Dow posts worst Opening Day in 8 years

[Mman]

The big difference is that management can use share buybacks to game the system using leverage. Most of their bonus metrics are dependent on share price.

Increasing dividends doesn't give management the chance to game the system in the same way because their bonuses aren't tied to dividends as much as share price.

The article I linked showed many big companies that have been pulling this racket for the last 5 years. This distorts the market if done in large amounts.

When interest rates inevitably go up, these companies shares will tank screwing investors.

That's the new reality that is being done far more than ever before.

The thing is you literally CANNOT talk about this in a global sense. You have to talk about individual companies. If you want to talk about a particular company, please talk about them. Generically talking about "management" and "bonus metrics" and "many big companies" is pointless.

Do some CEOs have bonuses tied to share price? Sure. Smarter ones have share prices tied to market cap. But like I said, a buyback is only bad in the same sense a credit card is bad. Dumb people can abuse it. Dumb people can and do also abuse dividends.

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[DrCommonSense]

The thing is you literally CANNOT talk about this in a global sense. You have to talk about individual companies. If you want to talk about a particular company, please talk about them. Generically talking about "management" and "bonus metrics" and "many big companies" is pointless.

Do some CEOs have bonuses tied to share price? Sure. Smarter ones have share prices tied to market cap. But like I said, a buyback is only bad in the same sense a credit card is bad. Dumb people can abuse it. Dumb people can and do also abuse dividends.

Why can't I talk about it "globally" when the leveraged share buybacks have been DRAMATICALLY increasing since 2008 thanks to the Federal Reserve Interest Rate policies.

I gave you 3 specific companies in the examples above that did this individually whereby you just said "well thats bad even if it was with dividends". However, that MISSES the reality of the reason that management DOES share buybacks. Its done to GAME the system and improve their bonuses that are TIED to share prices.

One of the articles I listed showed companies with P/E ratios >25 that were leveraging out the wazoo for share buybacks. What justification do these companies have in doing this?

There is ZERO CAPEX investment for the future being done here. If this isn't being done to game the system short term at the expense of LONG TERM profits, how else can you explain this? This is happening ACROSS THE BOARD in MANY SP500 companies since 2008.

Also, the Fed is in on this RACKET, attempting to continue to inflate the markets and keep the bubble going:

A Problem Emerges: Central Banks Injected A Record $1 Trillion In 2017... It's Not Enough | Zero Hedge

I know zerohedge is "terrible" but they are QUOTING BANK OF AMERICA in that article. You don't find it problematic that the central banks had to inject over 1 trillion into the market ALREADY in 2017? You don't find these markets a little "strange" compared to historical norms?

Please tell me ANYTIME in the HISTORY of the market whereby:

1) Central Banks literally printed TRILLIONS PER YEAR to inflate the markets?
2) Interest rates were kept ridiculously low for extended periods of time. Im talking about sub 1% fed funds rates for >7 years or so.
3) Leveraged Share buybacks with INCREASED P/E ratios were the cause for a large part of the market gains due to the above 2 policies where companies could GAME the market using low interest rate debt that is NOT being used for productive CAPEX?
4) GDP growth less than 2% for >8 years.


Then we can talk about "historical" norms when analyzing this market and you can show me SP500 curves when you can show me anytime the above conditions existed before.

 

[deleted126335]

Please tell me ANYTIME in the HISTORY of the market whereby:

1) Central Banks literally printed TRILLIONS PER YEAR to inflate the markets?
2) Interest rates were kept ridiculously low for extended periods of time. Im talking about sub 1% fed funds rates for >7 years or so.
3) Leveraged Share buybacks with INCREASED P/E ratios were the cause for a large part of the market gains due to the above 2 policies where companies could GAME the market using low interest rate debt that is NOT being used for productive CAPEX?
4) GDP growth less than 2% for >8 years.


Then we can talk about "historical" norms when analyzing this market and you can show me SP500 curves when you can show me anytime the above conditions existed before.

