Just a question that popped into my head: what would happen if everyone followed a passive strategy, ie, no one was active? Isn't some sort of active strategy required, somewhere, for funds to be directed at all?<p>Though, I do think on average fund managers probably don't actually make anything like useful predictions. But perhaps we do need someone, somewhere, looking for good investment.<p>My guess is that there is a role in society for some conservative, value based investing, but at the moment there are more people trying to do this than is useful, and even more people trying to find good investments by worthless strategies (like trying to predict future movements from past movements).
“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S & P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.” - Warren Buffet<p><a href="http://www.longbets.org/362" rel="nofollow">http://www.longbets.org/362</a>
Interesting comment on that article:<p><i>Index investing (applied to extremely wide market indexes) makes an assumption that there will be a continuous and infinite increase in the total market capitalization of that index. As time marches forward I beleive we will experience a deceleration of worldwide market cap increase.</i><p>Anyone have thoughts on this?
I got a wake up call about 4 years ago when my broker tried to convince me to buy into a hedge fund. Buried in the prospectus was an entry load of 8%. Fired him, and have been in index funds since.
Along the same lines here's an interview with a guy who's essentially shaped my investment philosophy: <a href="http://www.kirkreport.info/2009/03/qa-with-less-antman.html" rel="nofollow">http://www.kirkreport.info/2009/03/qa-with-less-antman.html</a>
I'm 28, and I don't want to end up like Liz Lemon ("well I have $12,000 in checking"). What's a good primer on investing? I don't have a ton of money but I'd like to get into it.
One way to beat index funds is through piggyback investing on those who can beat them.<p>Check out <a href="http://alphaclone.com/" rel="nofollow">http://alphaclone.com/</a><p>You have to pay for a membership but the site is top notch. They parse investment fund's sec filings and allow you to backtest strategies to see how well they would have performed over a given time frame. You will find strategies that crush any index fund.<p>I am not affiliated with alphaclone.com.
I always thought of the stock market as a form of gambling, and this quote hints at that:<p>"a list of advantages of active management, which essentially boiled down to the fact that it’s more fun"<p>also:<p>"There is an innate cultural imperative in this country to beat the odds"<p>and the stock market is viewed as better than casinos for this kind of gambling.
Index funds seem to me to work by reducing churn - the percentage of your stock that is sold and bought each year - because every time you sell then buy you lose a lot of money. I am not yet convinced you have to follow an index.<p>If you had a fund that did not sell anything and bought a random stock from an index as funds came in would this beat an index fund?