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. Neil_Salkow

    Neil_Salkow Member

    Joined:
    1st Jul, 2015
    Posts:
    15
    Location:
    Melbourne, VIC
    TAO - as I mentioned in one of my previous posts on this thread, this is a debate that will continue in financial circles for years to come.

    I speak mainly for myself here representing all passive investors, but I sleep well at night. When I wake up I don't rush to my computer to read up the latest news on XYZ or ABC or what some journo has to say about the latest technological advancement in Japan that is to be introduced to the market next year that will change the face of communications industry (or whatever) and therefore I better look at which company is in line to be the biggest supplier so I rush to purchase the stock, only to realise that I slept in and the article is 2 hours old, so the information is already got to the market. But my analysis shows the price should be $20 a share and its only $15 so I pump a couple of $1000 dollars in and hold my breathe until the market 'catches' up to my crystal ball prediction. By this time of course I'm on my third coffee because I need to read another 50 articles to find the next 'mispriced' stock.


    This is an exaggeration of the truth of course, but still the basis of it stands - Active managers try to find 'mispricing' in stock and get little rewards for taking on a lot of risk. This cannot be the basis for a good investing experience.

    Surely the most logical thing to do would be to take advantage of the risk that bears return (the market itself) and to focus rather on controlling your discipline, costs and taxes?

    The best advice I ever received in my life with regards to investing - TAKE YOUR EGO OUT OF IT.

    The reason most stick with active management is that it is our human nature that we tend to overrate our own abilities (or that of others). Another reason is that we live in an advertising-driven disposable consumer culture - where we focus more on the short term than long term and chase the short returns over long term trends.

    Sharpe's article state that active managers do beat the market, but that the others therefore don't, so on average they get market return less their higher costs, so passive managers on average get better returns. Undeniable logic.
    So how do you pick the active managers that actually do better? You whip out that crystal ball of yours that tells you which stock is hot and use to find which manager is hot (then hold your breathe and hope than the key man doesnt decide to jump ship, have a bad day or die)


    As much as I am enjoying this debate, I feel it is not really producing anything more than "No I'm right", "No I am", "No, me". Anyone else feel this way?
     
  2. Seamus

    Seamus Member

    Joined:
    1st Jul, 2015
    Posts:
    5
    Location:
    Melbourne
    Yep, it's the same active versus passive debate that has come up many times before and will no doubt come up many times in the future. It's one I steer clear of every time - all I'll say is that I'm firmly in the passive camp.
     
  3. 1300 GET A PLAN

    1300 GET A PLAN Active Member

    Joined:
    1st Jul, 2015
    Posts:
    31
    Location:
    Gosford, NSW
    I agree. Too much my way or the highway.

    If you have a plan of your own, implement it.
     
  4. C3PO

    C3PO Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    94
    Location:
    Adelaide, SA
    I thought it would be helpful to post a link to the results achieved by Dimensional Fund Advisers (Kenneth French is a Director and they follow a passive investment model) to provide people viewing this thread with a concrete example of what can be achieved though the passive investing approach:

    Performance
    Somewhat suprisingly, their best performing - and oldest - fund has been their US Micro Cap 1 fund (established in 1981), with average annual returns of 11.17%

    Also interesting interview here with Merton Miller:
    An Interview with Merton Miller
     
    Last edited by a moderator: 16th Nov, 2008