Author Topic: beating the market - not what it used to be  (Read 10772 times)

james22

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Re: beating the market - not what it used to be
« Reply #20 on: May 10, 2018, 09:04:12 PM »
It's an interesting question, capitulation.

If 'this time is different' or it is simply more difficult to judge the intrinsic value of a technology business today against its market price, maybe momentum is the better strategy.

But when would one shift strategies? Every day is a day closer to the correction, yeah?

And could one shift strategies once value investing inoculated? I don't believe I could.



Lakesider

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Re: beating the market - not what it used to be
« Reply #21 on: May 10, 2018, 09:26:37 PM »
Not all returns are made equal.

If you return 10% using a low risk method its far more valuable than 10% of high risk. Value investing is a way of mitigating risk.

If I load up on Calls on FANG stocks I think I'm a genius till I blow up. Meanwhile the value investor chugs along making reasonable gains until their cumulative return overtakes those with higher risk.
« Last Edit: May 10, 2018, 09:48:17 PM by Lakesider »

DTEJD1997

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Re: beating the market - not what it used to be
« Reply #22 on: May 10, 2018, 10:30:05 PM »
Hey all:

I forgot to mention that most of the people I know who have beat the market over long periods have paid NO or little attention to what the market was doing as a whole.

They are looking for individual opportunities, and go from there. That is what they are focused, not what the DJIA is doing...and whether they beat it.

They are also investing for LONG time frames in general.

Grant

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Re: beating the market - not what it used to be
« Reply #23 on: May 11, 2018, 12:17:06 AM »
It really is remarkable how difficult it is to out-perform especially when you consider the virtually unlimited resources that some of these firms employ.

Suppose you're a small fund generating a lot of alpha. What happens? You attract more investor money. Because you invested your original capital the best you could, this additional money must be invested in less promising ways - i.e. the law of diminishing returns. As long as you generate alpha, you continue to attract more money which lowers your alpha.

This is why big hedge funds with unlimited resources have trouble beating ETFs. Just because it's hard for them doesn't mean it should be hard for you.

This said, I usually advise people to stick to ETFs except where they have specialized knowledge the market is unlikely to price in.

scorpioncapital

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Re: beating the market - not what it used to be
« Reply #24 on: May 11, 2018, 02:37:22 AM »
Many systems are rule based. Not sure about ai..but You would need to synthesise various forms of information and tie them to a mental model framework , like what munger describes. It can be as simple as usa will succeed. Having said all that , execution is in the details. And sometimes some luck. I've heard many investors have the right principles but unable to apply them successfully. An old bridge teacher once told me if you keep saying the right idea but making the wrong move you probably didn't understand the concept as deeply as you thought.

Spekulatius

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Re: beating the market - not what it used to be
« Reply #25 on: May 11, 2018, 04:14:39 AM »
I think it is difficult for value investors to succeed beating the index, when thr market is rising mainly because of multiple expansion, which is what has happened from 2012 to now basically.

Multiple expansion is not so much driven by fundamentals, but rather by exogenous factors (interest rates, momentum etc) which tend to be ignored by value investors. I also think that many successful business starting out as asset light models means that value investors ignore them or underestimate their growth potential. The latter is really a paradigm shift, while the former will very likely reverse itself.
To be a realist, one has to believe in miracles.

CorpRaider

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Re: beating the market - not what it used to be
« Reply #26 on: May 11, 2018, 06:14:44 AM »
It really is remarkable how difficult it is to out-perform especially when you consider the virtually unlimited resources that some of these firms employ.

Suppose you're a small fund generating a lot of alpha. What happens? You attract more investor money. Because you invested your original capital the best you could, this additional money must be invested in less promising ways - i.e. the law of diminishing returns. As long as you generate alpha, you continue to attract more money which lowers your alpha.

This is why big hedge funds with unlimited resources have trouble beating ETFs. Just because it's hard for them doesn't mean it should be hard for you.

This said, I usually advise people to stick to ETFs except where they have specialized knowledge the market is unlikely to price in.

That's kind of the big muscle movement of capitalism, isn't it?  Excess returns get pushed toward the average by the allocation of capital.  Should apply to industries, markets, and investment styles and/or funds.  I agree with OP that the average investment dollar must underperform the index materially after taxes and costs are included.
« Last Edit: May 11, 2018, 06:16:16 AM by CorpRaider »

Jurgis

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Re: beating the market - not what it used to be
« Reply #27 on: May 11, 2018, 09:06:30 AM »
What may be interesting is that, if you are right and have a strong inner score card, the periods of under-performance are often preceded, and followed by, remarkable out-performance.

It is also possible that the statements like this are just making people to continue investing badly in a nebulous hope of the "remarkable out-performance".

"Before you can be rich, you must be poor." - Nef Anyo

Jurgis

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Re: beating the market - not what it used to be
« Reply #28 on: May 11, 2018, 09:08:30 AM »
If you return 10% using a low risk method its far more valuable than 10% of high risk. Value investing is a way of mitigating risk.

Show me anyone who can actually measure risk. Really measure it rather than waving hands about margin of safety, intrinsic value and value investing.
I'm interested.

I'm gonna go ScottHall here and say that FB might be less risky investment than 10 value stocks.  8)
« Last Edit: May 11, 2018, 09:13:39 AM by Jurgis »
"Before you can be rich, you must be poor." - Nef Anyo

rb

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Re: beating the market - not what it used to be
« Reply #29 on: May 11, 2018, 09:37:47 AM »
What may be interesting is that, if you are right and have a strong inner score card, the periods of under-performance are often preceded, and followed by, remarkable out-performance.

It is also possible that the statements like this are just making people to continue investing badly in a nebulous hope of the "remarkable out-performance".
Well some people are just bad investors.