Good time to buy into Managed funds ?

Discussion in 'Share Investing Strategies, Theories & Education' started by jonas, 6th Oct, 2008.

Join Australia's most dynamic and respected property investment community
  1. crc_error

    crc_error The Rule of 72

    Joined:
    1st Jul, 2015
    Posts:
    1,267
    Location:
    Melbourne, VIC
    Warren Buffett has just invested in US shares? Do you think he has much time? lol
     
  2. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
    "Then again, I come from a trading background, where dollar cost averaging is a mortal sin :)"

    Nick Leeson thought he could average a loss and he managed to destroy a bank :rolleyes:
     
  3. crc_error

    crc_error The Rule of 72

    Joined:
    1st Jul, 2015
    Posts:
    1,267
    Location:
    Melbourne, VIC
    If your view is the whole world economy is going bankrupt, then you wouldn't want to dollar cost average your way into a selection of managed funds accross different asset classes..

    dollar cost averaging into a dieing company will sent you bankrupt, but this is a little different to dollar cost averaging your way into several assett classes..
     
  4. C3PO

    C3PO Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    94
    Location:
    Adelaide, SA
    Just like Warren Buffett is timing the market now! He's been saying for years that US stocks have been too expensive, only just now have they become attractive for him. He's had bucket loads of cash for ages waiting for something to come along cheaply enough.

    Does Berkshire Hathaway dollar cost average?
     
  5. Neil_Salkow

    Neil_Salkow Member

    Joined:
    1st Jul, 2015
    Posts:
    15
    Location:
    Melbourne, VIC
    Warren Buffett is not your average investor. He takes calculated risks and doesnt believe in diversification. He also spends all his time dedicated to analysing, market timing and stock selection. Then he purchased stocks that he believes are undervalued, does so in VOLUME and then controls the operation of those companies.

    I'd rather take a passive approach, let the market do its thing and enjoy my life. I have loads more to accomplish than analysing balance sheets.

    Buffett also says "Risk comes from not knowing what you are doing.'' Unless you are on the ball ALL the time, you are risking too much.
     
  6. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    1,075
    Location:
    Sydney, NSW
    I've seen this go wrong too many times, if there is an error, fix it asap and cop the loss rather than waiting for it to go the other way...When it doesn't it'll cost alot more to fix.

    ...Trading rule here is cut your losses rather than letting them run...

    Cheers,

    Dan
     
  7. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
    "I'd rather take a passive approach, let the market do its thing and enjoy my life. I have loads more to accomplish than analysing balance sheets.

    Buffett also says "Risk comes from not knowing what you are doing.'' Unless you are on the ball ALL the time, you are risking too much."



    Well...passiveness is a kind of laziness (IMHO).
    That is why majority of investors are sitting now on the 40% loss, hoping (hope = 4 letter word) that in 10, 20 years they can make it.
    This kind of approach hardly works!.
    You do NOT need to be on the ball all the time, but certainly you must know what you are doing – unfortunately...:rolleyes:
     
  8. Neil_Salkow

    Neil_Salkow Member

    Joined:
    1st Jul, 2015
    Posts:
    15
    Location:
    Melbourne, VIC
     
  9. Chris C

    Chris C Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    904
    Location:
    Brisbane, QLD
    I don't think being a passive investor is necessarily lazy. In many cases it could be the smart option.

    Like if you are like the average person in their 20's that wants to invest say $25,000 in the market, spending a large amount of time (ie 10+ hours a week studying the market) is probably not an effective use of time because the capital behind that individual is insignificant to the point where even if they were to beat the market the extra returns from beating the market would pail in comparison to what they could have earned working the extra hours in their regular job.

    Realistically unless you have at least $250,000 - $500,000 in the market spending too much time keeping up to date with the market may well have an overall neative effect if that time could have been better spent. So passive investing may very well be the best option, for the vast majority of the population.
     
  10. Neil_Salkow

    Neil_Salkow Member

    Joined:
    1st Jul, 2015
    Posts:
    15
    Location:
    Melbourne, VIC
    Chris, even with that amounts like $500,000, there are no guarantees that all that effort could amount to anything more than market returns.