We are in new territory. Doesn't mean this can't go on for quite some time. Trying to figure out how and when these policies will lead to market disruptions is a fools errand. There are massive inflationary pressures (Money printing, zero interest rates) also massive deflationary pressures- globalization, demographics, automation. Nobody knows how it will unfold. Stick to your allocation, enjoy the run up, rebalance, and if the market continues its run up, take risk assets off the table as you approach your number.

 

[Mman]

Why can't I talk about it "globally" when the leveraged share buybacks have been DRAMATICALLY increasing since 2008 thanks to the Federal Reserve Interest Rate policies.

I'll leave it at this...

You can't talk about it globally because it is individual decisions by individual companies. Share buybacks have increased recently because companies have the largest cash balances ever recorded on hand and can't find great ways to invest it to grow the business further. Companies have also taken on leverage because it's good business practice with such low interest rates. They'd be stupid to not do it. That has nothing to do with CEO compensation. It's simple math.

You are confusing about 10 different topics and rolling them into a single ball. If you'd like to discuss them, do it individually. If you want to talk about the balance sheet of the Federal Reserve, go for it. If you want to highlight a company's CEO compensation package and why it's wrong, go for it. If you want to talk about the good and bad sides of debt and how it should be used, go for it. If you want to talk about the tax consequences for corporations and stock owners of buybacks vs dividends, go for it. If you want to talk about interest rates in the US compared to historical norms and compared to the rest of the world, go for it.

Just don't roll it all into one big discussion. It's a bunch of different discussion, that while intertwined, cannot be logically analyzed or discussed as a whole. When you try to complain about it all at once, it's causing you to reach incorrect conclusions on individual parts of it.

Please tell me ANYTIME in the HISTORY of the market whereby:

1) Central Banks literally printed TRILLIONS PER YEAR to inflate the markets?
2) Interest rates were kept ridiculously low for extended periods of time. Im talking about sub 1% fed funds rates for >7 years or so.
3) Leveraged Share buybacks with INCREASED P/E ratios were the cause for a large part of the market gains due to the above 2 policies where companies could GAME the market using low interest rate debt that is NOT being used for productive CAPEX?
4) GDP growth less than 2% for >8 years.


Then we can talk about "historical" norms when analyzing this market and you can show me SP500 curves when you can show me anytime the above conditions existed before.

So you've spent much of this thread talking about how stocks are extremely expensive compared to historical norms and now you want to talk about how it's different this time? If all these things are different now, then why are you telling me stocks are expensive?

 

[DrCommonSense]

I'll leave it at this...

You can't talk about it globally because it is individual decisions by individual companies. Share buybacks have increased recently because companies have the largest cash balances ever recorded on hand and can't find great ways to invest it to grow the business further. Companies have also taken on leverage because it's good business practice with such low interest rates. They'd be stupid to not do it. That has nothing to do with CEO compensation. It's simple math.

You are confusing about 10 different topics and rolling them into a single ball. If you'd like to discuss them, do it individually. If you want to talk about the balance sheet of the Federal Reserve, go for it. If you want to highlight a company's CEO compensation package and why it's wrong, go for it. If you want to talk about the good and bad sides of debt and how it should be used, go for it. If you want to talk about the tax consequences for corporations and stock owners of buybacks vs dividends, go for it. If you want to talk about interest rates in the US compared to historical norms and compared to the rest of the world, go for it.

Just don't roll it all into one big discussion. It's a bunch of different discussion, that while intertwined, cannot be logically analyzed or discussed as a whole. When you try to complain about it all at once, it's causing you to reach incorrect conclusions on individual parts of it.




So you've spent much of this thread talking about how stocks are extremely expensive compared to historical norms and now you want to talk about how it's different this time? If all these things are different now, then why are you telling me stocks are expensive?

See I can't tell anymore due to manipulation of federal reserve, collapse of Europe, lack of alternative countries to invest in currently, etc.

