Comments on: “Pitfalls” of Indexing http://www.canadiancapitalist.com/pitfalls-of-indexing/ Helping you invest and prosper Sat, 11 Feb 2012 19:27:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Ed Rempel http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-155620 Ed Rempel Mon, 15 Sep 2008 03:40:26 +0000 http://www.canadiancapitalist.com/?p=1234#comment-155620 Hi CC, I guess that shows that even pensions funds follow the rule of thumb - 90% of all transactions are stupid. This is exactly why the average investor only gets 1/3 of the return of the funds they own (Dalbar 20-year study). They are dumping 3 fund managers that have all beaten the index by wide margins over long periods of time because they have a "tracking error"? These managers only beat the index by being very different from the index - not from trying to track it. All the great value managers have underperformed for the last several years. They have been telling us that 2004-8 are just like 1995-9 in that the same sectors keep going up and up far beyond what the fundamentals support, while solid undervalued companies are mostly not rising. Only those that hold on through periods of underperformance will get the index-beating returns of the top fund managers. Ed Hi CC,

I guess that shows that even pensions funds follow the rule of thumb – 90% of all transactions are stupid. This is exactly why the average investor only gets 1/3 of the return of the funds they own (Dalbar 20-year study).

They are dumping 3 fund managers that have all beaten the index by wide margins over long periods of time because they have a “tracking error”? These managers only beat the index by being very different from the index – not from trying to track it.

All the great value managers have underperformed for the last several years. They have been telling us that 2004-8 are just like 1995-9 in that the same sectors keep going up and up far beyond what the fundamentals support, while solid undervalued companies are mostly not rising.

Only those that hold on through periods of underperformance will get the index-beating returns of the top fund managers.

Ed

]]> By: Canadian Capitalist http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-155602 Canadian Capitalist Mon, 15 Sep 2008 01:08:28 +0000 http://www.canadiancapitalist.com/?p=1234#comment-155602 Cogsy: There is tons of discussion on currency effects in the archives. I personally prefer direct holding in US stocks because (a) they are cheaper (b) hedging has debatable benefits but certain costs including bad tracking error. Ed: I've read that article. It's reprinted in the appendix of "The Intelligent Investor". Now, I have no doubt that Warren Buffett can tell you who can outperform the market in advance. I only question whether your average investor or advisor can. The overwhelming evidence is they can't. For instance, check out the travails of Bill Miller: http://www.reuters.com/article/bondsNews/idUSN0645707620080806 Cogsy: There is tons of discussion on currency effects in the archives. I personally prefer direct holding in US stocks because (a) they are cheaper (b) hedging has debatable benefits but certain costs including bad tracking error.

Ed: I’ve read that article. It’s reprinted in the appendix of “The Intelligent Investor”. Now, I have no doubt that Warren Buffett can tell you who can outperform the market in advance. I only question whether your average investor or advisor can. The overwhelming evidence is they can’t. For instance, check out the travails of Bill Miller:

http://www.reuters.com/article/bondsNews/idUSN0645707620080806

]]> By: Ed Rempel http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-155379 Ed Rempel Sun, 14 Sep 2008 01:58:53 +0000 http://www.canadiancapitalist.com/?p=1234#comment-155379 Hi CC, Have you read Warren Buffett's article "The Superinvestors of Graham-and-Doddsville"? Here is a link:(http://www0.gsb.columbia.edu/null/CIER?exclusive=filemgr.download&file_id=645551&showthumb=0 . How do you explain that these 8 guys Warren bumped into all ended up beating the index by large margins over decades? He knew all these guys would out-perform ahead of time. His point is that there is much inefficiency, that the market price is determined by the single most greedy or most depressed investor, and that academics continue to argue that the markets are efficient, while the super-investors of Graham-and-Doddsville continue to beat the indexes. Ed Hi CC,

Have you read Warren Buffett’s article “The Superinvestors of Graham-and-Doddsville”? Here is a link:(http://www0.gsb.columbia.edu/null/CIER?exclusive=filemgr.download&file_id=645551&showthumb=0 .

How do you explain that these 8 guys Warren bumped into all ended up beating the index by large margins over decades? He knew all these guys would out-perform ahead of time.

