Active vs Passive Investments

[bchip]

Active vs Passive Investments - the Other Side of the coin
Often I see people posting "just invest in the index funds and your just smarter than the rest, its so easy"
as if this 1 rule is so obvious one wonders why hedge funds even exist and they dont just invest in the index as well.

This table shows that its a lot more complicated.
When there's bull markets is often best to be all in the index, which is something hedge funds dont do because they do risk management
Conversely when bear markets hit, the drawdowns were phenomenal for "passive diy" investors (like 2008)
Unfortunately you can only see in hindsight where a bull and bear market started.

Notice the performance of each and during which years.
Sometimes the HF outperformed by double or triple.
The S&P has been outperforming the past 12 years due to the Fed helping out a lot and little to no risk management taken.

...just something to be cognizant off whenever touting that investing so easy you just buy the index. (like 2008, 2002)
People seem to have short memories and forget what it feels like to lose half of your money in a "buy and hold" situation.



Source

Smart Money Index: Everything You Should Know

Smart Money Index (SMI), aka Smart Money Flow Index, tries to understand what the smart money is doing vs. the dumb money. Learn more about this indicator

www.sentimentrader.com

 

[bchip]

/in before "but Buffet said just buy the dip..."

 

[Scooby_Doo]

What is the cumulative difference between the 2 over the listed 30 years? I didn't see anything in the blog post.

Edit,

Also, the returns inclusive or exclusive of fees?

If they are exclusive what is the cumulative difference when factoring in fees.

 

[Ancalagon]

I wonder if the recent downturn because of COVID-19 will cause things to be weighted in favour of hedge funds again.

That is, perhaps because of their strategies, they will cope better with economic downturns.

Slightly off topic, but I started investing in Vanguard this year, in March. As soon as I put the money in, I thought I was an idiot. But last time I checked, my investments were up 12% this year alone - in the middle of a downturn.

 

[Scooby_Doo]

I wonder if the recent downturn because of COVID-19 will cause things to be weighted in favour of hedge funds again.

That is, perhaps because of their strategies, they will cope better with economic downturns.

Slightly off topic, but I started investing in Vanguard this year, in March. As soon as I put the money in, I thought I was an idiot. But last time I checked, my investments were up 12% this year alone - in the middle of a downturn.

The passive investment group would say that it is impossible to know what is going to happen next and because you cannot know you should take the cheapest option to match the market.

 

[supersunbird]

Active vs Passive Investments - the Other Side of the coin
Often I see people posting "just invest in the index funds and your just smarter than the rest, its so easy"
as if this 1 rule is so obvious one wonders why hedge funds even exist and they dont just invest in the index as well.

This table shows that its a lot more complicated.
When there's bull markets is often best to be all in the index, which is something hedge funds dont do because they do risk management
Conversely when bear markets hit, the drawdowns were phenomenal for "passive diy" investors (like 2008)
Unfortunately you can only see in hindsight where a bull and bear market started.

Notice the performance of each and during which years.
Sometimes the HF outperformed by double or triple.
The S&P has been outperforming the past 12 years due to the Fed helping out a lot and little to no risk management taken.

...just something to be cognizant off whenever touting that investing so easy you just buy the index. (like 2008, 2002)
People seem to have short memories and forget what it feels like to lose half of your money in a "buy and hold" situation.

View attachment 972830

Source

Smart Money Index: Everything You Should Know

Smart Money Index (SMI), aka Smart Money Flow Index, tries to understand what the smart money is doing vs. the dumb money. Learn more about this indicator

www.sentimentrader.com

Just read a thread the other day where we discussed this years back and was wondering what you were getting up to.

Yes, but which hedge fund to buy into? What is the variance on return from top and bottom performing hedge fund? What is variance in return of the top and bottom S&P500 index fund providers?

Our index people thinking result from this:
I want decent enough performance. Mmmm, which hedge fund to choose? So many, how do I know which one is the star and which ones will be real dogs? Mmmm, I know, just get the index and I'll get decent enough performance for my needs, less risk than picking a dog hedge fund, and having to eat dog food in retirement. The index fund will outperform the hedge dogs.

 

[B-1]

Just read a thread the other day where we discussed this years back and was wondering what you were getting up to.

Yes, but which hedge fund to buy into? What is the variance on return from top and bottom performing hedge fund? What is variance in return of the top and bottom S&P500 index fund providers?

Our index people thinking result from this:
I want decent enough performance. Mmmm, which hedge fund to choose? So many, how do I know which one is the star and which ones will be real dogs? Mmmm, I know, just get the index and I'll get decent enough performance for my needs, less risk than picking a dog hedge fund, and having to eat dog food in retirement. The index fund will outperform the hedge dogsfrom what bigger guys are far less likely

From what I've seen the bigger ones are also fairly passive as they influence the markets if they shift large sums of money. Then the smaller ones that are more active tend to have higher risk so you really need to pick the right one or be lucky. Passive is the safe bet and although some active managers do well its generally not that consistent over the long term. I still see plenty of prizes available to investment firms who think they can beat passive investment.

 

[bchip]

The passive investment group would say that it is impossible to know what is going to happen next and because you cannot know you should take the cheapest option to match the market.

I've got some flats in Hillbrow to sell to this passive investment group, can do the whole process through Leadhome (cheapest)...therefore this must be a great strategy

 

[bchip]

Just read a thread the other day where we discussed this years back and was wondering what you were getting up to.

