What are the arguments against index investing?

[newwurldmn]

I don't interpret that way. All it means is that, his methods can be replicable provided one have access to cheap leverage.

I get annoyed when an academic shits on a practitioner's performance.

Buffet's genius was buying insurance companies for the price of the float. He was paying $1000 for a bank account with $1000 in it that was generating cashflow on top of that.

 

[srinir]

I get annoyed when an academic shits on a practitioner's performance.

Buffet's genius was buying insurance companies for the price of the float. He was paying $1000 for a bank account with $1000 in it that was generating cashflow on top of that.

In all fairness, paper gives his due and respect in many places.

"However, it cannot be emphasized enough that explaining Buffett’s performance with the benefit of hindsight does not diminish his outstanding accomplishment. He decided to invest based on these principles half a century ago. He found a way to apply leverage. Finally, he managed to stick to his principles and continue operating at high risk even after experiencing some ups and downs that have caused many other investors to rethink and retreat from their original strategies."

All he is doing to find out replicate his performance in today's world. Even in today's world getting cheap leverage is pretty difficult.

 

[newwurldmn]

In all fairness, paper gives his due and respect in many places.

"However, it cannot be emphasized enough that explaining Buffett’s performance with the benefit of hindsight does not diminish his outstanding accomplishment. He decided to invest based on these principles half a century ago. He found a way to apply leverage. Finally, he managed to stick to his principles and continue operating at high risk even after experiencing some ups and downs that have caused many other investors to rethink and retreat from their original strategies."

All he is doing to find out replicate his performance in today's world. Even in today's world getting cheap leverage is pretty difficult.

I see. I didn't read the paper.
It looks like they strived to determine the risk factors to make his returns "statistically insignificant."

It's really hard to get "natural" leverage.

 

[murray t turtle]

What are the arguments against index investing?

This debate is often framed in an either/or manner - indexers vs. stock pickers. If you look at it that way, the academic literature appears clear that it's extremely difficult for active portfolio management to outperform indexing over longer stretches. So it's hard to make a case for most current types of active management (eg. actively managed mutual funds) for most types of long-term investors.

I am curious to hear what the other side has to say.

(This is a follow-up question to the previous post on this board.)

%%
80/20% math is hard to beat; but someone has to do the 20 % better than indexes.

 

[stockmarketbeginner]

One of the best arguments imho is that there is really only one index - a single global, whole world, cap weighted index. Any deviation from that is necessarily an "active" choice as to allocation. So to the degree that we deviate from that global index, we are all "active" investors.

That's a good point. When you buy the S&P 500, you are saying U.S. large cap stocks is the way to go. I also believe the S&P is weighted, so that is also an expression of opinion.

Indexes provide cost-efficient diversification, but they still express a point of view (my index is better than your index, ha ha ha).

 

[stockmarketbeginner]

That's a good point. When you buy the S&P 500, you are saying U.S. large cap stocks is the way to go. I also believe the S&P is weighted, so that is also an expression of opinion.

Indexes provide cost-efficient diversification, but they still express a point of view (my index is better than your index, ha ha ha).

Also, I believe the S&P 500 performance over the years includes investing the dividends back into the fund/index. The average dividend in the S&P is 2%, so if the S&P is claiming 9% per year over 10 years, it's really 7% stock appreciation + 2% dividend being re-invested. I'm not sure about this, but it's good to know the details of this.

 

[Visaria]

I don't interpret that way. All it means is that, his methods can be replicable provided one have access to cheap leverage.

S&P futures? Stock options?

 

[srinir]

S&P futures? Stock options?

BRK loads mostly on Value and Quality factors. S&P futures has a pure exposure to market beta. Levering up using margin, combination of QUAL etf and VV etf comes close to matching his strategy or one can buy BRK.A itself.

As it was mentioned upthread, it is difficult to beat his natural leverage comes from insurance float.

 

[murray t turtle]

BRK loads mostly on Value and Quality factors. S&P futures has a pure exposure to market beta. Levering up using margin, combination of QUAL etf and VV etf comes close to matching his strategy or one can buy BRK.A itself.

As it was mentioned upthread, it is difficult to beat his natural leverage comes from insurance float.

%%
Good points, so difficult in fact ,he warned he does not expect to ever do as well as he has in the past. I tend to agree with him NOT a prediction......

 

[drcha]

Fun thread