Difficulty of Outperforming

[Sharad]

For the past 10 years, I have been unable to beat the S&P index.

 

Outperformance over ten-year periods is difficult, sure, but who cares? All that matters is end performance.

 

Remember that the 2000-2002 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. Remember that the 2007-2009 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to June 1995. Hussman

 

LOL, says the guy who has not made any money for investors for 10 years+ : http://hussmanfunds.com/theFunds.html

 

BTW, his argument is broken: he does not look at market recovery post crashes which produces great returns.

And BTW, there are about 5 people in the world who can avoid market crashes. But of course, there are a lot more who believe they can do so only to be proven wrong.

 

Hussman is a loser who sells to idiots.

 

No, I don't think Hussman is a loser. He missed the market recovery - he fucked that up big time. Reading his stuff, he doesn't come across as a loser - I haven't seen his results but I bet he hasn't blown up. And if the S&P were to decline to say 1600 or so this year, I would guess (again I haven't tracked his results) - so this is a pure guess, that he would be beating the market since 2000, so for over 16 years. Could that be correct?

 

If the S&P fell to 1,600, and Hussman has been calling for a deep decline since the S&P was at 900 (in 2009, no less), does it matter if his portfolio beats for a brief moment in history? He'll still be waiting for the Apocalypse, and will continue to write academic "what should happen" rather than preparing for the worst, but riding in the market he has. If you believe the market is going to implode, but it continues to ride upwards, hold cash, along with your investments...Hussman continues to buy S&P puts ad nauseam, and eventually will be right one day (maybe even now, as I believe). None of his investors will be there to reap whatever little reward he finds from this strategy.

 

Put another way, if Hussman was so right about the 2007-Q1 2009 decline, why doesn't his 10 year performance show any outperformance of the market? Of course the answer is he needed to be right on the decline, and right on the exit point of his bearishness. He's a permabear, and will never find a way out of the theoretical rabbit hole he entered.

[original mungerville]

For the past 10 years, I have been unable to beat the S&P index.

 

Outperformance over ten-year periods is difficult, sure, but who cares? All that matters is end performance.

 

Remember that the 2000-2002 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. Remember that the 2007-2009 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to June 1995. Hussman

 

LOL, says the guy who has not made any money for investors for 10 years+ : http://hussmanfunds.com/theFunds.html

 

BTW, his argument is broken: he does not look at market recovery post crashes which produces great returns.

And BTW, there are about 5 people in the world who can avoid market crashes. But of course, there are a lot more who believe they can do so only to be proven wrong.

 

Hussman is a loser who sells to idiots.

 

No, I don't think Hussman is a loser. He missed the market recovery - he fucked that up big time. Reading his stuff, he doesn't come across as a loser - I haven't seen his results but I bet he hasn't blown up. And if the S&P were to decline to say 1600 or so this year, I would guess (again I haven't tracked his results) - so this is a pure guess, that he would be beating the market since 2000, so for over 16 years. Could that be correct?

 

If the S&P fell to 1,600, and Hussman has been calling for a deep decline since the S&P was at 900 (in 2009, no less), does it matter if his portfolio beats for a brief moment in history? He'll still be waiting for the Apocalypse, and will continue to write academic "what should happen" rather than preparing for the worst, but riding in the market he has. If you believe the market is going to implode, but it continues to ride upwards, hold cash, along with your investments...Hussman continues to buy S&P puts ad nauseam, and eventually will be right one day (maybe even now, as I believe). None of his investors will be there to reap whatever little reward he finds from this strategy.

 

Put another way, if Hussman was so right about the 2007-Q1 2009 decline, why doesn't his 10 year performance show any outperformance of the market? Of course the answer is he needed to be right on the decline, and right on the exit point of his bearishness. He's a permabear, and will never find a way out of the theoretical rabbit hole he entered.

 

I don't even think it needs to get to 1600, it can get to 1700-1800 and he probably starts to outperform over 16 years. And by the way, why should any dip be brief? The market could stay at 1700 for a few years, it doesn't necessarily have to spike back up as you suggest (eg, on news of QE4 as the QEs continue to be less and less effective). So don't judge Hussman just yet.