Yes, but which hedge fund to buy into? What is the variance on return from top and bottom performing hedge fund? What is variance in return of the top and bottom S&P500 index fund providers?

Our index people thinking result from this:
I want decent enough performance. Mmmm, which hedge fund to choose? So many, how do I know which one is the star and which ones will be real dogs? Mmmm, I know, just get the index and I'll get decent enough performance for my needs, less risk than picking a dog hedge fund, and having to eat dog food in retirement. The index fund will outperform the hedge dogs.

Ive got no idea which ones will be the best and why the variance of the S&P funds matter but what I can say
is that when everybody from Barbera Streisand (who has her own trading channel), to the barbers, to the porn stars have now "figured out the market"
I would be very very cautious to go along with them.

There are countless examples for anyone who does the work to see there are many times when index passive investments was a terrible idea.
I personally like Clem Sunters strategy more for the average person, if you dont know what your doing buy the depressed market
and rotate between property, stocks and bonds.
Right now stocks are overvalued, bonds and property is undervalued (depending on the country), yet everyone is buying stocks from TSLA to AAPL

Edit: Google Lana Rhoades for some interesting tips on the markets

 

[bchip]

Just read a thread the other day where we discussed this years back and was wondering what you were getting up to.

Mostly data analytics and arbitrages on the markets.
I've come to enjoy 'Options' a lot on the markets, pity SA doesnt have them.

 

[chrisc]

You should read how Sygnia deal with passive and active Mutual Funds

 

[bchip]

You should read how Sygnia deal with passive and active Mutual Funds

Here is an article by Sygnia, I can already see some points I disagree on.

However as everyone is welcome to their own opinion, here is the article so everyone can make up their own mind.

https://www.sygnia.co.za/press/arguments-against-passive-investing

Just remember that Magda is selling you her product....AUM

 

[cguy]

One of the commonly marketed benefits of working at top hedge funds is funnily enough the ability to invest in them. Some are fairly exclusive and can’t just be bought into by the public, and some require high (liquid) net worth to buy into otherwise.

 

[netcruiser]

One of the commonly marketed benefits of working at top hedge funds is funnily enough the ability to invest in them. Some are fairly exclusive and can’t just be bought into by the public, and some require high (liquid) net worth to buy into otherwise.

They do this because you have to follow stricter rules when you work with the public's money. If it's the owners using their own money, they can pretty much do what they want.

 

[supersunbird]

Ive got no idea which ones will be the best and why the variance of the S&P funds matter but what I can say
is that when everybody from Barbera Streisand (who has her own trading channel), to the barbers, to the porn stars have now "figured out the market"
I would be very very cautious to go along with them.

There are countless examples for anyone who does the work to see there are many times when index passive investments was a terrible idea.
I personally like Clem Sunters strategy more for the average person, if you dont know what your doing buy the depressed market
and rotate between property, stocks and bonds.
Right now stocks are overvalued, bonds and property is undervalued (depending on the country), yet everyone is buying stocks from TSLA to AAPL

Edit: Google Lana Rhoades for some interesting tips on the markets

So you cannot pick the best or the dogs? The variance on the S&P fund matter because:

Lets take 1993 then, seemingly a great year for Hedge Funds, right? Average 30% returns.

On 1 Jan 1993 did you pick Acme Hedge Fund which gave 90% return or did you pick Top Dog Hedge Fund which gave -20%? If you had picked ANY of the S&P 500 funds you'd have gotten 8% to 12% (index tracking errors/differences), thus the safer bet, since one is probably talking retirement money, now if's really money you can just play with, go ahead and try picking the best on 1 Jan 1993 and have fun.

 

[Scooby_Doo]

I've got some flats in Hillbrow to sell to this passive investment group, can do the whole process through Leadhome (cheapest)...therefore this must be a great strategy

Sigh.

1. Buying to a single area is the property equivalent of buying a single stock.
2. Hillbrow does not represent an index like the S&p500 or MSCI World.
3. In South Africa it is the top of the market that is losing value to inflution, the lower end is growing at double digits.

 

[Pegging]

Ive got no idea which ones will be the best and why the variance of the S&P funds matter but what I can say
is that when everybody from Barbera Streisand (who has her own trading channel), to the barbers, to the porn stars have now "figured out the market"
I would be very very cautious to go along with them.

There are countless examples for anyone who does the work to see there are many times when index passive investments was a terrible idea.
I personally like Clem Sunters strategy more for the average person, if you dont know what your doing buy the depressed market
and rotate between property, stocks and bonds.
Right now stocks are overvalued, bonds and property is undervalued (depending on the country), yet everyone is buying stocks from TSLA to AAPL

Edit: Google Lana Rhoades for some interesting tips on the markets

How many funds have you invested in, or is there just one?

 

[saturnz]

Often I see people posting "just invest in the index funds and your just smarter than the rest, its so easy"
as if this 1 rule is so obvious one wonders why hedge funds even exist and they dont just invest in the index as well.

a hedgefund with billions at its disposal is not the same as a single inexperienced laymen speculating with their savings

 

[cguy]

I wonder if the recent downturn because of COVID-19 will cause things to be weighted in favour of hedge funds again.

That is, perhaps because of their strategies, they will cope better with economic downturns.

Probably. They’re not afraid to short the market, tend to be unbiased (predict movements in either direction with equal probability), and generally have profits proportional to volatility rather than a long term trend.