick 2500$ on my GE investment from last week
Fees- 7.99 times 2 for trading
No taxes owed because I bought it in my IRA
If it goes back to 14 I will buy it back
Index funds rule…… Right???
Just keep telling yourself that
kpack-
I am 80/20 stock index/long muni bonds.
My 10 year rate of return is 9.3% IRR (internal rate of return). The next 10 years will not be as good. I hope it is will not be another lost decade.
I wish Vanguard would calculate 15 and 20 year portfolio IRRs. I have asked them for this but so far to no avail.
BTW- an IRA is tax deferral not tax free. You will pay ordinary income rates when you pull it out.
[link]https://www.ici.org/pdf/ppr_12_tax_benefits.pdf[/link] -
I guess the title of this thread is correct
Investing for dummies
Basically if you dont know or care to much its smart to just save an incest in the global markets and indexes
Thats investing for dummies
But if you want more…. then you get another couple books and learn
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Is it possible or a radiologist to accumulate greater than $5 million in retirement and taxable accounts, using only index funds, by age 55 or a little older? This assumes starting as an attending in the low 30s and saving ~20-25% gross. That is all I want, large enough retirement account, minimal and low risk effort. Most calculators say its possible.
Not really thinking about accumulation tons of money (>$10M), not spending most of it, then donating it to heirs Etc when I pass. Would probably happen anyways due to the relatively high salary plus compound interest over 25+ years.
I applaud the high level investors and small business/real estate owners on here. Looks like doing 3 or more jobs at a high level simultaneously.
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Quote from Umichfan
Is it possible or a radiologist to accumulate greater than $5 million in retirement and taxable accounts, using only index funds, by age 55 or a little older? This assumes starting as an attending in the low 30s and saving ~20-25% gross. That is all I want, large enough retirement account, minimal and low risk effort. Most calculators say its possible.
Not really thinking about accumulation tons of money (>$10M), not spending most of it, then donating it to heirs Etc when I pass. Would probably happen anyways due to the relatively high salary plus compound interest over 25+ years.
I applaud the high level investors and small business/real estate owners on here. Looks like doing 3 or more jobs at a high level simultaneously.
Most of it depends on the return on investment during your 40s. Read it LUCK.
If you start making money in your early 30s, by the time you have a good amount of investment you are about 40. The rest of it depends on how things go during your 40s.
Also most people change jobs about 2 times during their career. Changing job can be a lot of financial burden since you have to start from scratch again.
Just FYI, look at S&P 500 in the last 20 years and imagine if someone entered market in year 1990, 1996, 2000, 2005 or 2009 or 2017. There is significant different in outcomes.
I know a few physicians who finished training around 2004-2005. They started investment from day one. They didn’t lose that much during 2007 stock market crash since they didn’t have a lot. They continued investing and they are doing great now. On the other hand people who entered market at different time point are doing totally different.
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Quote from Umichfan
Is it possible or a radiologist to accumulate greater than $5 million in retirement and taxable accounts, using only index funds, by age 55 or a little older? This assumes starting as an attending in the low 30s and saving ~20-25% gross. That is all I want, large enough retirement account, minimal and low risk effort. Most calculators say its possible.
Not really thinking about accumulation tons of money (>$10M), not spending most of it, then donating it to heirs Etc when I pass. Would probably happen anyways due to the relatively high salary plus compound interest over 25+ years.
I applaud the high level investors and small business/real estate owners on here. Looks like doing 3 or more jobs at a high level simultaneously.
Yes, it is possible.
I know rads that have breached the 10 mill mark and entered into the 1% net worth category. It is rare.
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I don’t get the emphasis on dividend paying stock. Money is fungible and total return is all that matters. If anything, dividends are a negative because u are forced to pay taxes on them.
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Quote from General_Rad2016
I don’t get the emphasis on dividend paying stock. Money is fungible and total return is all that matters. If anything, dividends are a negative because u are forced to pay taxes on them.
