Penso che hai bisogno di molto più spinaci da mangiare.
Preferisco il cavolo
E Io preferisco la sarma. Il Cavolo in rilievo con carne macinata.
Buonanotte, Ace.
一个男人在电栅栏上小便将会得到令人震惊的消息
Lol I never thought of that. Active does always underperform net of fees in aggregate.
I have done many ugly reports like this in ms access
it is fair to remember that active includes unskilled amateurs that are likely donating to active professionals over time… as a result, active management does not necessarily mean constant underperformance relative to passive. many active mandates see 50-70% downside capture in 50%+ market declines as company wide risk management programs kick in. this presents some value relative to passive likely means active beats passive in down markets.
Technically correct, but I don’t think it matters much in practice. The dollar weighted participation is what matters and funds have to compete in the largest names given their size. I buy small cap bank stocks that are heavily owned by retail investors. But most active managers are dealing with large cap names against other large investors. I haven’t seen the specific stats but the rise of passive also means that in general the suckers are decreasing in volume. But all else equal I would prefer to invest in stocks largely traded by non professional investors.
Easy to say “oh there is some uncorrelated scenario where active management is better”, but then we have a volatile year like 2018 and hedge funds are just getting destroyed. There are tons of statistics, not speculations, of active managers subtracting value, and this year does not suggest they are contributing value through diversification either. If evidence contradicts theory, then we reject the theory.
I’m sure there is some year or some minority of fund managers who produce true excess returns, but when we’re talking about the industry in general, results don’t look great at all nowadays. I’m sure retail traders lose money in general, but that doesn’t mean institutional people are positive, even if better.
To Ohais point, if retail investors underperformed consistently than that would be a source of alpha. I doubt that’s the case. Transaction costs are the reason they are consistently underperforming
i’ve seen a chart before that broke investor performance over a long period of time. passive was the highest, instiutional was like -200 bps. retail was another -400 bps. essentially institional investors do add value via hand holding retail, but still underperform passive even when fees are taken to account.
essentially alpha is reserved for only for the top percentile institutional investors. kind of like how alpha dudes gets most of the women. same concept!
i couldnt find that actualy chart. it was from a logn time ago. but here is something similar. it shows that investor behavior is negatively affected a lot more by investing in active funds vs passive funds. this was more of a critique on market timing as oppose to fees or comission.
https://awealthofcommonsense.com/2014/01/behavior-investment-strategy/
When all else fails, you should abide by Warren Buffett’s Fouth Law of Motion (emphasis mine):
“Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as mot ion increases.”
to nerdy’s point, passive is going to be better than the average active fund if you stay invested forever.
this is the great conundrum for retail investors. if they can stay invested, which many cannot, then they beat active by about 2/3rds of the average active fee. there was a breakdown in a 2013-2014 FAJ article that noted that active did earn some of their fee but only about 1/3. if you are a retail investor who ends up capitulating, then it is almost guaranteed that you will underperform the average active manager. in my experience, i would say close to half of my cilentele, which consists of mid-to-high net worth investors (CAD$1M-$3M net worth generally) would panic at some point and become one of those losers. half would probably be fine. so if my clientele represents the most educated and industrious ~25% of the investing public, then we can conclude that probably 50%-80% of the investing public does not have the wherewithal to stick to losing a crap ton of their net worth throughout a market cycle. it will be interesting to see how many roboadvisor clients panic during the next market crash and end up back with an active manager and/or advisor.
also i wouldn’t lump hedge funders in with active as the only way to measure active’s value is compare it to a relevant benchmark and hedge funders don’t really have a universally relevant benchmark.
also it is important to differentiate between the value added by active management and the value added by an advisor. it is really the advisor that adds the most value. it just so happens that active management is often paired with an advisor so they are typically discussed hand in hand.
Trend following - what goes up continues to go up, and what goes down will continue to go down.
Just adjust the side of your market you’re on every time things change direction and then eventually you’ll be right when things like Trump-Bump or Tech-wreck happen.
I think that it’s almost impossible to generate alpha using any investment strategy in the long-run. Some people are able to do it but some people also win the lottery…it doesn’t mean that they were skilled in picking the right numbers.
However, the finance industry wants to promote active management since there is waaaaaaaay more $ to be made in fees than in passive investing.
As far as I can tell, there is only one true way in which hedge funds can semi-consistently produce higher returns than SPX, and that is by applying leverage - often in discrete ways, such as by using options. Alpha might be fake for most managers, but Beta is real and is positive on average. Consider how all these so called “long/short with long bias” funds all lost more than the normal stock market this year, despite claiming diversification.
Here is a question which I have been thinking about lately:
How long will passive investing > active investing. Consider a situation where all market participants have been investing passively for 10 years…massive mispricing would be present in the market and active investing would definitely produce alpha.
The current trend has been cash inflow to passive management/investing but if this trend continues and continues…when will be the tipping point where markets are passive enough that active investing starts to be worthwhile?
You are still overlooking my initial point. Even if there are severe mispricings the only people engaged in that are active. That means some active will win and others will lose. Passive still gets the market returns. Of course the market is more noisy than this, but you get the point. People always want to only look at the active half they expect to benefit. But someone has to lose and by definition the passive people are not setting the price.
The real question is at what point does passive benefiting from this externality without paying adversely impact capital allocation of the economy.
You forgot lending securities to funds going short. That is a huge source of consistent alpha. I own an index fund or two with expense ratios that sometimes go negative. Put leverage on top of that.
The final alpha is tax loss harvesting. Ed Thorp said that’s alpha any investor can get through holding a statistical sample of the index and just selling the losers each year. Can’t doubt the legend
Not a bad point. Actually a very interesting view point and I haven’t thought about it from this perspective. I have to sleep on this.