Can you beat an Index Fund?
Poll: Can you beat an Index Fund?
Total Members Polled: 55
Discussion
There are a few threads where the old "active v passive" thing comes up and some people think they can beat index funds whilst some people take the increasingly popular and arguably more evidence based approach that it's very difficult to beat most significant indices consistently and over the long term if you're trying to do so like for like.
So a quick and dirty poll with what I think are probably the three main indices people refer to in those discussions.
I've also added one popular multi-asset fund just to try to cover the fact that indices don't have to be 100% equities and there are a lot of people who invest in multi-asset funds.
It's multiple choice so you don't have to pick just one.
Feel free to explain your reasoning and offer your reasoning and evidence either way
So a quick and dirty poll with what I think are probably the three main indices people refer to in those discussions.
I've also added one popular multi-asset fund just to try to cover the fact that indices don't have to be 100% equities and there are a lot of people who invest in multi-asset funds.
It's multiple choice so you don't have to pick just one.
Feel free to explain your reasoning and offer your reasoning and evidence either way
As a broad believer in the Lars approach (have you watched his videos here?), I would pick yes to the first…
….although the concept of how good I am would probably mean they are all better than me over the long term
therefore yes/no to them feels a little bit daft!
You haven’t suggested a period….& as Lars explains, a picker might win a year, maybe two or three, but they are very unlikely to beat over long periods of time.
….although the concept of how good I am would probably mean they are all better than me over the long term
therefore yes/no to them feels a little bit daft!
You haven’t suggested a period….& as Lars explains, a picker might win a year, maybe two or three, but they are very unlikely to beat over long periods of time.
Warren Buffet challenged anyone to beat a S&P index fund over 10 years and offered a $1 million prize if they did.
I believe the top competitor gave up year before the 10 years as there was no way they they could beat it in the remaining years.
Some of the index funds have charges of less than 0.1% compared to the much higher charges of actively managed portfolios.
I believe the top competitor gave up year before the 10 years as there was no way they they could beat it in the remaining years.
Some of the index funds have charges of less than 0.1% compared to the much higher charges of actively managed portfolios.
Edited by Whataguy on Sunday 8th September 08:50
I certainly don’t try.
Sal-sac pension goes into HSBC FTSE All-World Index (Acc) every month. Yearly ISA subscription the same fund.
LISA and SIPP both in VWRP for capped platform fees.
All as simple and as low-fee as I can get it. If long term averages hold through to retirement age I will have no complaints.
Sal-sac pension goes into HSBC FTSE All-World Index (Acc) every month. Yearly ISA subscription the same fund.
LISA and SIPP both in VWRP for capped platform fees.
All as simple and as low-fee as I can get it. If long term averages hold through to retirement age I will have no complaints.
Whataguy said:
Warren Buffet challenged anyone to beat a S&P index fund over 10 years and offered a $1 million prize if they did.
I believe the top competitor gave up a few years before the 10 years as there was no way they they could beat it in the remaining years.
Covered in the SJP thread. Many flaws. I believe the top competitor gave up a few years before the 10 years as there was no way they they could beat it in the remaining years.
timeframe, knowledge, tools & 'in what vehicle' - as well as 'with what % of overall wealth-assets' to me are key points for such a question.
In a pension/isa there are fewer tools to allow aggressive strategies - no Options, less ways to hedge barring selling or taking positions in assets that do 'ok' in big downturns. But regular rotation of the portfolio can yield better gains that just assuming that all assets go up/down at the same pace or timeframe.
Trading (swapping) between 2 assets that are trending up - rather than selling into cash.
aggressive holdings during solid market runs - could likely outperform any index by say 2 or 3x ( or likely a lot more) in a 12-24 period, which COULD allow the savvy to pull out a chunk into a safe/cash position to take advantage of heavy drawdowns. (since early '23 the usual big 7 outperformed by between 2-10times sp500 returns).
if comfortable with risk, or enough other assets / income to cushion pullbacks, then being heavy in fewer assets that are 'on the up' is going to yield a far greater % than spreading the portfolio across 20-30 diff stocks. Illustrated above 7 'easy to pick' stocks outperformed overall s&p by double or more. Would that work over a 5 year period without managing the positions = no.
time horizon/bias; haters beat up on CEO'S or products ' i'd never invest in Y 'cos i don't like their products/ceo' . Investors don't give a crap, as long as what they put their money into gives the rewards. Few ( i believe) retail investors can do so without little emotion, or are able to research deep enough/look far enough into the future to take an educated view on where 'the puck' is likely to be. IE/ " tsla's a car company, i hate Musk, i hate 'X', i don't like their cars" - is it hell, it's an AI company, that IF it pulls off / excutes over the next few years - well, we'll see.