[h2]Factors influencing the dividend decision[/h2] Liquidity of funds
Stability of earnings
Financing policy of the firm
Dividend policy of competitive firms
Past dividend rates
Debt obligation
Ability to borrow
Growth needs of the company
Profit rates
Legal requirements
Policy of control
Corporate taxation policy
Tax position of shareholders
Effect of trade policy
Attitude of the investor group
[link=http://www.eiiff.com/corporate-finance/investment-decision/dividend.html]http://www.eiiff.com/corp…decision/dividend.html[/link]
The ModiglianiMiller theorem states that the division of retained earnings between new investment and dividends do not influence the value of the firm. It is the investment pattern and consequently the earnings of the firm which affect the share price or the value of the firm.
[h4]Assumptions of the MM theorem[/h4] The MM approach has taken into consideration the following assumptions:
[ol][*]There is a rational behavior by the investors and there exists perfect capital markets.[*]Investors have free information available for them.[*]No time lag and transaction costs exist.[*]Securities can be split into any parts i.e. they are divisible[*]No taxes and floatation costs.[*]Capital markets are perfectly efficient(Exists)[*]The investment decisions are taken firmly and the profits are therefore known with certainty. The dividend policy does not affect these decisions.[*]There is perfect certainty of future profits of firm [/ol] The firm paying out dividends is obviously generating incomes for an investor, however even if the firm takes some investment opportunity then the incomes of the investors rise at a later stage due to this profitable investment.
In short, the dividend decision is highly complex.
[i]One cant say that figures lie. But figures as used in financial arguments, seem to have the bad habit of expressing a small part of the truth forcibly, and neglecting the other part, as do some people we know.[/i]
Where are all the Customers Yachts? Fred Schwed 1940
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I think the point is a dividend is just forced taxation on the share holder. You have to pay taxes on it whether you need the money right now or not. Buffet makes this point a lot in his various writings. Some do argue that dividend implies a healthier company, but many very good companies don’t pay one.
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Quote from General_Rad2016
I don’t get the emphasis on dividend paying stock. Money is fungible and total return is all that matters. If anything, dividends are a negative because u are forced to pay taxes on them.
You are obviously a rube and you don’t understand the magic sauce involved in this.
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Quote from kpack123
I guess the title of this thread is correct
Investing for dummies
Basically if you dont know or care to much its smart to just save an incest in the global markets and indexes
Thats investing for dummies
But if you want more…. then you get another couple books and learn
Agree. The reality is that “investing for dummies” on a forum for doctors (known to be the most financially illiterate professional group) is not the right place to post sophisticated investing philosophies.
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My thoughts
Most Dividends are taxed at a more favorable rate than ordinary income
In my opinion if a company pays a dividend that has a long history increasing 15-25 years or more of consecutive increases that usually means its a solid stable company and a good investment
And if you look at the data a portfolio of dividend achievers bears the market averages yearly by 2-4 percentage point consistently
Yes you do pay a little tax on it but Id rather make money and owe some tax than not make money and owe nothing
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And
I use it as income replacement
Instead of working 10 extra weeks a year I get paid for doing nothing
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Quote from kpack123
And
I use it as income replacement
Instead of working 10 extra weeks a year I get paid for doing nothing
Quote from fw
Quote from General_Rad2016
I don’t get the emphasis on dividend paying stock. Money is fungible and total return is all that matters. If anything, dividends are a negative because u are forced to pay taxes on them.
You are obviously a rube and you don’t understand the magic sauce involved in this.
But the fungibie nature of the moeny is the real point.
You don’t need “income producing stocks” via dividends in order to get income from your portfolio.
You can just as easily sell shares that have increased in value. It all spends the same. There is no intrinsic advantage in having the $$ come from regular dividends. It might “feel” nice to see regular payments of dividends appearing in an account, giving the sense that it is “free money”, but that is just a psychological effect. The total return over time is the real metric.
And, as noted above, depending on the individual’s tax situation could have negative tax implications in comparison to sales of equities.
(Edit: This post is [i]not[/i] meant to be a commentary as to whether an actively managed dividend growth or dividend aristocrat portfolio is likely to outperform/underperform an actively managed growth or value portfolio or a passive index portfolio over time))-
Just fact checking kpack123’s “analysis”
“And if you look at the data a portfolio of dividend achievers bears the market averages yearly by 2-4 percentage point consistently.”
