Down goes the Dow

22,374

Ed,

You should not comment when it is a subject you know nothing about.

Learn yourself up:

https://realinvestmentadvice.com/dalbar-2016-yes-you-still-suck-at-investing-tips-for-advisors/

Igy

Ed,

You can disagree with my views, but few who post here have my market knowledge or experience.

Igy

Ed,

OK.

Igy

For AMZN and BABA lovers....

http://www.zerohedge.com/news/2016-12-29/amazon-alibaba-are-worlds-most-crowded-trades

Good point. I do prefer "an" active manager over passive. However, there are active managers who overweight the largest index position to goose returns. Therefore, making their active funds much riskier than the index. In fact the number one fund in 2014 has been guilty of this and an underperformed in 2016. The Sequoia Fund fell victim to the same strategy with a heavy weighting in Valeant.

Igy

The top performing domestic mutual fund in 2014 returned +48%.

igy

Huh?? wrote:

Got to be a large majority of active managers involved to create weighting numbers like that.

Is this a case of them knowing what they're doing, or is it the increased risk they generate is responsible for the relatively poor results attributed to active management?

Sorry, wife was calling me to dinner, never finished my thought.

I would assume the data includes hedge fund managers. Yes, I would say the risk assumed to beat the benchmark contributes to poor relative performance. However, the elements that were headwinds for active managers in the up cycle become tailwinds in the down cycle; for example the ability to underweight benchmark positions.

Igy

Ghost of Igloi wrote:

Huh?? wrote:

Got to be a large majority of active managers involved to create weighting numbers like that.

Is this a case of them knowing what they're doing, or is it the increased risk they generate is responsible for the relatively poor results attributed to active management?

Sorry, wife was calling me to dinner, never finished my thought.

I would assume the data includes hedge fund managers. Yes, I would say the risk assumed to beat the benchmark contributes to poor relative performance. However, the elements that were headwinds for active managers in the up cycle become tailwinds in the down cycle; for example the ability to underweight benchmark positions.

Igy

I'd have to do some research but I believe this did not happen in the financial crisis - I believe the indexes STILL outperformed the active managers.

And of course the hedgies didnt' do well either. Sure they did better than the market but still lost oodles despite how they are supposed to make money no matter what.

agip,

If you compare an index or an ETF, they vary, there are thousands; just like there are variations among active managers. It would be very difficult if not impossible to make a valid comparison that did not contain a lot of noise.

The point, which I believe is a valid one, is, the only way you can reduce your exposure to the most overvalued stocks in the market is to go active. And of course your choice would be to avoid managers that are closet indexers or those that overweight those same stocks that are driving the market higher.

Seems perfectly logical to me.

Igy

Ghost of Igloi wrote:

agip,

If you compare an index or an ETF, they vary, there are thousands; just like there are variations among active managers. It would be very difficult if not impossible to make a valid comparison that did not contain a lot of noise.

The point, which I believe is a valid one, is, the only way you can reduce your exposure to the most overvalued stocks in the market is to go active. And of course your choice would be to avoid managers that are closet indexers or those that overweight those same stocks that are driving the market higher.

Seems perfectly logical to me.

Igy

100% logical.

the problem is that on the ground it doesn't happen. Active managers do overweight the popular stocks. they do panic sell at the bottom. They do buy the wrong stocks. And of course active managers have the headwind of a percent or two of higher fees, compared to index funds.

"Many people argue in favor of active management over passive management because they believe that “experts” actively managing a portfolio will be able to outperform the relevant passive alternative. The wisdom of this view has been debated for decades. We do not plan to review the arguments in this issue, but do note that the experiences of 2008 will likely lead to increased focus on the challenges of active management—and the benefits of allocating at least the core portfolio to a well-structured passive portfolio. Given current equity valuations, we think the time is right for investment committees to revisit their allocations to a well-structured passive strategy.

Active Management in 2008

The dust is still clearing on 2008—a horrendous year for the capital markets. Hidden within the dreadful returns of the market averages was the relatively uninspiring performance of active managers. By one measure, it was the worst calendar year of performance for a mainstream portfolio of active managers going back to 1990—exactly when manager excess returns were needed most!

