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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)11584 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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Calgary25986 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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Calgary25986 Posts
On December 16 2010 01:17 DarkwindHK wrote:
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.
Hmm that's fair and accurate, I never thought about it like that.
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Mutual fund managers are experts at marketing their fund, that's about it.
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On December 16 2010 01:17 DarkwindHK wrote:
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.
do you have any links for this? this is pretty interesting and it reminds me of how the gold fish or whatever it was could pick the fifa world cup winners better than "qualified" people who knew a lot about the teams and stats etc
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=( For every article/person I read and learn from saying that Mutual Funds are awesome and safe and easy, I come across another article/person that says it's bad.
I mean.. SERIOUSLY, why's it so complicated. So you're saying ETF and S&P500 Index > Mutual Funds?
Care to explain how it works, and what makes it different?
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On December 15 2010 18:11 DarkwindHK wrote:
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.
Actually if you worked long enough in the investment industry you will find that the opposite is true, but both are very difficult.
Mutual fund "NET OF FEES" tend to underperform the average benchmark, but it will not be fair to average all mutual funds into a single pool. You can always find managers that outperform somewhat consistently over time. If they are truly random, then you expect 50% to outperform and 50% to under perform in year 1, and 25% would have out performed in 2 consecutive years statistically speaking. However, research shows that somewhat over 33% outperforms 2 consecutive years, which means there is value in investing in mutual fund if you are able to pick the right ones.
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I have to agree that you shouldn't invest in mutual funds if you don't want to do some research. ETF is much more efficient if you are just trying to ride the beta.
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All the talent in fund management are in hedge funds. Mutual funds are for risk-averse lay people, which means they have a place, but it's not in performance.
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On December 16 2010 02:42 bonifaceviii wrote:
All the talent in fund management are in hedge funds. Mutual funds are for risk-averse lay people, which means they have a place, but it's not in performance.
Not entirely true, there are mutual funds that employs significant leverage and active management, but you are right about hedge funds. 90% of people who know what they are doing are probably in Hedge Funds
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because people don't know better.
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On December 15 2010 18:11 DarkwindHK wrote:
It is also a mathematical truth that 50% of all investor will perform worse than average.
herp derp statistics...
I don't see anything wrong with people paying for a service that they don't have time to learn to do themselves...I mean sure you could paint your own garage door but you have to go out and research what paints are good for the material your garage door is made of, whether or not they're weather resistant, get all the supplies you require for painting together (remember, painting isn't a thing you do regularly), and then actually invest the time needed to do the painting. It's much easier to have someone do it for you, even if they might do a job slightly below your standards if you had done the entire thing yourself you've saved yourself a lot of time and headaches.
User was warned for this post
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Well, imo mutual funds and pension funds suck because they cant use complex products to hedge themselves against a falling market
If you're going to invest, learn to do it yourself or have enough money to buy into a hedge fund.
For those who are smart enough to play poker and play starcraft, really you should be smart enough to do your own research to learn how to invest - its a lot of fun, its interesting, and if you don't find it interesting then you shouldn't be investing anyway.
The fundamentals (reading the ISM when it comes out for eg) are relatively straight forward and understanding basic fundas of a stock (such as what P/E means etc.) is something you can just teach yourself and research on the internet
At the very worst, stick all your money in the hang seng and you'll be fine
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Depending on the type of mutual fund you are investing in, high risk or low risk- they can both be a great way to diversify your assets, and the best part is- other people do it for you  the low risk types are very popular becuase most of these types of mutual funds while having a marginal gain, are very safe and at least do increase some small percent quarter to quarter.
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Mutual funds are there for people that want more than the interest their bank will give them... its for people that are like "I have $10,000 sitting in my chequing account wonder what I should do with it?"
In Canada, a lot of people put their money into Canada Savings Bonds... but the returns on those are so terrible it makes me sad/ So people want to put their money into something for like 30 years that makes a little more... they want to do 0 work, but want to make some interest since they have money lying around.
This is what they are for, there are few things you can throw your money into for 10,20,30 years and make safe money that you have to do 0 work on than mutual funds... most other things you jump from one thing to another when the markets start going south...