PFM vs VFINX:
PFM (PowerShares Dividend AchieversTM Portfolio): 5 yr return (+10.53%), 10 yr return (+7.80%)
VFINX (S&P500 index): 5 yr return (+14.57%), 10 yr return (+9.60%)
Thought the coincidence of using the term “dividend achievers” with the “dividend achievers portfolio” was too good to pass up. Also, the typo (“bears”) kind of made your statement correct!
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Dergon
2 points
Investing in companies with increasing dividends means you usually get a yearly increase in the dividend of 3-6%
If you sell a stock that appreciates your still paying the same capital gain
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3rd point
If a company not only pays but increases its dividend every year and has a 25 plus year track record of doing that…… most of the time its a pretty darn good company
In my experience this takes a great deal of risk out of investing especially in down or slow markets
As I said everyone is an indexer when the market goes up 25%
But when the market is down 10-15% those indexers are flocking to CDs
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Shame sea
Dividend achievers are companies that have long records of increasing their dividends
Are you citing actual dividend achievers 25 years of increasing dividends?
I dont think you are
Some brokerages will label what they sell as achievers but in actuality they are just packaging together some above average yielding stocks that do not have long track record of increasing dividends
You can find more accurate data at
Suredividend.com
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From the prospectus:
[size=”2″]To qualify for the universe of Dividend Achievers[/size][size=”1″]TM[/size][size=”2″], an issuer must have increased its annual regular cash dividend payments for at least each of its last ten or more calendar or fiscal years.[/size]
I’m looking at your website after I post this. If you’re right then you’re right, I’ll give you the benefit of the doubt, I love being proven wrong.-
Its a big site
This is decent article
Many others if you look
[link]https://www.suredividend.com/funds-vs-stocks/[/link]
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One of my favorite quotes
To conclude this section, index investing through funds is right for the majority of the investing public. Heres who should be a passive index investor:
Those unwilling to learn about businesses in detail.
Those looking to spend a minimum amount of time on their investments.
Those looking for a low-cost, low-time, average return strategy.
Those who think they are Gods gift to invest and will consistently return 20%+ per year. -
Quote from kpack123
Its a big site
This is decent article
Many others if you look
[link=https://www.suredividend.com/funds-vs-stocks/]https://www.suredividend.com/funds-vs-stocks/[/link]
Wow, it checks out, you’re right. Looks like the “Aristocrat” (dividends increasing >25 yrs) S&P stocks roughly track the S&P index during the good years and weather the storm really well (relatively) in recessions. Will have to take a closer look. In retrospect, a shorter time horizon for judging performances is probably not appropriate, will need to include a decent recession/crisis in the mix to figure out its durability. Since at 10 years the performance is close, the Powershares management expenses look like it puts it below the S&P index. So just have to find one with low enough expenses.
Charts:
[link=https://www.marketwatch.com/story/dividend-aristocrat-stocks-post-almost-double-the-returns-of-the-sp-500-in-2016-2016-09-06]https://www.marketwatch.c…500-in-2016-2016-09-06[/link]
[link=https://moneyinvestexpert.com/dividend-aristocrats/dividend-aristocrats-yearly-performance]https://moneyinvestexpert…ats-yearly-performance[/link] -
Again, I made no comment as to whether or not the dividend approach will outperform/underperform in the long run.
Since the great recession dividend stocks have been looking really good as people have been buying them as “pseudo-bonds” because they can’t get income from real bonds in a low rate environment.
How will the same stocks perform on a relative basis in a higher interest rate environment? Tough to say, but here [i]could[/i] be a relative sell-off as people who were hesitant to ever buy fixed income when rates were at 0-ish% think they can decent return when fed rates at at 4-5%. -
They will raise their dividends as they have every year for the past 25, 50 and some 75yrs
Thats what they will do
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And
I dont have a problem with anyones investing strategy but what gets me riled up is when someone states that there is one way to invest and all resistance is futile
Thats how index fund advocates act
Basically you cant beat the market so why try
Thats just not true. Many people beat the market consistently and regularly
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Anyone running to CDs when the market goes down 10 or 20% is a terrible investor.
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Quote from kpack123
And
I dont have a problem with anyones investing strategy but what gets me riled up is when someone states that there is one way to invest and all resistance is futile
Lol.
Pot meet kettle. -
Do you ever have anything to add to a discussion?
