[2020] A little stock market sense

[Ralph Sir Edward]

And I'll tell you to manage a mutual fund and we'll see in a decade .............

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Brett, you don't have an understanding of what I am saying. A mutual fund must be invested all the time. I do not. That is my advantage, not my liability. Furthermore, I don't invest for other people - just myself - and I take responsibility for my results. I'm merely offering a challenge - can I beat the S&P 500 over a decade, choosing what, when, and which stocks of my own choosing, starting at now, as a random starting point.

Various people here say It can't be done. We'll see. All I ask is what method of stock investing you want to put up against me.

 

[letsgobobby]

Brett, you don't have an understanding of what I am saying. A mutual fund must be invested all the time. I do not. That is my advantage, not my liability. Furthermore, I don't invest for other people - just myself - and I take responsibility for my results. I'm merely offering a challenge - can I beat the S&P 500 over a decade, choosing what, when, and which stocks of my own choosing, starting at now, as a random starting point.

Various people here say It can't be done. We'll see. All I ask is what method of stock investing you want to put up against me.

not saying it can't be done. saying if it is done it is luck; and the chances of doing it over a long period of time is very low; and chances you can identify a priori which of many strategies or funds will outperform is a moonshot.

Even if you were that 1 in 1000 to consistently outperform over a decade, or 1 in 10,000 to outperform over several decades, you'd have to show you could do so on a risk-adjuated basis: higher returns without any higher volatility. MPT has already shown us that the way to do this is not with "cash". Cash is a long term drag on portfolio performance. Intermediate term government bonds are the most efficient diversifier of US total stocks. You'd have more credibility if you expressed understanding of that fact.

But you do you. I've been 100% index funds, no cash, for a quarter century, and reached FI in my 40s. I'm a believer in passive investing. The data are on my side. And I don't have to claim to be smarter than most professional investors for my "method" to be successful.

 

[easyrider]

And I'll tell you to manage a mutual fund and we'll see in a decade .............

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I think you are right Brett. I did better owning a few stocks than I ever did owning mutual funds but the mutual funds were easy.

Bill

 

[Brett]

Brett, you don't have an understanding of what I am saying. A mutual fund must be invested all the time. I do not. That is my advantage, not my liability. Furthermore, I don't invest for other people - just myself - and I take responsibility for my results. I'm merely offering a challenge - can I beat the S&P 500 over a decade, choosing what, when, and which stocks of my own choosing, starting at now, as a random starting point.

Various people here say It can't be done. We'll see. All I ask is what method of stock investing you want to put up against me.

Actually mutual fund managers don't have to be invested "all the time" but I really don't care about your particular stock investing methodology, if you're happy with your returns, great.
But there is a reason active mutual fund managers don't outperform the market over the long term. Can individual investors outperform the market? - sure, absolutely.
And of course there are billionaires that own the company - e.g. Jeff, Elon, Bill, etc.

https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect

https://www.nytimes.com/2022/12/02/business/stock-market-index-funds.html

 

[Carolinian]

Isn't it about making money? The real money is if you can run a business buying gold for $2,000 an ounce and selling it for $2,500.

Holding gold can also make money. Let me give an example of the first gold coin I ever bought, an Austrian 1915 4 ducat piece, which contains .4438 ounce of gold. I bought it in 1970 for $16 for the mail order numismatic business I was running buying and selling German and Imperial Austrian coins. Most of the coins I dealt with were silver or base metals. I sold it a few months later for $35, a nice $19 profit. However, the same coin now sells with the bullion compaies for $1,233. I would probably have been better off holding onto it. However, less than a year ago, during a dip, I was able to buy some of them at $830 each.

 

[TolmiePeak]

Holding gold can also make money. Let me give an example of the first gold coin I ever bought, an Austrian 1915 4 ducat piece, which contains .4438 ounce of gold. I bought it in 1970 for $16 for the mail order numismatic business I was running buying and selling German and Imperial Austrian coins.

What is the buy/ask spread for coins. I had a few coins that I was trying to dump and the dealer was offering me 50 cents on the dollar. Really left a bad taste in my mouth that the entire business is crooked and those dealers are just trying to take advantage of people.

 

[Carolinian]

What is the buy/ask spread for coins. I had a few coins that I was trying to dump and the dealer was offering me 50 cents on the dollar. Really left a bad taste in my mouth that the entire business is crooked and those dealers are just trying to take advantage of people.

It varies by the dealer and the coin. Generally the national dealers often pay better than the local ones. Finding local individuals interested in precious metals is often the best bet of all. I know individuals locally who will buy British sovereigns, German 20 marks, and most bullion coins at spot. I buy 20 marks pieces from national bullion dealers at about 3% over spot, and the sovereigns are a little more than that so if I have to sell, the price is good. They will also pay spot for the pre-1933 US gold coins.