 

"Permabear", "loser" - you and Jurgis talk with such certainty.

 

Maybe you need to understand that the period from 1998 to 2016 has been filled with bubbles including what will likely be seen as three major tops in the S&P 500 (ie 2000, 2007, and 2015). So 3 bubble tops potentially over 18 years. Throw on a couple years on the front side of each top, and one on the back (as declines are more abrupt than rises in the market) and that's 4 years for each top where it was correct to be somewhat conservative or bearish (ie hold lots of cash leading to the top and start hedging closer to the top assuming you are a magician and know exactly when to make the switch). So that is 12 of the 18 years or 2/3rds of the time where being conservative made sense.

 

I am not saying Hussman is some investing God or anything - his track-record isn't that good - but I would not judge him at what is very close to the top of the market. And he is unlikely to blow up like many hedge funds.

 

[Sharad]

For the past 10 years, I have been unable to beat the S&P index.

 

Outperformance over ten-year periods is difficult, sure, but who cares? All that matters is end performance.

 

Remember that the 2000-2002 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996. Remember that the 2007-2009 market loss wiped out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to June 1995. Hussman

 

LOL, says the guy who has not made any money for investors for 10 years+ : http://hussmanfunds.com/theFunds.html

 

BTW, his argument is broken: he does not look at market recovery post crashes which produces great returns.

And BTW, there are about 5 people in the world who can avoid market crashes. But of course, there are a lot more who believe they can do so only to be proven wrong.

 

Hussman is a loser who sells to idiots.

 

No, I don't think Hussman is a loser. He missed the market recovery - he fucked that up big time. Reading his stuff, he doesn't come across as a loser - I haven't seen his results but I bet he hasn't blown up. And if the S&P were to decline to say 1600 or so this year, I would guess (again I haven't tracked his results) - so this is a pure guess, that he would be beating the market since 2000, so for over 16 years. Could that be correct?

 

If the S&P fell to 1,600, and Hussman has been calling for a deep decline since the S&P was at 900 (in 2009, no less), does it matter if his portfolio beats for a brief moment in history? He'll still be waiting for the Apocalypse, and will continue to write academic "what should happen" rather than preparing for the worst, but riding in the market he has. If you believe the market is going to implode, but it continues to ride upwards, hold cash, along with your investments...Hussman continues to buy S&P puts ad nauseam, and eventually will be right one day (maybe even now, as I believe). None of his investors will be there to reap whatever little reward he finds from this strategy.

 

Put another way, if Hussman was so right about the 2007-Q1 2009 decline, why doesn't his 10 year performance show any outperformance of the market? Of course the answer is he needed to be right on the decline, and right on the exit point of his bearishness. He's a permabear, and will never find a way out of the theoretical rabbit hole he entered.

 

I don't even think it needs to get to 1600, it can get to 1700-1800 and he probably starts to outperform over 16 years. And by the way, why should any dip be brief? The market could stay at 1700 for a few years, it doesn't necessarily have to spike back up as you suggest (eg, on news of QE4 as the QEs continue to be less and less effective). So don't judge Hussman just yet.

 

"Permabear", "loser" - you and Jurgis talk with such certainty.

 

Maybe you need to understand that the period from 1998 to 2016 has been filled with bubbles including what will likely be seen as three major tops in the S&P 500 (ie 2000, 2007, and 2015). So 3 bubble tops potentially over 18 years. Throw on a couple years on the front side of each top, and one on the back (as declines are more abrupt than rises in the market) and that's 4 years for each top where it was correct to be somewhat conservative or bearish (ie hold lots of cash leading to the top and start hedging closer to the top assuming you are a magician and know exactly when to make the switch). So that is 12 of the 18 years or 2/3rds of the time where being conservative made sense.

 

I am not saying Hussman is some investing God or anything - his track-record isn't that good - but I would not judge him at what is very close to the top of the market. And he is unlikely to blow up like many hedge funds.