I'd wager that beyond what they can read in financials, the av retail investor knows little about the compnaies they would/could invest in.
Fear: easy to lump money into an index and forget, it takes away the stress of seeing a 20% pullback, but those with a belief in their portfolio will see it as an opp to add to their positions whilst things are 'on sale'.
Anyways. for me, not interested in anything in the UK, i don't follow the market enough although i live here. So yes, i think it's more than possible to do better than the US indexes. Ask that Q again in 2 years though - i may be wrong!
In a pension/isa there are fewer tools to allow aggressive strategies - no Options, less ways to hedge barring selling or taking positions in assets that do 'ok' in big downturns. But regular rotation of the portfolio can yield better gains that just assuming that all assets go up/down at the same pace or timeframe.
Trading (swapping) between 2 assets that are trending up - rather than selling into cash.
aggressive holdings during solid market runs - could likely outperform any index by say 2 or 3x ( or likely a lot more) in a 12-24 period, which COULD allow the savvy to pull out a chunk into a safe/cash position to take advantage of heavy drawdowns. (since early '23 the usual big 7 outperformed by between 2-10times sp500 returns).
if comfortable with risk, or enough other assets / income to cushion pullbacks, then being heavy in fewer assets that are 'on the up' is going to yield a far greater % than spreading the portfolio across 20-30 diff stocks. Illustrated above 7 'easy to pick' stocks outperformed overall s&p by double or more. Would that work over a 5 year period without managing the positions = no.
time horizon/bias; haters beat up on CEO'S or products ' i'd never invest in Y 'cos i don't like their products/ceo' . Investors don't give a crap, as long as what they put their money into gives the rewards. Few ( i believe) retail investors can do so without little emotion, or are able to research deep enough/look far enough into the future to take an educated view on where 'the puck' is likely to be. IE/ " tsla's a car company, i hate Musk, i hate 'X', i don't like their cars" - is it hell, it's an AI company, that IF it pulls off / excutes over the next few years - well, we'll see.
I'd wager that beyond what they can read in financials, the av retail investor knows little about the compnaies they would/could invest in.
Fear: easy to lump money into an index and forget, it takes away the stress of seeing a 20% pullback, but those with a belief in their portfolio will see it as an opp to add to their positions whilst things are 'on sale'.
Anyways. for me, not interested in anything in the UK, i don't follow the market enough although i live here. So yes, i think it's more than possible to do better than the US indexes. Ask that Q again in 2 years though - i may be wrong!
b
hstewie said:
hstewie said: Feel free to explain your reasoning and offer your reasoning and evidence either way
Definitely possible to "beat the index" with the right setup (which includes shorter holding periods).Over longer holding periods, beating the market is far more difficult/impossible.
https://www.youtube.com/watch?v=6fr8XOtbPqM&t=...
https://www.institutionalinvestor.com/article/2bsw...
Yes.
I have my pension in global funds which have done very well over the year.
I use my ISA's for range trading in a few companies, and I'm up about 40% this year. I didn’t trade in 2023, but in 2022 I was up about 30%. I choose shares that look good value, and have swings of around 10%.
The problem is I end up checking them multiple times a day, and stressing when they are in negative territory. I'm retired but I have to be up when the markets open so It feels like a job. The main ones are...
BT
JD Sports
Lloyds
Vodafone
Kingfisher
Eazyjet
JD has by far been the best. Probably accounts for half my gains
I have my pension in global funds which have done very well over the year.
I use my ISA's for range trading in a few companies, and I'm up about 40% this year. I didn’t trade in 2023, but in 2022 I was up about 30%. I choose shares that look good value, and have swings of around 10%.
The problem is I end up checking them multiple times a day, and stressing when they are in negative territory. I'm retired but I have to be up when the markets open so It feels like a job. The main ones are...
BT
JD Sports
Lloyds
Vodafone
Kingfisher
Eazyjet
JD has by far been the best. Probably accounts for half my gains
There isn't really a straightforward answer when you frame it like this. Over what timeframe(s)? How are you measuring your performance? Do you care about adjusting for risk (and if you do, how are you defining it)? Does beating any of these benchmarks even matter as far as your objectives are concerned?
In GBP terms and measured by both IRR and unitised CAGR, in ~25yrs of active equity investing (with meticulous records throughout, using accurate market data and correct accounting for all cashflows, charges and corporate actions) I've beaten and lagged all of those benchmarks over various periods. Right now I'm ahead of them all since inception (where data for that full period exists), with shorter intervening periods being a mixed bag as you'd expect. But who knows what the final scores will be when I "retire" or shuffle off.