There was a guy in the next county who had a thousand walking liberty silver half dollars, and he ran an ad in the newspaper offering them for sale at about the going rate that bullion dealers were charging. I figured he would not get that much, so I waited a week and called him thinking I could make a lower offer, but he had already sold all of them at his price to multiple buyers. So that might be another way to sell.

Decades ago when I was in the numismatic business, my markup varied, based largely on how quickly different coins would be expected to turn over, and I also had some sources, especially on pre-1871 German states coins, where I could buy substantially under market if I bought enough quantity. There were also times that I got good deals because someone else's asking price was too low, which often happened with other dealers who handled mostly US coins and were not very familiar with foreign coins.

What coins do you have that you are trying to sell?

 

[PigsDad]

Holding gold can also make money. Let me give an example of the first gold coin I ever bought, an Austrian 1915 4 ducat piece, which contains .4438 ounce of gold. I bought it in 1970 for $16 for the mail order numismatic business I was running buying and selling German and Imperial Austrian coins. Most of the coins I dealt with were silver or base metals. I sold it a few months later for $35, a nice $19 profit. However, the same coin now sells with the bullion compaies for $1,233. I would probably have been better off holding onto it. However, less than a year ago, during a dip, I was able to buy some of them at $830 each.

$16 invested in the S&P 500 in 1970 would now be worth $4,364.26, almost 4 times that of the gold investment.

Kurt

 

[Ralph Sir Edward]

You're not considering the "survivor" bias. Go back to the S&P 500 composition for year 1970. Use only those stocks for your comparison, as they are valued today. If some of them went broke, keep them in the average at 0.

Why? If you buy a lump of gold (or any metal, for that matter) it doesn't change or go away. You can't say that about stocks. . .

 

[Ralph Sir Edward]

What is the buy/ask spread for coins. I had a few coins that I was trying to dump and the dealer was offering me 50 cents on the dollar. Really left a bad taste in my mouth that the entire business is crooked and those dealers are just trying to take advantage of people.

Do google search on gold refiners. Use one coin, describe it and ask for quotes. Pick the one you like the best, and test the firm. That's how you build trust. Also search for reviews on the firm.

 

[Carolinian]

Do google search on gold refiners. Use one coin, describe it and ask for quotes. Pick the one you like the best, and test the firm. That's how you build trust. Also search for reviews on the firm.

The major bullion dealers like APMEX, JM Bullion, SD Bullion, etc. would also be good to check prices on.

 

[DrQ]

The major bullion dealers like APMEX, JM Bullion, SD Bullion, etc. would also be good to check prices on.

You can buy and sell on Kitco too:

Buy & Sell Gold and Silver Bullion Coins and Bars online | Kitco

One of the largest most trusted bullion dealers in the world. Get great gold & silver coins & bars at great prices at Kitco Precious Metals.

online.kitco.com

IDK if I would actually use their service, but I use them to check the spread and to get pricing when I sell my coins locally.

 

[TolmiePeak]

You can buy and sell on Kitco too:

Buy & Sell Gold and Silver Bullion Coins and Bars online | Kitco

One of the largest most trusted bullion dealers in the world. Get great gold & silver coins & bars at great prices at Kitco Precious Metals.

online.kitco.com

IDK if I would actually use their service, but I use them to check the spread and to get pricing when I sell my coins locally.

I would accept anything less the 0.5% under spot price. A 1% spread should be enough to remain profitable.

 

[letsgobobby]

You're not considering the "survivor" bias. Go back to the S&P 500 composition for year 1970. Use only those stocks for your comparison, as they are valued today. If some of them went broke, keep them in the average at 0.

Why? If you buy a lump of gold (or any metal, for that matter) it doesn't change or go away. You can't say that about stocks. . .

oh dear. your lack of understanding is quite shocking.

What you are saying is true. But it is a reason TO invest in total stock market indexes. The median stock has a negative or zero return. The great majority of index returns are made up of a small number of companies that grow exponentially for decades. Think IBM, Microsoft, Amazon, Nvidia. The problem is knowing a priori which companies will be those high performers. Miss even one, and you miss most of the returns. The solution is to buy the entire stock market: TOTAL stock market index funds or S&P500 funds or similar. The funds themselves will track the indexes for you. You will always hold the winners (and the losers: but that doesn't matter).

This sounds easy but actually very few actively managed funds outperform the S&P especially over several decades. And as we've seen in this thread, very few average investors have any clue what the data says about passive investing, and even fewer actually follow the data and adhere to a buy and hold forever indexing strategy.

 

[Ralph Sir Edward]

Other than buying the total stock index, every other index is actively managed. Stocks are dropped and added over time. Even in the total stock index, companies fail and the stocks are worthless and new companies, which did not exist before are added. Those new stocks are either bought with new money added to the market, or with money gotten by selling other stocks.