 

I, for one, never called him a "loser". I do call him a permabear, because he has never been bullish. I am very bearish on the economy right now, so I believe that his thesis will prove correct. I have been a critic of Hussman for a long time now (since 2010 - my comments are for all to see on gurufocus.com {Blogging About Money}), because I believe, while he may be proven right, he has done a lot of damage to his investors over the last 6 years. Thus, I have judged him for most of the post-"Great Recession" timeframe that he has been bearish. There is a difference between me, as a private investor, and he, as an investor of other people's money. As a private investor, if I am wrong, I am only hurting myself. As a custodian to OPM, you have to hold yourself to at least the same level as a private investor. Hussman is trying to do so (unlike many funds that just seek to become bigger for a larger 2% MER), but it has hurt his investors a lot. In the end, he will likely be right that the market has been very similar to the way that the 1930's played out (in economic, social and political terms it seems), but he missed the impact of the investor psyche and the impact of international money flows. Hussman is a genius, no doubt (his unhedged investments have done amazing), but I'm grateful to not be his investor.

 

I would also add that in my humble opinion and analysis, it wouldn't have been right to be bearish from 2003 to 2006 (4 years before the 2007 top) or from 2009 to 2013. I didn't see those timeframes as being negative for equities (I was too young and naive in 1998-2000, and lost nearly my entire portfolio value then (92% of opening principal)...lesson learned). Bubbles always hit a form of mania, otherwise they are not bubbles. And, to respond to the comment that 1998 to 2016 had a lot of bubbles, I would simply point out that the 1980 to 1998 timeframe produced an amazing many as well (gold, oil, interest rates, Japan, Asian Tigers, etc.). Bubbles will always appear due to herd mentality and greed.

[original mungerville]

I said four years total, 2 before and 1 after the peak. So for the 2007 top, assuming you don't have a crystal ball, and start getting conservative in 2005/06 to a degree and start hedging somewhere and be bearish for 2007/08. So four years total for each top, and with 3 tops in the S&P 500 over 18 years that's about 12 years out of 18 or 2/3rds of the time.

 

There has never been 3 tops like this in the S&P 500 in this short a timeframe, and who knows maybe our brave Fed will ensure a higher top for this third top or create a fourth and Hussman will be wrong for longer. But he ain't going to send any rich man to the poor house, unlike many hedge funds. And he should not be judged until we look back and see exactly where we are in the cycle.

 

 

[james22]

I do call him a permabear, because he has never been bullish.

 

The reality is that my reputation as a “permabear” is entirely an artifact of two specific elements since the 2009 low, but that miscasting may not become completely clear until we observe a material retreat in valuations coupled with an early improvement in market internals.

 

 

Despite my reputation in recent years as a “permabear,” I’ve actually had quite a variable relationship with equity risk across three decades in the financial markets, and that relationship has always depended on market and economic conditions.

 

 

For someone who has been labeled both a “perma-bear” over the past decade, as well as a “one lonely raging bull” in the early 1990's (Los Angeles Times), I can't say that either description is fitting at the moment.

 

 

One of the things that some forget is that we shifted to a constructive stance between those two crashes in early 2003, and initially moved toward a constructive stance after the market collapsed in late-2008 (see Why Warren Buffett is Right and Why Nobody Cares) until a parade of policy errors forced us to entertain Depression-era outcomes. My 2009 stress-testing miss and the awkward transition that resulted certainly injured my reputation during this uncompleted half-cycle. Still, having addressed that “two data sets” problem, I expect no similar stress-testing response in future market cycles. Meanwhile, I have every expectation that the current speculative extremes will end in tears for those inclined to dismiss hard, historically reliable evidence by mumbling “permabear.”

 

 

In recent years, I've gained the reputation of a "perma-bear." The reality is that I'm quite a reluctant bear, in that I would greatly prefer market conditions and prospective returns to be different from what they are.

 

 

People often like the idea of being part of an exclusive club, sometimes the more exclusive the better. As Groucho Marx put it, “I’d never join a club that would have me as a member.” With the percentage of bearish investment advisors recently plunging to just 14%, investment bears are certainly a rather exclusive group, mostly representing advisors who are considered “permabears.”