Or do you just try to stay relevant by throwing a heckle in every so many posts
You are lonely angry guy and Im sure it sucks to be so miserable
That being said
Why dont you show you me where I do what just insinuated
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Quote from kpack123
That being said
Why dont you show you me where I do what just insinuated
You keep repeating that your strategy is the way to go when there is really no empiric evidence beyond your personal success as an investor (which is subject to the confounding variables of ‘luck’ and ‘a rising tide lifts all boats’). -
What’s interesting about many indexers is they claim that one can’t beat the average market return. However mathematically for there to be an average approximately half of the participants will be above the average and half of the participants will be below the average. Individual investors have many advantages over large funds as I detailed in my post above therefore studies looking at large funds returns may not be directly applicable to the knowledgeable individual investor. Furthermore most indexers do panic during market downturns as fear and herding begin to overwhelm their logic. This is less true for dividend investors as kpac claims.
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Quote from JTG
What’s interesting about many indexers is they claim that one can’t beat the average market return. However mathematically for there to be an average approximately half of the participants will be above the average and half of the participants will be below the average.
Actually, mathematically half the [i]money[/i] will see better than average returns. That is very different than “half of the [i]participants[/i].
Most retail investors underperform the indices over time by a few percentage points.
Furthermore most indexers do panic during market downturns as fear and herding begin to overwhelm their logic. This is less true for dividend investors as kpac claims.
I would welcome being shown some data to confirm this hypothesis. -
Dergon
I will use an example I recently observed
2-3 months ago a few of our techs formed an investment club
They each kicked in 500$ and bought a basket of stocks and funds
The week the market tanked they lost 10-20% their original investment
Half of them panicked demanding they sell and when they took their money out they said they wouldnt invest again because its so easy to lose money
The herd effect is real
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I didn’t claim that it wasn’t.
I took issue with the speculated notion that the herd effect is stronger in index investors than it is in stock pickers. -
Quote from dergon
I didn’t claim that it wasn’t.
I took issue with the speculated notion that the herd effect is stronger in index investors than it is in stock pickers.
Look at how quality dividend stocks react during a market downturn vs the sp500 and you will have your answer
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dergon: “Most retail investors underperform the indices over time by a few percentage points. ”
So if the studies show that most retail investors and most funds lag the market then who is beating the market? [b] [/b][i][/i][u][/u][strike][/strike] -
Of course funds and people do beat the market – however, it is different funds and different people every year. That is the problem, it is very difficult to beat the market every year for a long period of time – reversion of to the mean. This is why indexing is a successful strategy, you may only get market returns, but you will get it compounded over your entire investing lifetime which equals a boat load of money.
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Quote from General_Rad2016
Of course funds and people do beat the market – however, it is different funds and different people every year. That is the problem, it is very difficult to beat the market every year for a long period of time – reversion of to the mean. This is why indexing is a successful strategy, you may only get market returns, but you will get it compounded over your entire investing lifetime which equals a boat load of money.
Thanks but it was a rhetorical question. There are people who meet or beat the market most of the time but they usually are not included in the active vs passive studies. Here is an example:
[link=https://en.wikipedia.org/wiki/Renaissance_Technologies]https://en.wikipedia.org/…naissance_Technologies[/link]
“From 2001 through 2013, the funds worst year was a 21 percent gain, after subtracting fees. Medallion reaped a 98.2 percent gain in 2008, the year the Standard & Poors 500 Index lost 38.5 percent.”
Rubin and Collins. June 16, 2015. [i]Bloomberg[/i]
[b] [/b][i] [/i][u][/u][strike][/strike]
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[link=https://www.marketwatch.com/story/why-way-fewer-actively-managed-funds-beat-the-sp-than-we-thought-2017-04-24]https://www.marketwatch.c…-we-thought-2017-04-24[/link]
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Quote from doctorrads
[link=https://www.marketwatch.com/story/why-way-fewer-actively-managed-funds-beat-the-sp-than-we-thought-2017-04-24]https://www.marketwatch.c…-we-thought-2017-04-24[/link]
Yep. -
“Over the last 15 years, 92.2% of large-cap funds lagged a simple S&P 500 index fund. The percentages of mid-cap and small-cap funds lagging their benchmarks were even higher: 95.4% and 93.2%, respectively.”