No one has a crystal ball into this stuff anymore and simple notions of "the market always goes up" is bs too.

Historically, the market is in major bubble terroritory. However, with the major money printing going on its scary to be too invested in cash. The nominal market may go up to astronomical numbers due to sheer money printing regardless of value metrics.

I also notice you ignored that the conditions occurring now are unprecedented. Please tell me when this has ever happened before in the market?

 

[deleted126335]

I also notice you ignored that the conditions occurring now are unprecedented. Please tell me when this has ever happened before in the market?

It hasn't happened before. But you don't know anything that the market doesn't.

 

[DrCommonSense]

It hasn't happened before. But you don't know anything that the market doesn't.

Interesting perspective by the FOUNDER of VANGUARD on the problems of everyone going into the passive investing:

Jack Bogle Warns Of Market "Chaos, Catastrophe" If Passive Investing Wins | Zero Hedge

Also, the argument that markets are "efficient" is BS too made up by a dude at Chicago who won the "Nobel Prize in Economics" (fake prize made by bankers NOT Nobel). This "hypothesis" was largely made up to justify the naked thievery and market manipulation of the people at the top pretending they are rich due to intelligence and "efficiency" rather than HFT, inside trading, lobbying, etc.

There is no "efficient" market considering the information asymmetry between the average investor and big institutions such as Goldman Sachs.

I agree with Robert Schiller on this subject about irrational exuberance and Behavioral Economists such as Richard Thaler from U of C who discuss that markets aren't these brilliant self regulating mechanisms but largely emotional, form bubbles, etc.

Here is a debate between Thaler and Fama about "efficient markets" if you have the time:



Thaler easily shows the lack of evidence for this efficiency. Even Fama hedges his discussion by calling it a "model that isn't always true".

Using conventional "wisdom" based upon Fama, which is basically the working model for the people debating me, has very little evidence.

 

[deleted126335]

I agree that EMH is a model that isn't always true. That is not the same thing as saying that there are people who can be identified going forward who can reliably and repeatedly exploit inefficiencies after costs. I am convinced of the latter. So are lots of people which is why passive strategies are killing active. Will it become a problem someday...maybe. More likely there will be other problems that come up that we can't foresee that will cause dyspepsia in the markets. Or unexpected positive surprises that cause elation.

BTW, DFA funds (which Gene Fame founded) is where I keep most of my money, Vanguard funds are number two.

 

[DrCommonSense]

I agree that EMH is a model that isn't always true. That is not the same thing as saying that there are people who can be identified going forward who can reliably and repeatedly exploit inefficiencies after costs. I am convinced of the latter. So are lots of people which is why passive strategies are killing active. Will it become a problem someday...maybe. More likely there will be other problems that come up that we can't foresee that will cause dyspepsia in the markets. Or unexpected positive surprises that cause elation.

BTW, DFA funds (which Gene Fame founded) is where I keep most of my money, Vanguard funds are number two.

I don't disagree that you mostly can't beat the market compared to low cost index funds or solid "dividend aristocrats".

However, this has little to do with "efficient" markets. It has mostly to do information asymmetry in the markets whereby the little investors really don't have much information about each company to make informed decisions.

No one really knows the true measure of a company unless they are high up in management at those companies. 10Ks are constantly falsified using "debt off the balance sheets" or other accounting tricks.

That is why Goldman, Consulting companies and high level management have MAJOR advantages when it comes to investing compared to the average investor.

Large Hedge Funds can't make money exploiting these asymmetries in information because of their sheer size. They can't invest in smaller to middle sized companies in sufficient amounts if they are worth 10s of billions under management to effect change. They have to largely invest in the same LARGE CAP companies everyone else can do with simple index funds.

 

[BLADEMDA]

I don't disagree that you mostly can't beat the market compared to low cost index funds or solid "dividend aristocrats".

However, this has little to do with "efficient" markets. It has mostly to do information asymmetry in the markets whereby the little investors really don't have much information about each company to make informed decisions.