    On occassions it may be useful to use high yielding direct investments as part of a strategy to achieve low cost, tax effective portfolio solutions, in conjunction with a passive approach. (this is where you are dealing with VERY high balances)
     
  11. C3PO

    C3PO Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    94
    Location:
    Adelaide, SA

    Neil I think it would be helpful to the debate if you could provide some hard data to back up this statement.

    Before we descend into traders versus investors, I do think that we need to perhaps recognise that there is some middle ground here. Personaly I think it's a good policy to be a bit proactive in managing your own investment portfolio.

    Some of the smartest (and wealthiest) non professional investors I know held shares in Listed Investment Companies (Argo, Milton Corporation and the like) and simple index funds. They bought them 5 or 6 years ago and liquidated early this year in anticipation of the downturn in the cycle. For these investors, one of the most significant warnings that the share market was topping out was the high prices being paid by private equity companies in corporate takeovers (the Packer family selling PBL was a notable example and there are many others).

    So, if you bought your shares in Argo 5 years ago, held them until roughly around the time when James Packer sold PBL (he's no fool), then planned on buying them back say in 12 or 18 months from now, what's wrong with that as a basic investment strategy?

    I really don't see this as an ego trip in terms of trying to prove myself cleverer professional fund managers. To me it's just having a basic understanding of the investment cycle and allocating your funds accordingly.

    Many people are convinced that they should invest in managed funds (where they are charged high fees and often suffer substandard performance), because the financial services industry has a vested interest in perpetuating the myth that you have to be highly skilled to invest. It's only natural that people in the financial services industry should now say to us that we should consider our investments in managed funds as long term investments ---- it's better than saying "oops! sorry maybe that wasn't such a good recommendation after all"
     
  12. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
    Passiveness is as smart as laziness...or as smart as jumping from 50-story tower without a parachute...(IMHO).
    A lot of people believe (incl. you) that if you haven’t sold you lost nothing...
    Well...it’s incorrect from the start....
    Not selling at the right time and sitting on the big losses you are practically losing money day in/day out (opportunity cost etc).
    If you invest, your money should work for you from day one...That is a basic idea behind investing (some people invest just for fun of it).

    There are a lot of investors who did not sell HIH, Enron etc at the right time and lost everything.
    Most Funds perform very poorly because managers are passive, and some of them are simply hopples.

    It seems that you read a ‘weird’ research (plenty of it around), because passive approach is the most risky of all. If you want to avoid a risk – do not invest at all or learn how to manage a risk!!
    Current market situation is the best example how ‘good and profitable’ passive investing really is...
    You probably do not realise how many years (lost years) investors will wait to get own money back – if they lucky enough...
    Nobody said that beating the market is easy, but with knowledge and experience it can be done....unfortunately not by most fund managers (there are some exceptions I guess...), and not by passive investors.
     
  13. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
    Average person in their 20’s should get some basic knowledge before investing.
    I would say that 10 h per week may be enough to get a very basic understanding about market.
    Amount of money is not important - but willingness to learn how markets operate.
    You must decide how to spend your time....either to learn how to make it in the market or just follow a herd and believe that passiveness will make you well off one day.
    Oh yes...in case of passiveness...
    Standing aside is a position .... that is what I call passive temporary approach.:cool:
     
  14. Chris C

    Chris C Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    904
    Location:
    Brisbane, QLD
    AHAHA I knew someone would bring up the whole "learning" part of the equation - and yes I agree that getting informed is a massive part of making good investment decisions. I mean to be completely honest it is the primary reason I'm on the these forums, I'm 23 and don't have a lot of capital behind me, but I'm looking to learn as much as possible so I can begin my long term investment strategy.

    That said from everything I have learnt I'm leaning towards a buy and hold, long term, index fund style strategy is probably just as good anything else out there. Once I enter the marketing (probably January next year) and employ my simple investment strategy I will be refocussing almost entirely on my day job because I make a hell of a lot more working on my core compentencies. Then hopefully one day when I do have considerably more in the market I could make investing my full time profession.

    Though I must admit I'm finding it throughly enjoyable watching the dynamics of the world play out in what has been the first real worldwide recession of my generation. It's been quite the eye opener and I have learned tons, and I'm starting to understand where that old say "patience is a virtue" was coming from.
     