His point is that there is much inefficiency, that the market price is determined by the single most greedy or most depressed investor, and that academics continue to argue that the markets are efficient, while the super-investors of Graham-and-Doddsville continue to beat the indexes.

Ed

]]> By: Market Correction, Web Hosting and Weekend Reading - Sept 12, 2008 | Million Dollar Journey http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-155092 Market Correction, Web Hosting and Weekend Reading - Sept 12, 2008 | Million Dollar Journey Fri, 12 Sep 2008 10:31:09 +0000 http://www.canadiancapitalist.com/?p=1234#comment-155092 [...] Canadian Capitalist [...] [...] Canadian Capitalist [...]

]]> By: squawkfox » Chickens, Tomatoes, and Links Oh My! http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-153891 squawkfox » Chickens, Tomatoes, and Links Oh My! Sun, 07 Sep 2008 22:41:10 +0000 http://www.canadiancapitalist.com/?p=1234#comment-153891 [...] Canadian Capitalist: “Pitfalls” of Indexing [...] [...] Canadian Capitalist: “Pitfalls” of Indexing [...]

]]> By: Sunday Money Madness | Rich Credit Debt Loan http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-153812 Sunday Money Madness | Rich Credit Debt Loan Sun, 07 Sep 2008 13:16:53 +0000 http://www.canadiancapitalist.com/?p=1234#comment-153812 [...] “Pitfalls” of indexing at Canadian Capitalist responds to Million Dollar Journey’s 4 reasons why index investing may not be for you. [...] [...] “Pitfalls” of indexing at Canadian Capitalist responds to Million Dollar Journey’s 4 reasons why index investing may not be for you. [...]

]]> By: Weekly Dividend Investing Roundup - September 6, 2008 » The Dividend Guy Blog http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-153566 Weekly Dividend Investing Roundup - September 6, 2008 » The Dividend Guy Blog Sat, 06 Sep 2008 16:55:54 +0000 http://www.canadiancapitalist.com/?p=1234#comment-153566 [...] The pitfalls of indexing [...] [...] The pitfalls of indexing [...]

]]> By: Cogsy http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-153476 Cogsy Fri, 05 Sep 2008 23:50:16 +0000 http://www.canadiancapitalist.com/?p=1234#comment-153476 A friend and I were talking about Swensen's approach to investing. I have ordered the book "Unconventional Success" and it is in the mail. We were wondering if a few of you could give a Canadian version of a Swensen portfolio so that we would not have to convert some of our money to US dollars. I am going to start with the e-Series portfolio similar to the Spleepy Portfolio but we were curious what funds we would need to mirror Swensen. A friend and I were talking about Swensen’s approach to investing. I have ordered the book “Unconventional Success” and it is in the mail. We were wondering if a few of you could give a Canadian version of a Swensen portfolio so that we would not have to convert some of our money to US dollars. I am going to start with the e-Series portfolio similar to the Spleepy Portfolio but we were curious what funds we would need to mirror Swensen.

]]> By: A Lap Of The Blogs : WhereDoesAllMyMoneyGo.com http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-153294 A Lap Of The Blogs : WhereDoesAllMyMoneyGo.com Fri, 05 Sep 2008 04:46:25 +0000 http://www.canadiancapitalist.com/?p=1234#comment-153294 [...] last but not least, Canadian Capitalist responds to the Million Dollar Journey’s post about the “pitfalls” of investing in index [...] [...] last but not least, Canadian Capitalist responds to the Million Dollar Journey’s post about the “pitfalls” of investing in index [...]

]]> By: Financial Jungle http://www.canadiancapitalist.com/pitfalls-of-indexing/#comment-153265 Financial Jungle Fri, 05 Sep 2008 03:12:37 +0000 http://www.canadiancapitalist.com/?p=1234#comment-153265 >>Now, if I only invested my life savings in Berkshire Hathaway back in ‘75…. (I was not born yet, but if only…) Apparently index investors chose to ignore $100 bills on the floor. http://www.cnbc.com/id/21834492 >>Now, if I only invested my life savings in Berkshire Hathaway back in ‘75…. (I was not born yet, but if only…)

Apparently index investors chose to ignore $100 bills on the floor.
http://www.cnbc.com/id/21834492

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