No one really knows the true measure of a company unless they are high up in management at those companies. 10Ks are constantly falsified using "debt off the balance sheets" or other accounting tricks.

That is why Goldman, Consulting companies and high level management have MAJOR advantages when it comes to investing compared to the average investor.

Large Hedge Funds can't make money exploiting these asymmetries in information because of their sheer size. They can't invest in smaller to middle sized companies in sufficient amounts if they are worth 10s of billions under management to effect change. They have to largely invest in the same LARGE CAP companies everyone else can do with simple index funds.

My investments are diversified. I use Mutual Funds with top rated managers for my retirement money. At this point in my life that's quite a sum of money. These managers have done well and OVERALL beaten the return from their indices. I use morningstar to select from the universe of mutual funds in each category. There are no negative tax implications from capital gains when investing retirement money.

On the taxable side I switched from active stock picking to ETFs about 7-8 years ago. I utilize iShares, Vanguard, Wisdom tree and Schwab for most of my ETFs. The fees are extremely low and the tax efficiency can't be beat. I have invested in some low volatility ETFs and semi active management ETFs as well.

Overall, I'm happy with my investment choices in terms of cost and diversification. Ideally, I'd do DFA mutual funds in my 401K side and my expenses would be reduced by about 0.6% per year with similar returns; but, I'd need to pay an adviser fees to access the DFA funds negating most of the savings. On the taxable side I'm satisfied with the broad array of ETFs available to me.

Efficient Market Hypothesis has been back tested by Morningstar and USA equities have the best evidence that it works. Foreign equities and Emerging markets tend to run less efficient markets and my mutual fund managers have easily beaten their indices.

 

[DrCommonSense]

My investments are diversified. I use Mutual Funds with top rated managers for my retirement money. At this point in my life that's quite a sum of money. These managers have done well and OVERALL beaten the return from their indices. I use morningstar to select from the universe of mutual funds in each category. There are no negative tax implications from capital gains when investing retirement money.

On the taxable side I switched from active stock picking to ETFs about 7-8 years ago. I utilize iShares, Vanguard, Wisdom tree and Schwab for most of my ETFs. The fees are extremely low and the tax efficiency can't be beat. I have invested in some low volatility ETFs and semi active management ETFs as well.

Overall, I'm happy with my investment choices in terms of cost and diversification. Ideally, I'd do DFA mutual funds in my 401K side and my expenses would be reduced by about 0.6% per year with similar returns; but, I'd need to pay an adviser fees to access the DFA funds negating most of the savings. On the taxable side I'm satisfied with the broad array of ETFs available to me.

Efficient Market Hypothesis has been back tested by Morningstar and USA equities have the best evidence that it works. Foreign equities and Emerging markets tend to run less efficient markets and my mutual fund managers have easily beaten their indices.

How could they be beating the indices if the market is efficient? The whole premise of efficient markets largely negates the ability to beat the respective index. Fama clearly says that in the video I have linked whereby Thaler agrees for different reasons.

Also, show me the studies where the EMH has been "back tested by Morningstar and USA equities" since I haven't seen them.

 

[deleted126335]

How could they be beating the indices if the market is efficient?

By taking more risk than the index.

 

[DrCommonSense]

By taking more risk than the index.

But research has shown the vast majority of funds don't beat the Index over the long run due to regression to the mean. This is particularly more dramatic once fees are added into the equation.

 

[deleted126335]

Not all stocks are equally risky. E.g. Value and size exposure are risk premia.


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[BobBarker]

Not applicable to current discussion but I think CHK stock is undervalued. I bought quite a bit last week when it bottomed out around $5.

 

[BLADEMDA]

Not applicable to current discussion but I think CHK stock is undervalued. I bought quite a bit last week when it bottomed out around $5.

I sold my position at around $25 and never looked back.

 

[BLADEMDA]

But research has shown the vast majority of funds don't beat the Index over the long run due to regression to the mean. This is particularly more dramatic once fees are added into the equation.