In GBP terms and measured by both IRR and unitised CAGR, in ~25yrs of active equity investing (with meticulous records throughout, using accurate market data and correct accounting for all cashflows, charges and corporate actions) I've beaten and lagged all of those benchmarks over various periods. Right now I'm ahead of them all since inception (where data for that full period exists), with shorter intervening periods being a mixed bag as you'd expect. But who knows what the final scores will be when I "retire" or shuffle off.
"And it seems that many professional fund managers fail to achieve the latter."
is that because those fund managers have to adopt a 'one size fits all' strategy - and have to work within agreed %'s for their holdings?
Would the performance outcome be different if they were allowed to hold say 20% of 1 stock/asset at a moment in time vs ( i believe a much smaller %), would their decision making be different if they weren't generally ( it seems) trying to just get to a 7-10% returns level year over year.
Not saying that this is correct, but perhaps fund managers are hamstrung in the same way that most (all?) financial advisors are -not being allowed to recommend certain products, being tied by rules to 'protect' their clients. May be wrong in this relating to the UK, but have come across umpteen financial whizz's who firmly believe that factoring in debasement one needs atleast 12-13% to stand still.
is that because those fund managers have to adopt a 'one size fits all' strategy - and have to work within agreed %'s for their holdings?
Would the performance outcome be different if they were allowed to hold say 20% of 1 stock/asset at a moment in time vs ( i believe a much smaller %), would their decision making be different if they weren't generally ( it seems) trying to just get to a 7-10% returns level year over year.
Not saying that this is correct, but perhaps fund managers are hamstrung in the same way that most (all?) financial advisors are -not being allowed to recommend certain products, being tied by rules to 'protect' their clients. May be wrong in this relating to the UK, but have come across umpteen financial whizz's who firmly believe that factoring in debasement one needs atleast 12-13% to stand still.
greengreenwood7 said:
is that because those fund managers have to adopt a 'one size fits all' strategy - and have to work within agreed %'s for their holdings?
I'd suggest it's because they are competing with thousands of other market participants with equal or superior resources. greengreenwood7 said:
in the same way that most (all?) financial advisors are -not being allowed to recommend certain products, being tied by rules to 'protect' their clients.
What products did you have in mind?Derek Chevalier said:
greengreenwood7 said:
is that because those fund managers have to adopt a 'one size fits all' strategy - and have to work within agreed %'s for their holdings?
I'd suggest it's because they are competing with thousands of other market participants with equal or superior resources. greengreenwood7 said:
in the same way that most (all?) financial advisors are -not being allowed to recommend certain products, being tied by rules to 'protect' their clients.
What products did you have in mind?as for what products for the more 'normal' IFA's. Those that i've encountered are not fond of stocks/companies that are related to assets such as Bitcoin - and few ( i guess by their reactions and that of mainstream press/analysts) seem to understand that a few of those entities have massive upside potential - albeit it cyclical. Can't imagine that a typical IFA would be too happy - or perhaps able to countenance having a concentration of say miicrostrategy to name just one.
greengreenwood7 said:
as for what products for the more 'normal' IFA's. Those that i've encountered are not fond of stocks/companies that are related to assets such as Bitcoin - and few ( i guess by their reactions and that of mainstream press/analysts) seem to understand that a few of those entities have massive upside potential - albeit it cyclical. Can't imagine that a typical IFA would be too happy - or perhaps able to countenance having a concentration of say miicrostrategy to name just one.
I guess it depends on the criteria for which an asset class should be considered for a portfolio, but a key criteria must be that there is a good chance that it is going to enhance client outcomes. I was coincidentally updating my review on Tim Hale's book. He includes crypto (along with gold, structured products, etc.) as asset classes that he doesn't see a case for in client portfolios, and most in the financial planning space tend to agree - it's filtered before it reaches the "would the regulator approve" stage.
Missed it earlier but on Simons/Medallion et al, I don't necessarily see the relevance of the comparison. If you're trying to compete against participants like that to extract short-term alpha in highly liquid markets then yeah, you're probably an idiot. But that aside, them being good at what they do doesn't preclude someone else from outperforming the index playing a different game (especially in markets that the quants can't realistically participate even in if they wanted to).
NowWatchThisDrive said:
Missed it earlier but on Simons/Medallion et al, I don't necessarily see the relevance of the comparison. If you're trying to compete against participants like that to extract short-term alpha in highly liquid markets then yeah, you're probably an idiot. But that aside, them being good at what they do doesn't preclude someone else from outperforming the index playing a different game (especially in markets that the quants can't realistically participate even in if they wanted to).
My point was that even they struggle to gain an edge over the longer holding periods. I would, therefore, question what edge someone else might have that they don't in this space (other than in the the lower liquidity/market cap space where they probably can't trade in sufficient size without moving the market). Gassing Station | Finance | Top of Page | What's New | My Stuff