Active vs. Passive
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[quote=jkl1v1n6]Jaxson,
I tried! Word of warning to you, you might want to do a little due diligence on your own. When I was with Jones they had World Com as a recommended stock.[/quote] If a bunch of CFAs can't predict the future performance of an individual stock, what makes you think some piker with a series 7 can do any better through "due dilligence?"I’m not saying try to predict the future performance just don’t take what the analysts are recommending at your company as the gospel.
[quote=jkl1v1n6]Jaxson,
I tried! Word of warning to you, you might want to do a little due diligence on your own. When I was with Jones they had World Com as a recommended stock.[/quote] Not in the job discription at EJ and would waste valuable time door knocking! Seriously though...I agree but still yet you have to have faith in your employer and the resources they provide or seek new employment. EJ tries to limit their selections as much as possible to promote buy and hold. Every now and again they miss and probably much less then others.Index investing proponents always try to shift the argument in their favor by making you line up your active strategy into style boxes.
They want you to compare their unmanaged style boxes to a portfolio of managed money style boxes, which goes against what active management is. Active management looks for value wherever it might be.
Also, most active managers these days are really index managers. If you are a Large Cap Growth fund active manager, your portfolio is going to pretty much look like the index. If it doesn’t you are going to be pressured to get closer to the index. For example, there was some controvery recently when the Affiliated Fund got too heavily invested in financials. Mind you, they were buying what they considered the best banks selling at value prices after the banking collapse, but they were still pressured to bring the financial allotment back to the match the index.
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Fwiw, I believe the whole MPT and betas and standard deviation are strictly academic crockery. We’ve lived through 15 years of bubbles in tech, commodities, stocks, bonds, T-bills, real estate, mortage bonds – really anything you could name – so anybody who says that you can put a number on ‘risk’ is nuts. Anybody who says market behave rationally hasn’t been watching the markets the past 10 years.
Index investing is a low cost way to cover your ass as a financial advisor. Also, in the past 10 years, all those charts and graphs convinced the public there was some kind of science to this. So, we have to find a new way to sell our investments. Maybe we’ll go back to what Morean alluded to – fundamental analysis. Buy good companies at a good price or find a good manager who can go anywhere and find value.
Good article on investing as a negative sum game.
http://www.dimensional.com/famafrench/2009/06/why-active-investing-is-a-negative-sum-gain.html At the end of the article it challenges the notion that active management is more likely to add value in small caps, international, emerging markets, etc. saying essentially if there is any advantage to active management in that space it is because the disparity of good management vs. bad management, not because there is more value to be added. Makes sense to me, I'd be interested in hearing Ice's take on this since he has had quite a bit of insight here.Every now and again they miss and probably much less then others.
JAXSON - I have gotten away from Edward Jones bashing.
And this is not a bash. Jones gets it wrong more than others. I’m not exactly sure where Skrainka and DeRose and the analysts who kneel at their feet got their CFA’s (seem unlikely they got them from taking the exams).
But they are wrong more often than they are right. Looking at five to ten years only works from a statistical standpoint. You cannot assume growth. You cannot assume ratios that will be invalid within a year.
I was told when selling a client Apple stock at Eval-Grad that I was making a bad decision. $38 a share (don’t you wish you had some Apple at $38 a share?). Then flash forward a few years later and they place a buy on Apple at $186.
Lehman brothers bonds, the Friday before they go bankrupt. Mario DeRose - “Lehman brother is going to be fine. No liquidity problems”.
HD, LOW, BofA, you name it, they screwed it up.
Take what they say with a grain of salt. Get some other opinions and don’t drink from the Skrainka teat.
First off, I wouldn’t use any brokerage firm’s stock analystics - Including Jones. IMHO, they (along with most brokerage firms), are not really in the analysis/stock picking world. They do it because they have to. I rely much more on great fund managers and outside, neutral parties.
Second, I like what buyandhold said. When you try to actively manage to style boxes, you simply can't win. I think the advantage comes to the actie managers that ignore style box regimens, and simply invest wherever the best opportunities lie. Whether it be small, mid, large, value, international, bonds, equities, etc. No matter how good you are at picking stocks as a fund manager, if your fund's mandate is "large cap domestic growth", 90%+ invested at all times, then what do you expect? That's why I hate style box investing period. Now, if you use indexing and have the ability to move in and out of various indexes as you see strength and weakness, then that's great. I still believe that the great "go-anywhere, no handcuffs" managers have the advantage. Because I don't know how I can claim that I have more intuition about where the best opportunities are than they do. So the First Eagles, Mutual Discoverys, IVY Asset Strategies, and Blackrock Globals of the world are far better places to be than "style-box" actively managed funds.[quote=buyandhold]Index investing proponents always try to shift the argument in their favor by making you line up your active strategy into style boxes.
They want you to compare their unmanaged style boxes to a portfolio of managed money style boxes, which goes against what active management is. Active management looks for value wherever it might be.
Also, most active managers these days are really index managers. If you are a Large Cap Growth fund active manager, your portfolio is going to pretty much look like the index. If it doesn’t you are going to be pressured to get closer to the index. For example, there was some controvery recently when the Affiliated Fund got too heavily invested in financials. Mind you, they were buying what they considered the best banks selling at value prices after the banking collapse, but they were still pressured to bring the financial allotment back to the match the index.
---
Fwiw, I believe the whole MPT and betas and standard deviation are strictly academic crockery. We've lived through 15 years of bubbles in tech, commodities, stocks, bonds, T-bills, real estate, mortage bonds -- really anything you could name -- so anybody who says that you can put a number on 'risk' is nuts. Anybody who says market behave rationally hasn't been watching the markets the past 10 years.
Index investing is a low cost way to cover your ass as a financial advisor. Also, in the past 10 years, all those charts and graphs convinced the public there was some kind of science to this. So, we have to find a new way to sell our investments. Maybe we'll go back to what Morean alluded to -- fundamental analysis. Buy good companies at a good price or find a good manager who can go anywhere and find value.
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I agree with you regarding IVY, but the other funds you mentioned are simply int’l funds. They are still restricted by prospectus…
Most funds that allow the manager to go everywhere are individual funds run by private companies… i.e. Fairholme Fund…
I think First Eagle is a great fund(not so much with Mutual Discovery) but simply put it is just a global fund.
Ivy can do anything, short, long, commodities, us, foreign…
Yes, they are Global funds, generally. But they are not as bound by style, size, location, cash holdings, etc. And yes, they are not all the same, at all. They are each managed very differently, but each benefits from quality, experienced management, and a flexible management style. Considering Discovery is weighted towards international, and international got hit harder than domestic, I don’t see how it could NOT be considered a “great” fund. Look at it’s track record over the years.
And incidentally, I don't think you can invest SOLELY in funds that have NO handcuffs (i.e. IVY A.S.). Although it has never blown up, a few bad calls could sink that thing. So it usually represents no more than 10-15% of my portfolios.