 

[BLADEMDA]

Data bears this out. While U.S. equity managers underperformed by more than 1% over the past seven years, according to research firm Informa, other categories beat their benchmarks, in aggregate. U.S. fixed-income managers beat by a little less than 1%, while emerging-market equity managers beat by about 2%. Funds with more obscure focuses did even better: Active managers for international small-cap stocks and emerging-market fixed-income funds saw the best results, beating the market by about 5%.

“If they’re really looking to add alpha or achieve outperformance over a benchmark, the asset classes that have typically offered the most outperformance over time are those that are less efficient: The small caps, international, emerging markets are a good place to start,” Ryan Nauman, a market strategist at Informa, wrote of investors in a research note.

Here’s where active management can add value to your portfolio

 

[BLADEMDA]

Watch 8 seconds 3:18-3:26

 

[BLADEMDA]

DFA offers great mutual funds. But, when you factor in that 0.5%-0.75% Adviser fee the returns may not be as good as you think:

 

[BLADEMDA]

The reasons I avoid DFA in my taxable accounts are the after tax returns and exposure to capital gains. ishares ETFs are much better at avoiding those factors in my taxable account.

 

[BLADEMDA]

 

[BLADEMDA]

So in the end, if you are an educated and disciplined investor, don’t go out and hire an advisor just to get DFA funds. There is probably an advantage there, especially in certain asset classes, but it isn’t large enough to pay for the advisory fees by itself. But before you decide to do it on your own, you’d better be sure you’re sufficiently educated and disciplined to implement and maintain an intelligent portfolio over the long run.

DFA Vs Vanguard

 

[facted]

But research has shown the vast majority of funds don't beat the Index over the long run due to regression to the mean. This is particularly more dramatic once fees are added into the equation.

But many of us know just how to pick them...we only pick top performing funds and get out right when they're turning...

 

[BLADEMDA]

But many of us know just how to pick them...we only pick top performing funds and get out right when they're turning...

If you examine the FACTS you will clearly see that a top rated fund in the right category will outperform its index. USA equities, in general, are very efficient making it very hard for active management to beat their indices. But, for emerging market bonds, emerging market stocks and International equity (Particulary midcap and small cap) active management can beat their indices and have done so during this bull market. Hence, I choose active management in my retirement funds (with heavy emphasis on those categories where a Gold or Silver fund can outperform a passive ETF) while sticking with ETFs for my taxable accounts ( I utilize Vanguard, ishares, Schwab and Wisdom tree Etfs).

 

[deleted126335]

You should check out DFAs tax managed funds.
Their value funds are much more "valuey" than anywhere else.

 

[BLADEMDA]

You should check out DFAs tax managed funds.
Their value funds are much more "valuey" than anywhere else.

I think DFA is an excellent fund company. If I had access to them I would own several in my retirement account. DFA tax managed funds are very good for taxable accounts but they do leave the investor with "potential exposure to huge capital gains" even though he/she may have just purchased the fund. Hence, I wouldn't buy those funds over ETFs for my taxable account.

 

[facted]

If you examine the FACTS you will clearly see that a top rated fund in the right category will outperform its index. USA equities, in general, are very efficient making it very hard for active management to beat their indices. But, for emerging market bonds, emerging market stocks and International equity (Particulary midcap and small cap) active management can beat their indices and have done so during this bull market. Hence, I choose active management in my retirement funds (with heavy emphasis on those categories where a Gold or Silver fund can outperform a passive ETF) while sticking with ETFs for my taxable accounts ( I utilize Vanguard, ishares, Schwab and Wisdom tree Etfs).

The FACTS do not agree with you unfortunately over the long term. 5 year fund performance for a fund vs index no better predicts future performance than a monkey tossing a dart, but OK.