Hedge funds, arguably the ultimate active management vehicle, fell 21.0% in 2008 as measured by the Hedge Fund Research Institute’s Hedge Fund of Funds Composite Index—virtually matching the –22.1% slide of the traditional 60/40 stock/bond “balanced” portfolio.1 This invites the question: Where was the manager skill, the ability to sidestep the worst of the equity markets? Free from the constraints of traditional manager guidelines, hedge funds can short securities (they are, after all, hedge funds!), employ leverage, and trade derivatives. Excluding government bonds, shorting was 2008’s only path to positive returns. Perhaps the hedge funds were squeezed by the credit contraction. As Keynes once quipped, “The market can stay irrational longer than you can stay solvent.” This especially rings true for the leveraged, but that doesn’t provide much comfort for the hedge fund investor.

Interestingly, traditional managers with no leverage and only long exposure to mainstream stocks and bonds returned similarly poor performance. As Table 1 shows, the median active manager in 2008 underperformed the commonly used benchmark in four of the six core asset categories."

agip,

Your research doesn't weed out the noise I noted. I would venture to say there have been thousands of ETF Index offerings since 2008, garnering $Trillions. So a prediction of how they will operate over the next couple of years has it's own set of flaws.

Yes, but Benjamin Graham said: "In the short run the market is a voting machine and in the long run a weighing machine." I would assume he would have agreed that the current phase is the "voting machine."

Hey, on another favorite subject: running. Yesterday I ran 4 x 1/2 mile at under 7:00 minute mile pace. Last one I took it down to 6:27 mile pace. Stride is getting more comfortable at sustained faster paces. I plan to race 5k New Year's Day. The course is covered with a couple inches of snow and we are expecting single digits over the next week. So no records anticipated.

Igy

you seem to be responding really well to higher intensity training - that's obviously a great sign.

I had a very good workout this week - a mess of different distance intervals on an indoor track. Checking back through my logs I don't think I've ever run this fast, post 40.

I'm in that ideal zone where I just want to run hard and push the envelope. But I don't have any races for a couple weeks...so I need to rein in my workouts and keep my eye on the races rather than workouts.

I think a major mistake many distance runners make is getting too much satisfaction from workouts instead of races. I'm trying to avoid that. But am overjoyed to be in such a good place runningwise.

agip,

That is a good approach. As I mentioned we have four indoor races next month and February. The outdoor weather is such that I will be almost exclusively treadmill for hard training. So I am planning to emphasize some hard intervals thru early February and then go back to strength as the weather improves.

Have a good New Years.

Igy

Reel K5 wrote:

My God. I can feel your frustration always having to write such nonsensical tripe and having to be so dishonest. All to protect your thin skinned ego.

Give me the date of any post you've made on here over the past 3 1/2 years that has had any meaningful information as it relates to what the market has done during that time frame.

Who's put out the nonsense?

just closed out my two shorts - made $50 on the VXX and $70 on the CHAD. (short china)

take that, conventional wisdom.

We eat tonight!

agip wrote:

with one day to go, it looks like Coach D has locked up the 2016 prediction contest. Wherever he may be. Toast to ye, D.

With a day to go, from best to worst

D: Dow 21,500=off by 1682 points

Agip: Dow 17,900=off by 1918

Big Dog Investments Dow 17,425 off by 2393

And Now: Dow 11,800 off by 8,018

Igy: Dow 8,918 off by 10,900

I'll update this tomorrow if any changes but doubtful anythign will change.

The predictions are all around pages 409 if you dispute or think I missed one. Or my math is wrong.

Middle of the pack. Exceptionally mediocre, but I can't be too upset given that my guess proved to be a significant underestimate. I like where we are.

As for 2017, put me down for 21,000. I hope that also proves to be an underestimate.

Just looked at the last three years...in each we had a very weak January and February, then it was off to the races. I wonder why. I suspect it is because there is so little faith in these markets...when hedgies get behind in January they panic and short everything hard because a negative year could put them out of business. THe market is driven by traders....

Maybe this will be the fourth year in a row. Maybe being ready to load up on volatility or actually short something would be wise.