“Funds disappear at a significant rate. Over the 15-year period, more than 58% of domestic equity funds were either merged or liquidated. Similarly, almost 52% of global/international equity funds and 49% of fixed income funds were merged or liquidated. This finding highlights the importance of addressing survivorship bias in mutual fund analysis.”
[link=https://us.spindices.com/documents/spiva/spiva-us-year-end-2016.pdf]https://us.spindices.com/…a-us-year-end-2016.pdf[/link] -
“An inverse relationship generally exists between the measurement time horizon and the ability of top-performing funds to maintain their status. It is worth noting that less than 1% of large-cap funds and no mid-cap or small-cap funds managed to remain in the top quartile at the end of the five-year measurement period. This figure paints a negative picture regarding the lack of long-term persistence in mutual fund returns.
“Similarly, only 4.47% of large-cap funds, 3.68% of mid-cap funds, and 9.27% of small-cap funds maintained top-half performance over five consecutive 12-month periods. Random expectations would suggest a repeat rate of 6.25%.”
[link=https://us.spindices.com/documents/spiva/persistence-scorecard-december-2016.pdf]https://us.spindices.com/…card-december-2016.pdf[/link] -
The herd is usually last to learn
When will they learn….. to buy good companies when they get beat up
It happens every year or 2
Look what Warren Buffet is doing
He is getting in on GE whenever every Tom rick and Harry are running away from it
Its not that hard and you dont need to be a genius to see this
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kpack won’t short my stock because he doesn’t have enough balls past posting nothingness on an internet forum;
waiting for a prediction that doesn’t embarrass you, I actually make them and hit high quality ones.
You’re still praying at night that Trump doesn’t make the first term, LOL
What a delusion -
Quote from Dr. ****er
I actually make them and hit high quality ones.
Really?
Are you still working?
Why? -
Quote from Rolf Rad
Quote from Dr. ****er
I actually make them and hit high quality ones.
Really?
Are you still working?
Why?
I can actually answer these questions fairly easily and with a lot of background, but I have to be sure that you are asking and with a good intent, not just to be a smart*– like most on this board. -
Quote from JTG
What’s interesting about many indexers is they claim that one can’t beat the average market return. However mathematically for there to be an average approximately half of the participants will be above the average and half of the participants will be below the average. Individual investors have many advantages over large funds as I detailed in my post above therefore studies looking at large funds returns may not be directly applicable to the knowledgeable individual investor. Furthermore most indexers do panic during market downturns as fear and herding begin to overwhelm their logic. This is less true for dividend investors as kpac claims.
Apparently JTG was not paying attention in medical statistics class.
Returns are positively skewed.
[b]positive skew[/b]: The right tail is longer; the [i]mass[/i] of the distribution is concentrated on the left of the graph I posted above. It has a few relatively high values. The distribution is said to be [i]right-skewed[/i]. In such a distribution, the mean is greater than median which in turn is greater than the mode (i.e.; mean > median > mode); in which case the skewness is greater than zero.
The mode is 100% loss. LOL
The “mean” is the “average” you’re used to, where you add up all the numbers and then divide by the number of numbers. The “median” is the “middle” value in the list of numbers. To find the median, your numbers have to be listed in numerical order from smallest to largest, so you may have to rewrite your list before you can find the median. The “mode” is the value that occurs most often.
In a normal (Gaussian) distribution the mean median and mode are the same. Half of the population is above the mean and half are below.
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Quote from drad123
Quote from JTG
What’s interesting about many indexers is they claim that one can’t beat the average market return. However mathematically for there to be an average approximately half of the participants will be above the average and half of the participants will be below the average. Individual investors have many advantages over large funds as I detailed in my post above therefore studies looking at large funds returns may not be directly applicable to the knowledgeable individual investor. Furthermore most indexers do panic during market downturns as fear and herding begin to overwhelm their logic. This is less true for dividend investors as kpac claims.
Apparently JTG was not paying attention in medical statistics class.
Returns are positively skewed.[b]positive skew[/b]: The right tail is longer; the [i]mass[/i] of the distribution is concentrated on the left of the graph I posted above. It has a few relatively high values. The distribution is said to be [i]right-skewed[/i]. In such a distribution, the mean is greater than median which in turn is greater than the mode (i.e.; mean > median > mode); in which case the skewness is greater than zero.