The Past Performance Of A Mutual Fund Is Not An Indicator Of Future Outcomes ... 96% Of The Time

Why you should stop believing in past performance

 

[BLADEMDA]

The FACTS do not agree with you unfortunately over the long term. 5 year fund performance for a fund vs index no better predicts future performance than a monkey tossing a dart, but OK.

The Past Performance Of A Mutual Fund Is Not An Indicator Of Future Outcomes ... 96% Of The Time

Why you should stop believing in past performance

My monkeys have done very well for me so far; I'll be sticking with them even if they do cost me some more bananas.

Also, the links you posted are for actively managed USA equity funds which I hold in my taxable account via ETFs.

My posts have clearly addressed that the USA equity market is very efficient and only a handful of small cap mutual fund managers can beat their index. Even then, I own passive small cap ETFs.

Mutual fund managers excel in areas of the market where inefficiencies exist like International and Emerging markets. I believe those areas to be significantly undervalued to USA equities and thus choose to invest in them utilizing active management via my retirement account.
If I didn't use active management for those areas I would use DFA mutual funds because I prefer their approach to International and Emerging markets over traditional ETFs.

 

[vector2]

Not applicable to current discussion but I think CHK stock is undervalued. I bought quite a bit last week when it bottomed out around $5.

If you're working under the assumption that OPEC is gonna put a solid $40 floor on WTI and natty isn't gonna tank, CHK is excellent here.

 

[BLADEMDA]

Doze has been instrumental in getting my financial portfolio straightened out. I now "see the light" of ETF investing especially for my taxable accounts. I simply would NOT buy a mutual fund (even DFA) for my taxable accounts; I utilize ETFs.

But, Doze is a passive investor all the way even for his retirement accounts. I choose a different path here because there are no taxes and there is a good chance of out-performance in certain categories. I do worry about fees and try to purchase the Institutional version of the fund if at all possible. Overall, the international and emerging market funds have outperformed their benchmarks. By choosing active management in these areas via a retirement account my risks are minimal with a good chance of out-performance.

I greatly appreciate Doze and the good financial books he has recommended to me. If I had followed Doze's advice when I finished Residency I estimate my net worth would be at least $2 million more than I have right now. I firmly believe that the vast majority of "traders" will lose out to Mr. Market over the long run. I learned my lessons the hard way and I fully expect Mr. Market has a lot more to teach me.

 

[DrCommonSense]

W

Not applicable to current discussion but I think CHK stock is undervalued. I bought quite a bit last week when it bottomed out around $5.

Wait I thought we couldnt time the market?

 

[BobBarker]

Wait I thought we couldnt time the market?

I am a gambler. I can't help it. I think for my lifetime I am up around plus $10k gambling in Vegas. Should have sold the nevro out of my Roth before they missed so bad this quarter, I did clear my taxable nevro out to buy the CHK thankfully.

BUT... I have all of my 401k, 457b, and the kids 529s in index funds. My employer has vanguard admiral shares index funds as an option and I use those exclusively.

 

[facted]

. By choosing active management in these areas via a retirement account my risks are minimal with a good chance of out-performance.

I greatly appreciate Doze and the good financial books he has recommended to me. If I had followed Doze's advice when I finished Residency I estimate my net worth would be at least $2 million more than I have right now. I firmly believe that the vast majority of "traders" will lose out to Mr. Market over the long run. I learned my lessons the hard way and I fully expect Mr. Market has a lot more to teach me.

Do you honestly believe that actively manged international funds are low risk?!? I have no issue with a balanced portfolio including plenty of international exposure but active management does nothing to shield you from risk in that exposure.

 

[BLADEMDA]

Do you honestly believe that actively manged international funds are low risk?!? I have no issue with a balanced portfolio including plenty of international exposure but active management does nothing to shield you from risk in that exposure.

No. I do not believe that my mutual funds are "low risk" but the returns have made up for that risk. I do a detailed analysis of each mutual fund for alpha, sharpe ratio, beta, etc vs their index and some other mutual funds. Emerging markets are very volatile as are International small cap so these funds are not for the faint of heart. Even my Vanguard Emerging markets ETF is quite volatile.

