I'm betting most of you aren't buy and hold investors. I've just started a research project and my boss has me doing several iterations to confirm the data. So far it is mind blowing. Active money managers may not want to read this for fear of losing their jobs lol. We are proving that buying and holding random stocks over a 10 year periods outperforms the S&P 500 itself. Most active money managers can't even beat the S&P over time and now we are proving that random picks outperform the index itself. Allowing the winners to compound maximally is the key factor. Zero turnover for 10 years.
We will be publishing the completed project in a serious form and it will be available for the public to view. Still have about a year to go since there is still lots of work to be done regarding different time frames, start points, Nasdaq stocks, etc. Lot's of work left to be done.
Excellent points. Most of these hedge fund guys have very short term track records. As you said, a few great years and they get publicity. The guy I work for has been running money professionally for 21 years now and he is compounding at just over 12% per annum but with very low turnover.
Most "average" people that don't want to do the homework would be better served just doing Joel Greenblatts Magic Formula approach(even though it is high turnover)at least it is run in such a manner as to be somewhat tax efficient. He will run for lazy people for 1% per annum, not bad compared to all these outrageously expensive hedge funds. After what the hedge funds charge, you have to wonder if you even end up with anything lol! Many of their gains are short term and I'm sure the people in these hedge funds are in the highest tax bracket. The fact is they are usually too dumb to think about the effect of taxes.
Example: You could have a zero turnover portfolio that returns 12% per annum for x amount of years or you could have an all short term cap gain portfolio that would have to make 18% per annum after paying taxes at 33% each year(highest rate). Nobody thinks this way. They both return the same amount but the 12% per annum portfolio is much more tax efficient.
Only Buffett and a handful of people think this way.
I'm sitting on a 42%+ return on my shares of Under Armour. They aren;t giving me any headlines lol. Because I'm not making huge bets with other peoples money that would get the attention. I'm betting with what in comparison is a miniscule amount.
jaques, comletely agree with you. I'm not an index investor and never plan on it as I put a lot of time into research and reading about companies(including from now on attedning shareholder meetings). Sounds like you're boss is a smart guy and you're lucky to be working for a gy you admire as well as doing something you clearly enjoy. It doesn;t feel like work if you love what you are doing, that is the secret ;).
I am only referring to the American Public who doesn;t want to put in the time yet still wants to be invested; indexing is the way to go in that case imo, not money managers. These guys are a dime a dozen and most don't have consecutive great years.
I'll give you an examle of a one hit wonder; john paulson. He made a GIGANTIC bet on the housing crisis and got lucky. The years after; DOWN BIG TIME. This ast year alone down 40+% for one of his funds. He got lucky, thats it. Made a bet on red and it came u. Could've gone the other way and the story would've been totally different. But eople follow the media and make these nobodies into G_DS.
jaques, the American public has caught on to the scam that is money managing. It is why you see people pulling out billions every week from mutual funds. Game over for most of them. Time to get a real job.
I think the public is just scared to death. They don't really understand that stocks are real businesses. You can look back at the huge outliers that got picked so far in my study and see that those real businesses did pretty darn well over time. I think the public just can not take volatility.
Ironically, it might be best if the public went into a coma for 20 years, woke up and saw that there portfolio actually did pretty well despite the worries.
I always tell me friends that there are 2 words they need to remember in life and the 2 words are: Compound Interest ...lol.