The mode is 100% loss. LOL
The “mean” is the “average” you’re used to, where you add up all the numbers and then divide by the number of numbers. The “median” is the “middle” value in the list of numbers. To find the median, your numbers have to be listed in numerical order from smallest to largest, so you may have to rewrite your list before you can find the median. The “mode” is the value that occurs most often.
In a normal (Gaussian) distribution the mean median and mode are the same. Half of the population is above the mean and half are below.
Yes I made a mistake above but you get the point. it was unnecessary for you to be a condescending a-s about it. There is useful information in this blog which could be educational to you but you believe that you are above it. My intent in posting here as was kpacs is to illustrate that there is a different and successful way to do things but your mind is closed. I’m sure that I am a bit younger than you but can retire at any time that I choose. I wish you luck with your investments as well as learning the ability to open your mind and not be such a condescending a-s.
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Quote from JTG
Yes I made a mistake above but you get the point. it was unnecessary for you to be a condescending a-s about it. There is useful information in this blog which could be educational to you but you believe that you are above it. My intent in posting here as was kpacs is to illustrate that there is a different and successful way to do things but your mind is closed. I’m sure that I am a bit younger than you but can retire at any time that I choose. I wish you luck with your investments as well as learning the ability to open your mind and not be such a condescending a-s.
Relax JTG. Your comments are very relevant but required rebuttal-
You are not the only one out there with parametric fantasies-
capital asset pricing model? beta? variance, standard deviation?
Parametric statistics is a Procrustian bed in finance and in medicine- many have had their feet cut off while using it. -
That is kind of a subtle point ie the assumptions built into models.
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“everyone makes money and looks real smart when the market is on a 9 year run up . When the market tanks 1-2 straight years the indexers are crickets ”
Which how I pick which fund or fund manager is going to beat the index fund over 10 years? Please tell me so I can invest in that fund. Or maybe you should publish a stock investing newsletter.
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Did I feel like a genius in 2009 when the market dropped 40% Nope.
But I did nothing … nothing different.
I kept on buying $8000/ month and investing it into my index funds and did nothing more than my annual rebalancing.
Did I feel like a genius (or at least a competent investor) when the market rebounded and I had been buying low for years, making my total account value much much higher? You bet your arse I did.
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I dont own a single fund
Except in One retirement account that I have no choice
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Kpack – just to be sure, you only own single stocks?
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Investing in companies with increasing dividends means you usually get a yearly increase in the dividend of 3-6%
Sure… maybe. And maybe you get better total return from increase in equity share price.
If you sell a stock that appreciates your still paying the same capital gain
But you get to determine [i]when[/i] you take the capital gain hit. If you are currently taking income from dividends at the same time you are a full-time practicing radiologist in the highest tax bracket then you [i]might[/i] have unfavorable taxes compared to equities where you sell later when your total income is lower and hence in a lower bracket.
Quote from kpack123
3rd point
If a company not only pays but increases its dividend every year and has a 25 plus year track record of doing that…… most of the time its a pretty darn good company
In my experience this takes a great deal of risk out of investing especially in down or slow markets
As I said everyone is an indexer when the market goes up 25%
But when the market is down 10-15% those indexers are flocking to CDs
Could be. I think personally however, that it is a misrepresentation to portray dividend stocks as less sensitive to a bear market.
And I don’t know how you come to make the claim that index investors are more likely to sell off during a downturn than are the owners of indivudal equities.
If indexers are ‘flocking to CDs” when the market goes down then they are just selling low. How do you know that dividend investors aren’t “flocking to CDs” when the market takes a dump?
Yours is not a commentary on the strategy of passive index investing. In fact, it goes [i]against[/i] the strategy which most of the indexers here are advocating (a la Jack Bogle). That strategy would have investors continuing to invest in the same monthly increments during a market down turn so that they are buying equities at a relatively low cost.