The point of my posts is that one can build a good diversified portfolio using both ETFs (passive) along with some active management (retirement accounts). I have no issues with those that choose 100% passive investments for all their accounts. I was simply making a case that certain segments of the market may benefit from active management if you have access to non taxable money.

 

[BLADEMDA]

But many of us know just how to pick them...we only pick top performing funds and get out right when they're turning...

The FACT is that average investor is getting the message to go passive. Each year more and more investors pull money out of WINNING USA equity funds and move the money to passive funds or ETFs:

There’s been some chatter lately that even "winning" active funds—that is, those that have beaten their benchmarks recently—are getting hit with outflows. That would be remarkable given investors’ propensity to chase performance. In general, if a fund has beaten its bogy, it has usually been able to rake in assets. So, if we saw investors pulling money from winning funds, it would indicate a dramatic reversal. In this piece, we’ll take a closer look at the data to see if investors are, indeed, pulling their assets from winning funds and offer a few thoughts on trends that might be driving this behavior.

Jeffrey Ptak, CFA, is head of global manager research with Morningstar.
Key Findings

• Investors pulled a net $99 billion from “winning” active funds and $214 billion from “losing” funds in the year ended Jan. 31, 2017.
• Much of the pain was concentrated in U.S. equity funds, where winning active funds saw nearly $100 billion in net assets walk out the door.
• Over the three years ended Jan. 31, 2017, winning active funds gathered a net $425 billion while losing funds were hit with a staggering $1 trillion in net outflows. It’s not clear that the rash of selling from winning funds in the year ended January 2017 represents a new trend (the three-year numbers suggest it is a relatively recent phenomenon).

 

[BLADEMDA]

The evidence is quite clear that buying an actively managed Mutual fund and holding it for 10 years is a poor strategy compared to an index fund or ETF in that category (as it pertains to USA domestic equity funds). The return on investment will likely be even lower when taxes and fees/expenses are figured into the equation vs a comparable ETF/Index fund.

The only domestic category where a good mutual fund manager may (again MAY) outperform his/her index is the small cap category. Even then when taxes and expenses are figured into the equation the index is hard to beat.

Hence, my preference is to use ETFs for all domestic equity purchases.

 

[facted]

Hence, my preference is to use ETFs for all domestic equity purchases.

Why not index mutual funds such as vanguard?

 

[facted]

The FACT is that average investor is getting the message to go passive. Each year more and more investors pull money out of WINNING USA equity funds and move the money to passive funds or ETFs:

There’s been some chatter lately that even "winning" active funds—that is, those that have beaten their benchmarks recently—are getting hit with outflows. That would be remarkable given investors’ propensity to chase performance. In general, if a fund has beaten its bogy, it has usually been able to rake in assets. So, if we saw investors pulling money from winning funds, it would indicate a dramatic reversal. In this piece, we’ll take a closer look at the data to see if investors are, indeed, pulling their assets from winning funds and offer a few thoughts on trends that might be driving this behavior.

Jeffrey Ptak, CFA, is head of global manager research with Morningstar.
Key Findings

• Investors pulled a net $99 billion from “winning” active funds and $214 billion from “losing” funds in the year ended Jan. 31, 2017.
• Much of the pain was concentrated in U.S. equity funds, where winning active funds saw nearly $100 billion in net assets walk out the door.
• Over the three years ended Jan. 31, 2017, winning active funds gathered a net $425 billion while losing funds were hit with a staggering $1 trillion in net outflows. It’s not clear that the rash of selling from winning funds in the year ended January 2017 represents a new trend (the three-year numbers suggest it is a relatively recent phenomenon).

The term "winning" is very deceiving. A win this year does not mean a long term win. Investors, rightly so, are figuring out that active managers rarely "win" compared to index funds.

 

[BLADEMDA]

Why not index mutual funds such as vanguard?