  15. Nodrog

    Nodrog Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    11,376
    Location:
    Buderim
    Interesting - most of the wealthiest non-professional investors I know and admire have been investing in the older LICs for 10, 20, 30, 40 years plus and would never consider ever selling their shares. They ignore the capital ups and downs having seen it all before in thier lifetime. The only problem for them is the decision of what to do with hundreds of thousands of dollars of dividends each year:rolleyes:

    For the average investor (and many overestimate their investing abilities) the following quote from Buffet is worthwhile thinking about:

    "Stocks are the things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund (older LICs have similarities) and buy it over time. Be greedy when others are fearful, and fearful when others are greedy, but don't think you can outsmart the market. If a cross-section of American (same applies to Australia of course) industry is going to do well over time, then why try to pick the little beauties and think you can do better? Very few people should be active investors.''

    If there is any lesson the life of Buffett has shown, it is the truth of that."

    Cheers - Gordon
     
  16. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
    Not to worry.;)
    Keep $$$miling & be happy and always stay...:cool:
    Happy learning my friend.
     
  17. Neil_Salkow

    Neil_Salkow Member

    Joined:
    1st Jul, 2015
    Posts:
    15
    Location:
    Melbourne, VIC
    I finally feel I am getting support for my argument for the low cost passive funds.

    While I won't bore you all with the academic papers that I am referring to, I will give you some of the names and let you explore:

    Eugene Fama
    Kenneth French
    Merton Miller
    William Sharpe

    I will present this article though, by William Sharpe. Probably one of my favourites on this topic. Its entitled "The Arithmetic of Active Management"

    active

    Happy reading


    Btw, Chris C, I too find it very fascinating what we are experiencing right now. Greed, panic, bubbles, speculation, doubt, hope, ups, downs, blame, shame (not too mention a whole bunch of others) and my personal favourite, DEBATE, all together in this moment in history - and we're all stuck in the middle of it.
     
    Last edited by a moderator: 14th Nov, 2008
  18. try anything once

    try anything once Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    104
    Location:
    melb
    Interesting analysis.

    the upshot is the only way an active manager can outperform the passive is by taking money off other active managers..:) Reminds me of a story...

    Two guys out camping in African Savanah and they hear a lion roar very near to camp.

    One of them sits up and starts putting on his running shoes. The other turns to him and says "You are wasting your time, you can't outrun a lion!"

    The first guy replies : "I don't need to... I only need to outrun you!" ;)
     
  19. Tropo

    Tropo Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,303
    Location:
    NSW
    "I finally feel I am getting support for my argument for the low cost passive funds.

    While I won't bore you all with the academic papers that I am referring to, I will give you some of the names and let you explore:

    Eugene Fama
    Kenneth French
    Merton Miller
    William Sharpe

    I will present this article though, by William Sharpe. Probably one of my favourites on this topic. Its entitled "The Arithmetic of Active Management"


    No offence to you...BUT above names are telling me nothing !!:confused:
    How many of them are investing/trading for a living ?????
    Ask all those people (you mentioned above) how much money they made so far in the market...:eek::confused:
    Science has NOTHING to do with a successful investing/trading.
    You see....There are a lot of paper traders, “gurus”, scientists, and also investors who ONLY talk.....:rolleyes:
    If you got under the skin of most of those people, you’ll only find....Salt and Cayenne Pepper...
    Have a good one...my friend...:D
     
  20. try anything once

    try anything once Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    104
    Location:
    melb


    Please show some courtesy, and spare us the condescending tone which seems to be a hallmark of all your postings.

    Did you actually bother to read the paper on the link?

    Sharpe did not say in the article that active investors can't beat passive investors, he simply proved (through simple and irrefutable logic) that the AVERAGE return across all active investors must be less than that of passive investors. This is not science or academia - its 1st grade math.

    You may well be one of those active investors who manages to perform better than your fellow "actives", and hence consistently beat the index ...but we will have to take your word for that.

    It seems to me that a healthy dose of humility is a pre-requisite for those who practice passive investment.

    By the same token, a solid superiority complex seems to be a pre-requisite for actives??