 

What’s odd is how little affinity I feel with members of that group. Though I seem to be one of the better-identified members, those who actually understand our narrative in recent years should recognize that I stumbled into this clubhouse quite unintentionally. The fact is that I’ve become constructive or aggressively bullish after each bear market retreat in the past quarter century. The main difficulty began with my 2009 insistence on stress-testing our methods against Depression-era data, which cut short our late-2008 turn to the constructive side (see Why Warren Buffett is Right and Why Nobody Cares).

 

 

When we shift our outlook over the completion of the current market cycle and begin encouraging a constructive or even leveraged stance, those who’ve incorrectly inferred that I’m some sort of “permabear” may become bewildered, or even believe that I’ve abandoned my investment discipline. The permabear label may be satisfying in a sort of “kick him when he’s down” kind of way, but it doesn’t explain the success prior to 2009.

 

 

An alternative explanation for our challenges in this half-cycle is that I’m simply a permabear. But that’s harder to square with my being a fully-leveraged “lonely raging bull” in the early 1990’s, or with our strongly constructive shift (despite valuations that were still elevated relative to historical norms) in early 2003 as a new bull market was taking hold, and is also inconsistent with our similarly constructive shift after the market plunge in 2008.

 

google: permabear site:hussman.com

 

I have been a critic of Hussman for a long time now (since 2010 - my comments are for all to see on gurufocus.com {Blogging About Money}), because I believe, while he may be proven right, he has done a lot of damage to his investors over the last 6 years. Thus, I have judged him for most of the post-"Great Recession" timeframe that he has been bearish. There is a difference between me, as a private investor, and he, as an investor of other people's money. As a private investor, if I am wrong, I am only hurting myself. As a custodian to OPM, you have to hold yourself to at least the same level as a private investor. Hussman is trying to do so (unlike many funds that just seek to become bigger for a larger 2% MER), but it has hurt his investors a lot.

 

Reminiscences of a misidentified permabear

 

In October 2008, after the market had plunged by more than 40%, our valuation measures indicated a clear shift to undervaluation. The challenge that emerged was not that valuations were rich, but that measures of what we call “early improvement in market action” which were quite reliable in post-war data were whipsawed like mad in the final months of 2008, as they were in the Depression-era. I leave everything I’ve written online – right, wrong, or neutral – and you can see us walk into that challenge in real-time by reviewing my rather constructive October 20, 2008 comment Why Warren Buffett is Right and Why Nobody Cares (note the section on early improvement in market action).

 

Measured from the market’s peak to trough, we came out of the 2007-2009 collapse virtually unscathed, but we were certainly whipsawed in late-2008. The similarity of that market action to Depression-era outcomes, coupled with what I viewed as misguided policy actions, forced a stress-testing decision that I still view as a necessary and fiduciary response. The resulting ensemble methods address that "two data sets" challenge, and we've validated them in data from market cycles across history. Taking our present methods to that period (without training them on that data), sufficient improvement in market internals did not emerge until early 2009. The market conditions required to navigate both Depression-era data and post-war data are simply more demanding than in post-war data alone. Of course, in real-time we were working to address that "two data sets" problem, and those methods were not available to us.

 

It’s quite easy in hindsight to assert that my insistence on stress-testing every aspect of our approach was unnecessary given improved valuations during the crisis. But it’s important to recognize that during the Depression, valuations similar to those of 2008 and 2009 were followed by an additional two-thirds loss of the market’s value. As for whipsaws, the Dow followed the initial 1929 crash by advancing fully 48% between November 13, 1929 and April 17, 1930, and then losing more than 80% of its value from there.

 

In hindsight, what finally ended the credit crisis in 2009 was a stroke of the pen – the March 2009 FASB 157 change that replaced mark-to-market accounting with “significant judgment” – making the risk of widespread bank failures vanish through the magic of erasers and sharpened pencils. Fed interventions and troubled asset purchases did not end the crisis. Though Fed purchases of mortgage securities clearly supported the housing market, the other policies were largely an expensive sideshow.

 

The “miss” that resulted in the interim of our 2009-2010 stress-testing is the real story behind my “permabear” reputation, because I doubt that anyone would think twice or second-guess our concerns about present speculative conditions in the absence of that miss.