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2 points
It may be a strategy that most indexers advocate…… until they lose 30% if their equity and do what most of those who typically follow the herd do and run to safety not realizing that is the best time to start buying
Also
The entire goal of income replacement is to work less and replace my income
I can work 10 weeks a year less because of my dividend income
Thats the goal
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Kpack123,
You made your point and expressed your opinion about how great the dividend paying companies are. You don’t need to repeat it 10 times. -
Quote from kpack123
When the market is high people convince themselves that indexing is easy and requires no thought and its just as good as the smart gurus
Thats all we are seeing now
Give this market a year or 2 of breaking even or negative and the indexers will crawl back into their CDs
Seen this rodeo 3 times before
Again indexers are people who are too lazy or too disinterested in learning how to invest
This is a conflation of market timing with passive investing. Really not becoming of an individual with doctoral level education.
Why do you write this kpack123 when you know we will see it for what it is? -
There is some truth to what you say
I have been lucky to a degree and certainly the rising tide has lifted the boat
But what I try to do is to attach my sail to the boats of solid companies who have a history of returning increasing amounts to investors
If thats luck I will certainly take it
I completely admit Im not that smart…. thats why I try to invest in companies with proven track records who understand their industries much better than I have the ability to understand
Maybe its luck
I prefer to call it a strategy and it is working for me
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That being said I will probably always miss out on the next google or Apple etc. because I look for consistent results over long periods
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For your empiric evidence go to
Suredividend.com
Plenty of empiric evidence presented
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Quote from illinois
yeah, and the intermediaries – people who run the various funds – have conflicts of interest. For instance if Fidelity starts giving GE a hard time for poor governance, then maybe GE and other companies sympathetic to GE quit using Fidelity to run their retirement plans.
In the financial system, healthcare system and political system conflict of interest is the norm.
The crumbling foundation of the C suite is conflict of interest. -
People devote their entire day jobs to learning the market and still can’t beat it. No one knows where the market is going, the only safe bet is over the long haul, say 30 years, the stock market will be much higher. Smartest thing to do is index fund and requires no homework. To hold an individual stock you have to do homework on the stock, then you have to keep up with the current news. This is too much for the average investor. I’m onboard with buffett, just get an index fund and hold it for 30 years and don’t think about it, stress about it, put anymore time or energy into it other than when you first bought it, and when you go to cash out. Numerous data show professional hedge funds can’t beat the market, why would you try to by picking indvidual stocks? Worse, you put all this research and energy into it, and you still would have been better if you buy and held an index fund! Go for the lowest cost with broadest exposure, no one knows the market as much as they think or tell you they do. VTSMX is one such fund. Remember even great companies have issues and go bankrupt, to invest in individual stocks you have to keep doing homework/stress.
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What do you guys think about sector index funds like technology, healthcare, internet or similar index funds?
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Above poster states
numerous data Supports index fun over actively managed portfolio is totally subjective
Much of the data is cherry picked by the indexers themselves. This lets them pick the data they want you to see
Also this always happens with bull markets…… you never see indexers comparing their data when the markets are even or down
Their are lies damn lies and statistics
That being said indexing is easy and requires little thought and over time provides average returns
If that suits you then do it
But its not better. Its average at best
People always say Warren Buffet says….. yes but Warren Buffet doesnt do it
Buffet doesnt index. He buys solid companies trading at a discount
Lots of misinformation and lack of understanding in this thread
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@kpack123,
My question is total market index fund versus s&p500 index fund versus sector index fund like tech or healthcare or energy.
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For the more novice investors reading here, it’s important have a mental framework of what “average” means for returns.
Getting returns equal to the S&P 500 and doing it with low costs in a tax efficient way will, in the long term, be a far above “average” performance. (And if you do it while saving a large percentage of your income as a practicing radiologist it will make you very wealthy.)
That is because the “average” investor under-performs the indices by a few percentage points each year. (This is caused by a number of factors, including trading costs, unnecessary taxes from sales of stock, mutual fund fees, adviser fees, and numerous cognitive biases that cause them to sell low and buy high).
Getting the “average” of the S&P 500 over multiple decades with regular investment intervals regardless of current market valuation will outperform the vast majority of retail investors, will outperform the vast majority of mutual funds, and will outperform the vast majority of professional advisers and money managers.
Are there people who beat the market year-after-year for decades? Sure there are. But most people can’t/don’t. It’s not easy to do. There is no simple formula to make it possible to do that.
