Thursday, June 14, 2018 12:46:44 PM
Bullish or Bearish
Bullish or Bearish
“In the end, it does not matter IF you are ‘bullish’ or ‘bearish.’ The reality is that both ‘bulls’ and ‘bears’ are owned by the ‘broken clock’ syndrome during the full-market cycle. However, what is grossly important in achieving long-term investment success is not necessarily being ‘right’ during the first half of the cycle, but by not being ‘wrong’ during the second half.
With valuations currently pushing the 2nd highest level in history, it is only a function of time before the second-half of the full-market cycle ensues.
That is not a prediction of a crash.
It is just a fact.”
“The risk of buying and holding an index is only in the short-term. The longer you hold an index the less risky it becomes. Also, managing money is a fool’s errand anyway as 95% of money managers underperform their index from one year to the next.”
This is an interesting comment as it exposes two primary falsehoods.
Let’s start with the second comment “95% of money managers can’t beat their index from one year to the next.”
One of the greatest con’s ever perpetrated on the average investor by Wall Street is the “you can’t beat the index game.” It is true that many mutual funds underperform their index from one year to the next, but this has nothing to do with their long-term performance. The reasons that many funds, and investors, underperform in the short-term are simple enough to understand if you think about what an index is versus a portfolio of invested capital.
The index contains no cash
It has no life expectancy requirements – but you do.
It does not have to compensate for distributions to meet living requirements – but you do.
It requires you to take on excess risk (potential for loss) in order to obtain equivalent performance – this is fine on the way up, but not on the way down.
It has no taxes, costs or other expenses associated with it – but you do.
It has the ability to substitute at no penalty – but you don’t.
It benefits from share buybacks – but you don’t.
It doesn’t have to deal with what “life” throws at you…but you do.
But as I have addressed previously, the myth of “active managers can’t beat their index” falls apart given time.
Bullish or Bearish
Bullish or Bearish
“In the end, it does not matter IF you are ‘bullish’ or ‘bearish.’ The reality is that both ‘bulls’ and ‘bears’ are owned by the ‘broken clock’ syndrome during the full-market cycle. However, what is grossly important in achieving long-term investment success is not necessarily being ‘right’ during the first half of the cycle, but by not being ‘wrong’ during the second half.
With valuations currently pushing the 2nd highest level in history, it is only a function of time before the second-half of the full-market cycle ensues.
That is not a prediction of a crash.
It is just a fact.”
“The risk of buying and holding an index is only in the short-term. The longer you hold an index the less risky it becomes. Also, managing money is a fool’s errand anyway as 95% of money managers underperform their index from one year to the next.”
This is an interesting comment as it exposes two primary falsehoods.
Let’s start with the second comment “95% of money managers can’t beat their index from one year to the next.”
One of the greatest con’s ever perpetrated on the average investor by Wall Street is the “you can’t beat the index game.” It is true that many mutual funds underperform their index from one year to the next, but this has nothing to do with their long-term performance. The reasons that many funds, and investors, underperform in the short-term are simple enough to understand if you think about what an index is versus a portfolio of invested capital.
The index contains no cash
It has no life expectancy requirements – but you do.
It does not have to compensate for distributions to meet living requirements – but you do.
It requires you to take on excess risk (potential for loss) in order to obtain equivalent performance – this is fine on the way up, but not on the way down.
It has no taxes, costs or other expenses associated with it – but you do.
It has the ability to substitute at no penalty – but you don’t.
It benefits from share buybacks – but you don’t.
It doesn’t have to deal with what “life” throws at you…but you do.
But as I have addressed previously, the myth of “active managers can’t beat their index” falls apart given time.
Bullish or Bearish
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