 

http://www.hussman.com/wmc/wmc140324.htm

[james22]

It is perfectly fair to question Hussman's reliance on "hard, historically reliable evidence." (After all, he didn't forecast the March 2009 FASB 157 change.)

 

But it seems unfair to call him a permabear or question his duty to investors.

[scorpioncapital]

some fun quotes to help you outperform - http://the-me-in-investing.blogspot.ca/2011/11/where-are-customers-yachts.html

 

I like these quotes especially!

 

"Rhinophobia – the stock addict

Customers who suffer from Rhinophobia always have as many securities as possible.  When they sell out stocks at a profit they hasten to fill the void in their accounts with other stocks.  The odd part is that they are frequently economical souls who do not believe in frittering away their money on food and drink and momentary pleasure.  If they play bridge of an evening for a quarter of a cent and lose $17, they are liable to go home in a pretty depressed state of mind.  Perhaps on the same day a slight weakness in the market reduced their equity by $500 but that doesn’t trouble them much; they still have their beloved stocks.  It is practically axiomatic for these men that every time the stock market goes bust, so do they.

 

To them, having a sizable cash balance in an account for any length of time is unbearable.  Suppose stocks should go way up?  They would be left high and dry with nothing but some dirty old money."

 

"

When there is a stock-market boom, and every is scrambling for common stocks, take all your common stocks and sell them.  Take the proceeds and buy conservative bonds.  No doubt the stocks you sold will go higher.  Pay no attention to this – just wait for the depression which will come sooner or later.  When this depression – or panic – becomes a national catastrophe, sell out the bonds (perhaps at a loss) and buy back the stocks.  No doubt the stocks will go still lower.  Again pay no attention.  Wait for the next boom.  Continue to repeat this operation as long as you live and you’ll have the pleasure of dying rich."

 

 

[Jurgis]

When there is a stock-market boom, and every is scrambling for common stocks, take all your common stocks and sell them.  Take the proceeds and buy conservative bonds.  No doubt the stocks you sold will go higher.  Pay no attention to this – just wait for the depression which will come sooner or later.  When this depression – or panic – becomes a national catastrophe, sell out the bonds (perhaps at a loss) and buy back the stocks.  No doubt the stocks will go still lower.  Again pay no attention.  Wait for the next boom.  Continue to repeat this operation as long as you live and you’ll have the pleasure of dying rich."

 

If only it was that simple. Current generation has forgotten the value investors who followed this advice, sold out in 1995 and ... came back when?

 

Nobody catches exact tops and bottoms. If you sold out in the boom of 2005 and bought back in 2008... oh well, this wasn't very profitable either.

 

I'll refer to http://brooklyninvestor.blogspot.com/ who talks about this much better than I do.

[Sharad]

It is perfectly fair to question Hussman's reliance on "hard, historically reliable evidence." (After all, he didn't forecast the March 2009 FASB 157 change.)

 

But it seems unfair to call him a permabear or question his duty to investors.

 

james22/original mungerville: Hussman is a brilliant individual, and a great stock picker, and I have no hesitation in saying that, but I still feel that his hedging and bets against the market were too early and too heavy handed at the time. I hope he is proven right at this point, since I am nearly fully hedged and holding mostly defensive (but "buy forever") positions. I will say that I, as an accountant myself, believe that mark-to-market moves to much of the responsibility of asset valuations on accountants (who are not really trained for that level of valuation analysis) and away from the company and the investors. I still believe moving away from LCM (lower of cost or market) has proven more difficult and fraught with dangers. FAS 157 was implemented in 2007, and helped push the market over the edge of perhaps a warranted equities crash. But the knife cut both ways, if Hussman is right that a few changes to the pronouncement led to the market trough in 2009.

 

In an effort to move on from this disagreement in thought, I will withdraw from further commentary on Hussman. Thanks to all for a great discussion. I learned a bit more than I knew before it started, and that's what matters in my mind.

[finetrader]

It is tough to outperformed but if you don't, you should hire somepone who does or close your business.

Otherwise you are just a salesman.