My point is that you can't just buy an index and passively hold it over long time. You would have to actively sell and buy stocks along the way, either directly (if you held all the stocks involved) or by proxy (the fund agency does the buying and selling).

 

[letsgobobby]

Other than buying the total stock index, every other index is actively managed. Stocks are dropped and added over time. Even in the total stock index, companies fail and the stocks are worthless and new companies, which did not exist before are added. Those new stocks are either bought with new money added to the market, or with money gotten by selling other stocks.

My point is that you can't just buy an index and passively hold it over long time. You would have to actively sell and buy stocks along the way, either directly (if you held all the stocks involved) or by proxy (the fund agency does the buying and selling).

this is irrelevant. The benchmark is "the stock market". If your portfolio performs as well as "the stock market" over fifty years, you win. It's that simple.

Most investors vastly underperform "the stock market". But all you have to do is match it.

How do you do that? You could buy a total stock market index fund with expense ratios of 3-5 basis points (0.03-0.05% per year). Or you could buy an S&P500 index fund or ETF with similar low expense ratios. As it turns out, despite what you are saying about the S&P being "actively managed", it almost exactly matches the performance of the total stock market. This of exactly because of what you wrote earlier: most of the stock market's gains come from a very small number of hyper successful stocks, which the S&P has always owned.

So it doesn't matter. Buy the S&P fund if you want. If you prefer to be completely passive and own relatively more smaller stocks, buy the total stock market index fund. Your results will be similar either way.

You can see here how close the performance has been over time:

 

[PigsDad]

You're not considering the "survivor" bias. Go back to the S&P 500 composition for year 1970. Use only those stocks for your comparison, as they are valued today. If some of them went broke, keep them in the average at 0.

Why? If you buy a lump of gold (or any metal, for that matter) it doesn't change or go away. You can't say that about stocks. . .

An index fund keeps you in the stocks that are in the S&P 500 all the time, swapping out as the index changes, so that doesn't apply.

ETA: I just read the later responses. @letsgobobby did a good job explaining it.

Kurt

 

[Brett]

You're not considering the "survivor" bias. Go back to the S&P 500 composition for year 1970. Use only those stocks for your comparison, as they are valued today. If some of them went broke, keep them in the average at 0.

Why? If you buy a lump of gold (or any metal, for that matter) it doesn't change or go away. You can't say that about stocks. . .

LOL
Stocks change every year in the S&P index fund -- and the Vanguard 500 or Schwab 500 or Schwab 1000

But I'm glad to be a "survivor" of Amazon, Apple, Nvidia, etc.

 

[letsgobobby]

Yet another all time high on the Dow.

This index thing is just so... easy...

 

[Brett]

Yet another all time high on the Dow.

This index thing is just so... easy...

yep

Dow scores new record close as expectations grow for jumbo rate cut​

 

[easyrider]

Yet another all time high on the Dow.

This index thing is just so... easy...

That's what small investors always say right before the market crashes. The large investors usually know when to get out. WB has sold over $100 billion this year. Other whales are selling off billions too. It's all smiles and giggles until it isn't.

Bill

 

[letsgobobby]

That's what small investors always say right before the market crashes. The large investors usually know when to get out. WB has sold over $100 billion this year. Other whales are selling off billions too. It's all smiles and giggles until it isn't.

Bill

First, Warren Buffett is smarter than me. But he hasn't outperformed the S&P500 in decades. What is the source of the claim he has sold $100 billion of stock recently? I suspect you mean BRK has sold stock, not WB.

Second I've been doing this for many decades. Have invested through three bear markets. The passive portfolio has worked for much longer than i've been investing.

How much money has been lost waiting for the next bear market? I know people who've been waiting for twenty years. Maybe you're one of them?

 

[easyrider]

How much money has been lost waiting for the next bear market? I know people who've been waiting for twenty years. Maybe you're one of them?

Nope, I'm not waiting for anything like market growth or declines. If the market drops considerably I might buy up some bargains but it's not because I'm waiting for it to happen. We are content.

Bill

 

[PigsDad]

That's what small investors always say right before the market crashes.

And yet, historical facts say the opposite, backed by the article I posted here a couple weeks ago in this post.

A key statement from the article that was based on facts and, at the same time, certainly contradictory to "common sense" was:

In fact, investing when the S&P 500 hits a new all-time high has historically led to stronger results than investing on days when it doesn't hit a new all-time high.

Reading the article, this applies to buy and hold investors, not day traders. Still sounds "off" to me, but the data backs it up.

Kurt

 

[easyrider]

And yet, historical facts say the opposite, backed by the article I posted here a couple weeks ago in this post.

A key statement from the article that was based on facts and, at the same time, certainly contradictory to "common sense" was:



Reading the article, this applies to buy and hold investors, not day traders. Still sounds "off" to me, but the data backs it up.

Kurt

I didn't read the explanation in the article but it sounds off to me too.

Bill