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I really find the idea of putting your money into mutual fund very stupid.
It is a known fact that most fund managers underperform the market benchmark (~average return). It is also a mathematical truth that 50% of all investor will perform worse than average. Adding the cost of management fee, there you get a less than average expected return.
When you have so many choice of ETFs with lower cost, which do not underperform or outperform; why people still ask in newspaper, forum and during lunchtime "what fund should I buy?" (Due to my previous job in mutual fund, a lot of people ask me.)
It is really hard to understand, when you will bargain for even $1 or $2 while buying food in wet market; but you can trust all your retirement savings in mutual fund?
99% of the people do not even know who is managing their money; do you even know the name of the fund manager? Sure I enjoy my time when I was in that industry, meeting analyst, company management, having lunch at 5 star hotel...all at the expense of my fund's investor. But do you really think meeting an analyst or the companies will improve investment performance?
I think picking the right fund and right manager is at least 10 times more difficult than picking a stock. And the fact that "past performance does not indicate future return" just show the futility of this approach.
There is only one true thing I learn from that industry:
Human is simply not created to predict future.
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I think the majority of people aren't well versed in the world of business, including me, so usually something simple such as mutual funds is the way to go.
What would you suggest for other people to do with their investment money instead of mutual funds? (preferably something simple so I can understand too!)
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Just buy the index (buying the ETFs of S&P500, or indexes of China, Brazil....etc), at least you will not underperform.
The cost is so much lower....
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Hmm, I think a friend of mine told me about ETF and the S&P500. Is it pretty much safe and guaranteed for a positive net gain?
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T.O.P.
Hong Kong4685 Posts
Because people don't have time to worry about stocks, that's why they want an "expert" managing their funds. Most people don't know what to invest in, so they ask their co-workers, their relatives on what to invest in. At least it's a much better option that investing in stocks yourself. You live in Hong Kong, so you probably seen 20-30 seniors standing outside the stock broker watching the tv in hopes that the stocks they bought would go up. That seems like legalized gambling to me lol.
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diversification using indexes and well-picked mutual funds is generally a good way to minimize both risk and energy spent in allocating a longer-term portfolio
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Korea (South)11583 Posts
my uncles mutual fund has profited over 1200% in the past quarter. i think it's a good investment imo
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is it possible to make a living purely off investment?
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Whenever you hire someone to do something for you, you are getting ripped off, basically by definition. People use mutual funds for the exact same reason someone would hire someone to paint their house, eat out, etc,. convenience or possibly a lack of understanding in the matter.
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On December 15 2010 19:04 Windrose wrote:
is it possible to make a living purely off investment?
It is if you're good enough at it to start doing it for other people. Ask Warren Buffet!
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Retirement plans in the US typically only offer a choice between different mutual funds with no ETF options. This isn't surprising considering that the retirement plans are managed by banks and the mutual funds are managed by banks. For my own money, I'd never use a mutual fund for exactly the reasons you stated. ETFs are diversified just as much as mutual funds and have better expected value.
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On December 15 2010 19:06 ejac wrote:
Whenever you hire someone to do something for you, you are getting ripped off, basically by definition. People use mutual funds for the exact same reason someone would hire someone to paint their house, eat out, etc,. convenience or possibly a lack of understanding in the matter.
Yes, but they overcharge by A LOT and there are alternatives with cheaper cost.... that is why I find it hard to understand.
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On December 15 2010 19:03 CaucasianAsian wrote:
my uncles mutual fund has profited over 1200% in the past quarter. i think it's a good investment imo
Sounds like either
a> a huge amount of luck involved
b> insider trading (lol)
c> a horrific abuse of overleveraging (refer to a>)
An extremely well run fund with a good trading strategy would be able to consistently return 20% a year, so obviously 1200% in a quarter, rather than suggesting a well run fun, suggests something awry has happened
There are many hedge funds out there which are worth investing into, as the main source of their income comes from a fee taken from their profits.
Of course, you would need at least 1-5m to join. Also, technicalities are involved i.e when everyone wrongly pulled out their money from hedge funds (good ones who knew the 2008 collapse was going to happen and were prepared for it), of course if you pull out all investor money at such a critical time you are going to lose money
Also, if you are going to invest, at least learn something about how markets work and are driven in general, what bits of news/reports you need to look out for, the basic fundamentals behind what you invest in etc.etc.
Could be worse, you could invest in a pension fund that tells you that they "performed amazingly" by losing 18% of everything because they cant beat a crashing market that lost 20% that year
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The problem with ETF's is (I heard this on a CNBC interview in 08/09, its probably lost now... maybe it was on Fast Money) is that unlike an S&P index fund that rebalances once a year (don't exactly remember, think specifically when they shuffle in and out companies. Like how Netflix is replacing Eastman Kodak in the index) the ETF has to rebalance daily. Therefore you won't see the same % return if you compare the two with the EFT being significantly lower. Kind of like those who bought into gold ETF's won't get the same increase as the commodity in which the ETF is based on.
Unless you know exactly what your doing, your better off doing your investing through mutual funds. Even then you still have homework to do such as fund manager research, fund history/performance, etc. Good funds can change from great managers to average managers hence why you can't just leave it alone outside of putting money into them. If you spend a few hours a quarter keeping up with your investments you will do well. If you don't do your homework you'll fall behind and fail to match the index.