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On December 16 2010 03:02 sooch wrote:Show nested quote +On December 15 2010 18:11 DarkwindHK wrote:
It is also a mathematical truth that 50% of all investor will perform worse than average. herp derp statistics... I don't see anything wrong with people paying for a service that they don't have time to learn to do themselves...I mean sure you could paint your own garage door but you have to go out and research what paints are good for the material your garage door is made of, whether or not they're weather resistant, get all the supplies you require for painting together (remember, painting isn't a thing you do regularly), and then actually invest the time needed to do the painting. It's much easier to have someone do it for you, even if they might do a job slightly below your standards if you had done the entire thing yourself you've saved yourself a lot of time and headaches.
The point is not that pooled investing is a bad idea, the point is that actively managed funds consistently perform worse than market average.
There are 3 funds that have outperformed the market over the last 3 decades, and each one owes much of that to one incredibly trade they made rather than a number of good trades. The other funds that outperform are invariably private funds that you cannot get into unless you're working for the right people.
If you're just looking to invest in stocks, you would be far better in almost all cases to invest in an index fund, not a mutual fund.
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On December 16 2010 02:14 XCLuSive wrote:
=( For every article/person I read and learn from saying that Mutual Funds are awesome and safe and easy, I come across another article/person that says it's bad.
I mean.. SERIOUSLY, why's it so complicated. So you're saying ETF and S&P500 Index > Mutual Funds?
Care to explain how it works, and what makes it different?
They are not better, but they are CHEAPER in cost.
Its the other way around, mutual funds does not necessarily give better return than indexes. However, you know for sure they cost more.
Essentially, you are going to pay more for sure to get a chance of getting better return, together with a chance to get disastrous return.
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On December 16 2010 01:46 metaphoR wrote:Show nested quote +On December 16 2010 01:17 DarkwindHK wrote:
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. do you have any links for this? this is pretty interesting and it reminds me of how the gold fish or whatever it was could pick the fifa world cup winners better than "qualified" people who knew a lot about the teams and stats etc
No link, but you can find this in TIMES of London, March 2002. Libraries may have it.
For the "no evident showing that wealth managers can do better than any average guy"; well... I cann show the "lack of" evident, because they do not exist.
You can understand it conceptually instead:
A professional gambler (investor) going to a casino to compete with the gambler (investor) from all over the world. Other investors include old ladies, little boy, astrologer, dice thrower, starcraft players....etc
However, in this casino, the chance of winning is not known by the gamblers, in fact, the chance of winning is not a constant while the reward is also an unknown. It is in this environment the profession gambler need to compete against other professional gamblers and also...the little girl.
Too bad it is not his lucky day, and he got the wrong stock and lose in the casino.
No amount of experience in investing will get you prepared for events like 1) Apple Inc release a new product and it doesn't sell/sell very well ; 2) Korean War 2.0.
Even if you know for certain iPhone 5 or Starcraft 3 will has exactly 61.257% chance of selling like hot cake and Korean War will happen with a chance of 1.024%, how can you translate that into investment strategy? What if the other 38.743% part and the Korean war 2.0 is what actually happened? (I guess you will not be the star analyst this year!)
Addition to that, unexpected events (like earthquake, flood) has much larger effects than expected events. And unexpected events...are really unexpected. (Fund manager are also human, so they did not expect it.)
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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 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.
You mean people actually use that shit i learned in my finance class? :D
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the issues you bring up are nothing new in the financial world; its impossible to predict the future
'The Black Swan' is a great book for anyone who finds this thread's contents interesting
someone already accurately pointed out mutual vs hedge fund differences. no need to state it again.
some resolutions to the OP's problems are: diversification, money management, max sector risks, max transaction risks, unbiased to either the long or short side, simple and robust systems.
these parameters are found more with indifferent hedge fund managerial systems as opposed to buy and hold mutual fund managers.
investing means you assume the unknown risks and try your best to ameliorate their loss of equity pain when they arrive.
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On December 16 2010 01:17 DarkwindHK wrote:
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.
Dont underestimate the power of astrology :D
I completely agree with what you are saying but unfortunately in my country we have compulsory superannuation.
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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.
So THAT'S why unemployment is so high!
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EPT
