I lol’ed
in aggregate and net of fees. passive will beat active because passive has lower fees.
in terms of probability of winning, passive has a higher chance of winning, because most of the alpha only goes to top percentile of participants. so a few outperform, and the majority underperform for actives.
leverage can enhance returns as long as what you borrow charges a smaller interest than what you earn.
passive essentially piggybacks over the top active managers that decides which cos get pushed up, then passive pushes it up even further.
the high quality active managers are the first people before an upturn, and the first to get out in a downturn of prices.
now why do prices rise and fall. well that is subject to changes in ivnestor expectations. everyone typically panics when times look bad and bid the prices down, and everyone buys together when times look good and bid the prices up.
This conversation is just another way of framing a debate we’ve had on here many times before, and that is: Does alpha net out to zero for all market participants? Or, rather, is alpha a zero sum game?
The answer is no, alpha does not net out to zero. bchad (and I imagine rawraw) would take an index like the R2000 and note that by combining all constituents’ alpha over a given time frame the sum is 0. That is, of course, correct. However, what bchad (and I suspect rawraw) didn’t account for is active managers don’t have to use just the stocks in their benchmark, or even use stocks at all. One example is the use of cash in active management. Take a look at Yacktman (YAFFX). By sometimes holding up to 30% in cash they have avoided major market downturns. Then they deploy the cash at opportunistic moments and capture the upside. And, over the long-term, net of fees, they’ve crushed the S&P.
So while I agree that a basket of all the stocks in the world will combine to give you zero alpha, there are ways for active managers to win consistently over the long-term without causing someone else to lose. The stock market, for active participants (meaning all those invested be it in passive or active funds), is not a zero sum game.
love how they got paid to hold cash.
Yeah, that’s why they don’t get a ton of institutional money. But they do get mine. Been a very happy investor for a long time.
I thought you are both the same person.
youre paying 0.82% for that, whats the benchmark?
Yuge misconception what quants actually do.
I think I’m paying 1.10%, actually. Bench is the S&P 500 which they’ve outperformed over the last 10 years, net of fees, by 1.65% annualized.
They do extremely well in both up and down markets. In 2008, they lost 23% compared to 37% for the S&P while gaining 63% in 2009 compared to 26% for the S&P.
They don’t win every time, but they’ve shown they do win over time. So, yeah, I’m happy to pay them 1.10%.
just put the money in QLD, if youre beta go with QQQ
Stock returns are not zero sum. Excess stock returns are zero sum. Besides fulfilling none financial goals, like being sharia compliant, the only non alpha source of value is what Ohai posted about. Your point about moving to cash and stuff is more complicated than I want to type on my phone, but I don’t think it contradicts the first two sentences
And Isiah you may want to work on that reading comprehension if you think those statements contradict.
I only have one account. Isiah has had a few over the years
Excess over what, exactly?
If they don’t contradict each other, it’s only because you originally made a broad (and completely wrong) statement that you later interpreted narrowly to suit your purpose.
It comes down to what ‘active’ in the first statement ‘Active cannot beat passive’ represent? In order for the syllogistic statements to be internally consistent, ‘active’ in the first statement must denote ‘the set of all active’, which is a distinct construct from ‘active’ (as an element of the ‘set of all active’), since the axiom of regularity establishes that no set is en element of itself.
Therefore, strictly speaking the statements are contradictory under the Zermelo-Fraenkel set theory.
agree with raw. nice article:
https://monevator.com/is-active-investing-a-zero-sum-game/
below agrees with raw but mentions stl’s broad range of asset that leads to outperformance theory, and ohai’s leverage idea by having less cash in an up market and vice versa
I don’t expect trolling from moderators. One of the reasons I miss alpha is because he never let you get away with your particular form of trolling.
You are one of my favorite posters haha
Then one of the things you and he have in common is that you believe that someone telling you that you’re wrong when you’re wrong is trolling.
And, keeping with the spirit, you’re both wrong.
You should probably know better by now.