Index funds are fine I just prefer ETFs for tax loss or gain purposes and the ability to place price orders.

 

[epidural man]

Interesting article - I'm not a huge Cramer fan, but I liked this read.

Cramer: Where Did the Fear Go?

 

[DrCommonSense]

My monkeys have done very well for me so far; I'll be sticking with them even if they do cost me some more bananas.

Also, the links you posted are for actively managed USA equity funds which I hold in my taxable account via ETFs.

My posts have clearly addressed that the USA equity market is very efficient and only a handful of small cap mutual fund managers can beat their index. Even then, I own passive small cap ETFs.

Mutual fund managers excel in areas of the market where inefficiencies exist like International and Emerging markets. I believe those areas to be significantly undervalued to USA equities and thus choose to invest in them utilizing active management via my retirement account.
If I didn't use active management for those areas I would use DFA mutual funds because I prefer their approach to International and Emerging markets over traditional ETFs.

Cool story about "inefficiencies in the international and emerging markets" that can be exploited by mutual fund managers.

Really cool story bro

 

[deleted126335]

Cool story about "inefficiencies in the international and emerging markets" that can be exploited by mutual fund managers.

Really cool story bro

Except it ain't true


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[BLADEMDA]

Economy is at or near its best: Dalio 20 Hours Ago | 02:56
Ray Dalio, founder of Bridgewater Associates, is feeling OK about markets and the economy right now, but he is getting really worried about the future.

"Big picture, the near term looks good and the longer term looks scary," Dalio wrote in a LinkedIn blog post Friday.

"We fear that whatever the magnitude of the downturn that eventually comes, whenever it eventually comes, it will likely produce much greater social and political conflict than currently exists," he said.


Bridgewater manages $150 billion.

Dalio listed four reasons for his pessimism:

1. Economic growth "at or near its best" with no major economic risks in the next two years.

2. "Significant long-term problems" such as high debt levels and limited central bank power "that are likely to create a squeeze." Required payments for social programs including pensions and health care are also increasing.

3. Social and political conflicts "near their worst for the last number of decades."

4. "Conflicts get worse when economies worsen."

Productivity necessary for raising living standards is low, while social tensions over income inequality and politics are increasing, the hedge fund manager said.

"Since such tensions are normally correlated with overall economic conditions, it is unusual for social and political tensions to be so bad when overall economic and market conditions are so good," he said.

U.S. stocks are at record highs, while political conflict is elevated based on a Federal Reserve Bank of Philadelphia index created by looking at newspaper articles, Dalio noted.

"The idea of conflicts getting even worse in a downturn is scary," he said.

 

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Except it ain't true


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Well, it depends on the quality of the EM fund. I agree that passive investing even with Emerging markets is a perfectly rational way to invest in this sector. At the same time, all the data shows a top 25% EM fund can clearly deliver out-performance over 10 years. Rather than bore you with dozens of articles I'll post a few graphs.

Morningstar and others have stated that "low costs/expense ratios" are the major component of market beating returns over a long period of time.

When tax efficiency and expense ratios are factored into the equation passive investing likely beats all sectors of active management. However, if you have retirement money then the tax efficiency doesn't factor into the equation allowing the investor the option of active management in certain sectors.

Doze is correct that active management isn't required at all in any sector but I believe the evidence is there for active management to outperform in certain sectors of the market. Thus, I have a portion of my total assets invested with active fund management.

 

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In conclusion, though we have shown issues associated with both the active and passive approach, all told we do not believe investing passively in emerging markets is the ideal option. Active management, which comes in various forms, not only better maneuvers through these markets' associated risks, but it takes advantage of shifting market dynamics and individual opportunities that a quantitative, market cap weighted index approach is likely to overlook. It is also important to emphasize that the most successful emerging market allocations will be those made by investors who are comfortable and accepting of a long-term investment period.


Up For Debate Yet Again: Active Vs. Passive But This Time It's The Emerging Markets | Seeking Alpha

 

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