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2 points
1. everyone makes money and looks real smart when the market is on a 9 year run up . When the market tanks 1-2 straight years the indexers are crickets
2. A lot the index data is cherry picked
For example they will compare themselves to a dividend based fund but they will conveniently forget to either add the dividends to the final return or they dont factor in dividend reinvestment
The latter dividend reinvestment is a huge boost to total returns that they never factor in to their comparisons
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2 points
1. everyone makes money and looks real smart when the market is on a 9 year run up . When the market tanks 1-2 straight years the indexers are crickets
2. A lot the index data is cherry picked
For example they will compare themselves to a dividend based fund but they will conveniently forget to either add the dividends to the final return or they dont factor in dividend reinvestment
The latter dividend reinvestment is a huge boost to total returns that they never factor in to their comparisons
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What do you think about sector index funds instead of s&p 500 index fund? e.g. energy, tech or healthcare index funds?
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I don’t see the appeal. It lessens diversification without saving any money.
Trying to play into/out of sectors smacks of attempted market timing.
Except for maybe REITs or a small amount of precious metals (things less correlated to equities and which are really more like their own asset classes than “sectors”) I don’t really see what betting on a certain sector does for your portfolio … It’s really nothing more than a bet.
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Go to bogleheads.org, they have real financial people there who dont need to sell you their services. They will echo the same thing, broad market index fund (gives you full diversification, dont do a sector fund) at the lowest cost. Historically small cap index fund has outperformed a great deal compared to mid cap or large cap. Generally, small Cap gets hit the hardest when the market goes down, and rises the highest when the market goes up. Warren Buffett does the homework, so he can beat index funds. We read films all day long, Buffett reads company statements for fun all day long. I don’t think anyone studies as much as Buffett nor has the interest to do so. When the market is down, almost every stock is down, you can only hide in a few stocks and you will never know which ones, there is no sense in trying to predict the market. Who care if your index fund goes down, you should be constantly buying into the fund, so when the market gets crushed you are buying at cheap prices. Here’s my 3 key points:
1. TIME IN MARKET ALWAYS BEATS MARKET TIMING (always put in money that you dont need for the next 10-20 years). Keep buying stocks gradually over time. Look for any downturns as an opportunity to buy stocks cheaper instead of worrying what your portfolio is worth right now, as it will be worth so much more in the future.
2. INDEX FUNDS BEAT OVER 90% OF ACTIVE MANAGERS (There are professionals that live and breathe the stock market, the way we do radiology, and they lose 90% of the time). You will fail picking individual stocks compared to a market index.
3. Realize that 1 and 2 are true.
Let the market tank, keep buying and you will be fine. Any money you need in the next 10 years should not be in stocks, otherwise you could be forced to sell low/at a market bottom. If you have any financial advisors that are friends, they will echo the same thing above. None of us will put in the time Buffett does in reading financial statements and quarterly reports, it makes no sense to hold individual stocks as you are competing against Buffett and others like that.
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Quote from kpack123
2 points
1. everyone makes money and looks real smart when the market is on a 9 year run up . When the market tanks 1-2 straight years the indexers are crickets
2. A lot the index data is cherry picked
For example they will compare themselves to a dividend based fund but they will conveniently forget to either add the dividends to the final return or they dont factor in dividend reinvestment
The latter dividend reinvestment is a huge boost to total returns that they never factor in to their comparisons
Dividend investing and index investing are not mutually exclusive. There are dividend focused index funds. Vanguard has 2 good ones. One of them was so popular that it had to be closed to new investments.
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Quote from Hospital-Rad
@kpack123,
My question is total market index fund versus s&p500 index fund versus sector index fund like tech or healthcare or energy.
Vanguard Energy Fund Investor Shares (VGENX)[/h1] Inception 05/23/1984
10.49% average annual return
2,804.24% cumulative return
S&P500 11.2% CAGR since 1984
3,736% cumulative return
Energy slightly underperformed the total market.
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Health Care Fund Investor Shares (VGHCX)[/h1]
Inception on 05/23/198416.47% average yearly returns since inception.
16,715.21% cumulative return
astronomical returns.
If I had only started investing in this from the beginning…
Will it do this in the future or will you be skating to where the puck was?
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Individual stocks yes
Aside from one small retirement account in which I have no choice I only own individual stocks
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