Hang in There!

[james22]

I'd forgot Stewart. Funny.

 

 

 

Our bottom line result is that perfect foresight has great returns, but gut-wrenching drawdowns. In other words, an active manager who was clairvoyant, and knew ahead of time exactly which stocks were going to be long-term winners and long-term losers, would likely get fired many times over if they were managing other people’s money.

 

http://blog.alphaarchitect.com/2016/02/02/even-god-would-get-fired-as-an-active-investor/

[boilermaker75]

I'd forgot Stewart. Funny.

 

 

 

Our bottom line result is that perfect foresight has great returns, but gut-wrenching drawdowns. In other words, an active manager who was clairvoyant, and knew ahead of time exactly which stocks were going to be long-term winners and long-term losers, would likely get fired many times over if they were managing other people’s money.

 

http://blog.alphaarchitect.com/2016/02/02/even-god-would-get-fired-as-an-active-investor/

 

Do you remember this one? I find it just as funny,

 

[JBTC]

One could argue the guys who pick the components of the S and P are the best active managers out there.

 

This may be a profound thought.

 

1) Surely the battle to beat the market involves both the investors and the 500 stocks selected by employees of S&P. Most of the discussion has been about how the investors LOST the battle, while it could be that at least in the past decade, the few guys at S&P did a great job by removing losers and adding winners. They surely have picked APPL, GOOG, FB, AMZN, etc out of their own initiative.

 

2) By the same token, perhaps those guys at S&P in the decade prior made horrible mistakes by including stocks such as Enron. The value guys outperformed because they were able to commit less such errors.

 

3) S&P 500 clearly has the benefit of diversification. In the past decade our world increasingly moved to a knowledge based economy which is more prone to winner-take-all. Value investors generally fail to embrace the infamous FANG, partly because they own only 20-30 stocks, which does not allow them to cast a wide net in order to catch the very few winners. But S&P can try to be inclusive. Maybe in the future a concentrated portfolio will have its limitation.

 

 

[CorpRaider]

This thread delivers.  The S&P active managers are the best marketers no doubt.  Also, if I had only sold my I2 technologies in 99, I could have my man servant type this.

[frommi]

One could argue the guys who pick the components of the S and P are the best active managers out there.

 

This may be a profound thought.

 

1) Surely the battle to beat the market involves both the investors and the 500 stocks selected by employees of S&P. Most of the discussion has been about how the investors LOST the battle, while it could be that at least in the past decade, the few guys at S&P did a great job by removing losers and adding winners. They surely have picked APPL, GOOG, FB, AMZN, etc out of their own initiative.

 

2) By the same token, perhaps those guys at S&P in the decade prior made horrible mistakes by including stocks such as Enron. The value guys outperformed because they were able to commit less such errors.

 

3) S&P 500 clearly has the benefit of diversification. In the past decade our world increasingly moved to a knowledge based economy which is more prone to winner-take-all. Value investors generally fail to embrace the infamous FANG, partly because they own only 20-30 stocks, which does not allow them to cast a wide net in order to catch the very few winners. But S&P can try to be inclusive. Maybe in the future a concentrated portfolio will have its limitation.

 

There is a study from Jeremy Siegel that shows that until 2006 the original 500 companies of the index in 1957 have outperformed the index, so i think its the wrong conclusion that they did a good job. You could have done better buying 500 stocks and leaving them alone. And you would have done even better if you equal weighted them at the start and left them alone.

A possible reason is that when they finally added a stock it was when it was overvalued, and maybe i am wrong but i think they just add the biggest marketcap companies in the US, so its not really active management.

 

My lesson from this is that concentration like it is preached all over the value investing community is the real reason why people underperform for long stretches of time. Maybe i am a bit harsh but in my view concentration adds a big variance to returns that is mainly good for one group of people, and that is hedgefund managers. They participate fully in the upside returns but only marginally in the downside, so because of their compensation structure they are incentivized to concentrate. Especially the ones that have a Buffet like compensation fee. Someone on 2+20 will probably diversify more, but the 2% ensures that all possible outperformance goes to the manager. But since most of us probably are not running hedgefunds, is it really wise to concentrate and miss the stock that makes all the difference?

 

 

[CorpRaider]

They have some additional overlays in addition to  the (float adjusted) market cap.