[augustabound]

It is perfectly fair to question Hussman's reliance on "hard, historically reliable evidence." (After all, he didn't forecast the March 2009 FASB 157 change.)

 

But it seems unfair to call him a permabear or question his duty to investors.

 

james22/original mungerville: Hussman is a brilliant individual, and a great stock picker, and I have no hesitation in saying that, but I still feel that his hedging and bets against the market were too early and too heavy handed at the time.

 

He would help his cause if he stopped those weekly market commentary's of his. Nobody needs that. All he's doing is putting himself out there, in the market's eye once a week. When you do that you leave yourself open to all the criticism he's getting.

Something like that is for ego alone.

[james22]

...I still feel that his hedging and bets against the market were too early and too heavy handed at the time.

 

That's a fair criticism. I feel he might underestimate black swans and the possibility "this time is different."

 

In an effort to move on from this disagreement in thought, I will withdraw from further commentary on Hussman.

 

We don't really disagree that much, probably. And I appreciate the discussion.

 

He would help his cause if he stopped those weekly market commentary's of his. Nobody needs that. All he's doing is putting himself out there, in the market's eye once a week. When you do that you leave yourself open to all the criticism he's getting.

Something like that is for ego alone.

 

Why not assume his commentary holds him accountable and appreciate it for whatever insights it provides you? I sure do.

[bbarberayr]

If you want to understand why Hussman's approach is poor, take a look at : http://www.philosophicaleconomics.com/?s=hussman

 

Basically Hussman back fits data to fit his hypothesis, but it has no relevance going forward.  If he had a different hypothesis, his approach would have picked different data points to support that.

 

This web site also shows how CAPE, which Hussman bases a lot of his decisions on (foolishly I think) is not a viable metric and is, again, the case of backfitting data to a hypothesis.

 

Very good reading and helpful in understanding how you need to really think about things logically and not look for these quant type shortcuts.

 

 

[netnet]

To paraphrase Buffett, it is simple to make money (i.e. outperform) but it is not easy.

 

Some out-performers:

• Donville Kent
  
• Buying Buffett's largest stock positions, see Meb Faber's analysis
  
• Use Horizon Kinetics Owner Operator Index
  
• Equal weighted index*
  

 

*I won't get into the philosphical aspects of market weighting, I like my fellow board members too much to weigh in on this obviously heated topic.

 

All of the above have out performed over the long haul.  I believe the Tobias Carlyle's mechanical method has also done very well, I personally don't like to rebalance my portfolio every year. (A defect I'm sure.)

[Sharad]

I'm not sure if this has been discussed in the past on the boards here, but it's interesting that a trust created 80 years ago can still beat the S&P 500 today, even though nobody is actively managing it.

 

http://www.nasdaq.com/article/the-ultimate-forever-investment-a-buy-and-hold-fund-that-never-sells-cm341833

 

This article presented me with several important lessons (many of which I continuously fail to adhere to):

 

1. Inactivity, rather than activity, produces the best results;

2. When focused on a timeframe, like forever, it is best to find assets and companies that appear to be indispensable. I believe the trust in the article has beaten the S&P 500 by quite a margin since inception.

3. Given the trust does not sell its investments, mimicking this strategy (not blindly buying each stock, but following the methodology and the process the trust followed) will be tax efficient, making the investment returns against the S&P 500 a real market beating strategy, rather than mutual funds & other funds that constantly churn for gains and leave the investor to find a way to pay the tax bill.

 

I do think outperforming the market is possible. I don't think anyone on this board would have difficulty finding 5 stocks to buy if they were told you can only buy 5 stocks the rest of your life, and you can never sell them. We are all very intelligent and capable people. Buffett espouses the same approach as above, but it is so difficult to get one's emotions to follow what you have read is true.

[Jurgis]

I'm not sure if this has been discussed in the past on the boards here, but it's interesting that a trust created 80 years ago can still beat the S&P 500 today, even though nobody is actively managing it.

 

Not anymore.

 

Though perhaps oil will turn around at some point.

 

I don't think anyone on this board would have difficulty finding 5 stocks to buy if they were told you can only buy 5 stocks the rest of your life, and you can never sell them.