PS: Roughly 80% of all mutual funds fail to beat the S&P 500 index.
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ur title should've been different since you're not actually against pooled investing, just anti active investment management
anyways, i do agree that in most cases (especially in developed markets), it is very hard to consistently outperform the index after management fees. indexed funds are usually the best way to go.
this is not always the case though. i thought it was but there really are extremely good asset managers who can consistently beat the index by A LOT.
but as you said, finding that manager is harder than just picking random stocks from the index (which would probably yield a similar result if you ended up picking an "average" asset manager)
o, before i forget, i once attended this conference where i heard something really cool. it was an asset manager that specialized in using pure mathematics. they hire really quant guys that they claim were able to use purely historical data (no regard at all to expected/future returns) to construct a portfolio that will consistently outperform the index by a small margin. they claim that they can consistently produce an information ratio of >0.5. there are constraints though like how developed the market is. they need enough liquidity since the portfolio will be trading stocks everyday, which could get expensive real fast in a developing market.
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Mutual Funds are a safe long term investment. Picking individual stocks requires research and once you own the stock, you should follow the company to know if you need to sell. All this time researching will cost you time, which costs you money. If I spent 2 hours a week figuring out investment strategies, I would be down ~$50 a week in cash I could have earned if spent doing my expertise. That will add up to ~$200 a month which is ~$1200 a year, so unless the stock will net me an extra $1200, it is not worth it.
All that being said; I do invest in stocks because unlike many people, I have too much time and not enough to do. But the age people start investing is right around the time when they start settling down and getting married so a safe investment that requires no work is very attractive. By safe I mean not only will it net them money but mutual funds generally aren't as jagged as a regular stock; meaning they can will be in the green majority of the days.
TL;DR - Time is money, Time spent researching stocks costs money -- It's not always the smartest option to go stocks.
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Seems that most people dun get the point that I think you should not buy stocks, but buy ETFs in the place of actively managed fund...
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On December 15 2010 21:25 SlayerS_BunkiE wrote:
ur title should've been different since you're not actually against pooled investing, just anti active investment management
anyways, i do agree that in most cases (especially in developed markets), it is very hard to consistently outperform the index after management fees. indexed funds are usually the best way to go.
this is not always the case though. i thought it was but there really are extremely good asset managers who can consistently beat the index by A LOT.
but as you said, finding that manager is harder than just picking random stocks from the index (which would probably yield a similar result if you ended up picking an "average" asset manager)
o, before i forget, i once attended this conference where i heard something really cool. it was an asset manager that specialized in using pure mathematics. they hire really quant guys that they claim were able to use purely historical data (no regard at all to expected/future returns) to construct a portfolio that will consistently outperform the index by a small margin. they claim that they can consistently produce an information ratio of >0.5. there are constraints though like how developed the market is. they need enough liquidity since the portfolio will be trading stocks everyday, which could get expensive real fast in a developing market.
I can do those models, I have tried over 100 factors, so I already know which one work best in Hong Kong. Of course you need to update them regularly since one factor will not work forever.
Some of the factors that tend to work are: P/E, earning momentum and medium term share price trend. You can try it yourself with excel, its not that hard. Simple does not mean bad.
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Calgary25981 Posts
On December 16 2010 00:11 DarkwindHK wrote:Show nested quote +On December 15 2010 21:25 SlayerS_BunkiE wrote:
ur title should've been different since you're not actually against pooled investing, just anti active investment management
anyways, i do agree that in most cases (especially in developed markets), it is very hard to consistently outperform the index after management fees. indexed funds are usually the best way to go.
this is not always the case though. i thought it was but there really are extremely good asset managers who can consistently beat the index by A LOT.
but as you said, finding that manager is harder than just picking random stocks from the index (which would probably yield a similar result if you ended up picking an "average" asset manager)
o, before i forget, i once attended this conference where i heard something really cool. it was an asset manager that specialized in using pure mathematics. they hire really quant guys that they claim were able to use purely historical data (no regard at all to expected/future returns) to construct a portfolio that will consistently outperform the index by a small margin. they claim that they can consistently produce an information ratio of >0.5. there are constraints though like how developed the market is. they need enough liquidity since the portfolio will be trading stocks everyday, which could get expensive real fast in a developing market. I can do those models, I have information over 1... I have tried over 100 factors, so I already know which one work best in Hong Kong. Of course you need to update them regularly since one factor will not work forever. Some of the factors that tend to work are: P/E, earning momentum and medium term share price trend. You can try it yourself with excel, its not that hard. Simple does not mean bad.
Great, I didn't understand a thing you wrote. That's why I am invested mostly in mutual funds. That's why you go to a doctor instead of self-medicating. That's why you use an auto mechanic. That's why people call appliance repair companies.
How is this difficult to get?
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You do not need to know quant to invest. There is also no guarantee that they work anyways.
We cannot compare going to see a doctor and buying a mutual fund. Doctor is an expert in that field, and there are empirical proofs that they can help a patient.
However, there is no evident showing that wealth managers can do better than any average guy. In fact, fund managers regularly lose to astrologist and 8 year old girls in stock picking experiments.
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EPT