 

Actually, this would be totally impossible for me.

 

I think both you and netnet above are way oversimplifying outperformance and this is not necessarily a good thing. Telling people that it's "simple" to outperform and suggesting that this can be based on simple commonsense approaches is setting up people for underperformance and extended underperformance when they continue to try to follow the "simple" solutions (or even worse, wobble from one "simple" solution to another.

 

As good examples, HK has been underperforming, MOAT ETF and related moaty ETFs have been underperforming, Greenblatt Magic Formula has been underperforming (AFAIK, I don't think there's a reliable source for its performance info). All of these are based on simple, common sense, "it should work" approaches. None of them actually work.

 

It's great that LEXCX survived up till now, but I would not bet on it working for the next 10-20 years.

 

Edit: notes to myself so I don't forget:

RSP/PRF - no 15 year results. Outperformed SP500 marginally in 10

MOAT - only 3 year results, underperforming SP500 ~4%

QVAL - only 1 year results, 2015 was minus 13%

 

But that's probably way too much negativity :), so I am banning myself from this thread  8)

 

Happy outperformance in the next 10-15!

[netnet]

 

Actually, this would be totally impossible for me.

 

I think both you and netnet above are way oversimplifying outperformance and this is not necessarily a good thing. Telling people that it's "simple" to outperform and suggesting that this can be based on simple commonsense approaches is setting up people for underperformance and extended underperformance when they continue to try to follow the "simple" solutions (or even worse, wobble from one "simple" solution to another.

 

 

 

The quote about simple but not easy, is from Buffett, who advises most to just index.  And as Faber points out just buying Buffett's  picks would have worked out quite well. sooo...

 

No more from me.

[bbarberayr]

To paraphrase Buffett, it is simple to make money (i.e. outperform) but it is not easy.

 

Some out-performers:

• Donville Kent
  
• Buying Buffett's largest stock positions, see Meb Faber's analysis
  
• Use Horizon Kinetics Owner Operator Index
  
• Equal weighted index*
  

 

*I won't get into the philosphical aspects of market weighting, I like my fellow board members too much to weigh in on this obviously heated topic.

 

All of the above have out performed over the long haul.  I believe the Tobias Carlyle's mechanical method has also done very well, I personally don't like to rebalance my portfolio every year. (A defect I'm sure.)

 

I'd question putting Donville Kent on this list.  They've only been working the current bull market and have a pretty aggressive growth style, which has been the flavour of this bull.  They make the transition with the market successfully, or they may be just another flash in the pan that comes to the forefront every bull market.  Too early to tell.

[Uccmal]

 

Actually, this would be totally impossible for me.

 

I think both you and netnet above are way oversimplifying outperformance and this is not necessarily a good thing. Telling people that it's "simple" to outperform and suggesting that this can be based on simple commonsense approaches is setting up people for underperformance and extended underperformance when they continue to try to follow the "simple" solutions (or even worse, wobble from one "simple" solution to another.

 

 

 

The quote about simple but not easy, is from Buffett, who advises most to just index.  And as Faber points out just buying Buffett's  picks would have worked out quite well. sooo...

 

No more from me.

 

So, how did you know, or Faber know that Buffett's common stock picks were going to outperform?

 

I first read Lowensteins book on Buffett in 1996 - I think it was published a year or two earlier.  At the time there wouldn't have been the data available to clone Buffett.  We are assumming you could just google his 13f - this wasn't the case.  In 1998 you would still need to go to an SEC office, or somewhere to track down his common stock picks.  Good data on 13f holdings did not come about until after 2000.  Thats a 15 year runway.  Buffett was not commonly mentioned until Lowenstein's book.

[Uccmal]

I tend not to follow Guru's anymore.  What bought this to my attention right now though is John Paulson having to back his firms lines of credit with more of his own cash.  Also, the situation with Mohnish Pabrai.  Over the long term it is exceedingly difficult to outperform the markets by enough of a margin to justify ones existence, after fees and taxes.  By this I mean an outperformance of at least 2-4% over the SPY, over ten year periods, after fees and taxes. 

 

Off the top of my head, I can think of Buffett (size is now an anchor but he got 50 years), Seth Klarman,  Bruce Berkowitz, and Walter Schloss (Is there anyone else whose flame hasn't eventually gone out?).  Some companies have had great long term performance, but reverse engineering this to predict the future is mostly luck.  Greenblatt's record is not public.  I cannot think of any others. 

 

Can we collectively name those funds, investment type companies, or hedge funds who have:

 

 

 

Beaten the S&P 500 by 4% per year pre tax BUT after fees, for 15 years.

 

My original statement:

 

Beaten the S&P 500 by 4% per year pre tax BUT after fees, for 15 years.

 

Pre tax, after fees.. comes out to ~ 2 % for the holder of the fund. 

[SharperDingaan]

Things we may all want to consider….

 

At best, Joe Blow investor is going to make the index return less costs. Because Joe cannot sit still; in most cases this will be the index trailing 12 month return, less fees. Get over it.

 

The fund manager will make what Joe makes, plus the profit that the fund makes. The real money is from simply being in business; what’s made on the fund itself is little different to variable interest paid on a chequing account.

 

The fund manager is just another business person; no different to every plumber, dentist, lawyer, shop-keeper, captain of industry, etc. in the world. Around the world a large number of private successful business persons, will routinely do as least as well as them; and some better. They don’t need your money.

 

If you want to make more, open your own business.

If you just have cash, buy a fund and walk away.

 

If business is not your thing, there is no shame to simply walking away. It will very likely be one of the smartest things you ever did.

 

A man has to know his limitations.

 

SD

 

[AzCactus]

Things we may all want to consider….

 

At best, Joe Blow investor is going to make the index return less costs. Because Joe cannot sit still; in most cases this will be the index trailing 12 month return, less fees. Get over it.

 

The fund manager will make what Joe makes, plus the profit that the fund makes. The real money is from simply being in business; what’s made on the fund itself is little different to variable interest paid on a chequing account.

 

The fund manager is just another business person; no different to every plumber, dentist, lawyer, shop-keeper, captain of industry, etc. in the world. Around the world a large number of private successful business persons, will routinely do as least as well as them; and some better. They don’t need your money.

 

If you want to make more, open your own business.

If you just have cash, buy a fund and walk away.

 

If business is not your thing, there is no shame to simply walking away. It will very likely be one of the smartest things you ever did.

 

A man has to know his limitations.

 

SD

 

The fund manager is just another business person; no different to every plumber, dentist, lawyer, shop-keeper, captain of industry, etc. in the world. Around the world a large number of private successful business persons, will routinely do as least as well as them; and some better. They don’t need your money.

 

This is correct most of the time but not every time.  For example, a dentist and plumber aren't paid anything like a performance based fee.  If a fund manager went with a Buffett type structure and didn't achieve at least 6% a year I'm not sure how they make money if this was their only source of income.

[SharperDingaan]

Agreed, but there's really very little difference.

 

The fund pays the fund manager a management fee for services rendered; the customer pays the dentist, plumber, etc. for the same thing. If the dentist, plumber, etc. is not very good the customer either doesn't hire them, or pays less. If the fund manager is not very good, the fund either pays him/her less - or goes out of business.

 

The individual dentist, plumber, fund manager, etc. does what they do - as  long as it continues to remain worthwhile. If either of them find something better, they either withdraw their services - or hire someone else to replace them, and keep the business running. Even if the business is a vocation for you, you do not have to be there running it.

 

The takeaway is that being in business is the real wealth maker, not the stock market.

 

SD

 

 

[netnet]

So, how did you know, or Faber know that Buffett's common stock picks were going to outperform?

Well in 1996 he already had a 30 year record and he listed his holding in his letter.  And he was 'esteemed' enough to write the foreword to Intelligent Investor, so you knew that he was good, what he had done,  what he was doing, and what he had bought.

 

The takeaway is that being in business is the real wealth maker, not the stock market.

Absolutely, positively, no doubt about it!

[valueinvestingideas]

I don't think anyone said it was easy to outperform.  I also think that if Horsehead hadn't gone broke this thread likely would not have come up.

 

+1