Why would anyone invest in these funds?

[Alexpung]

Buffet has done disservice to individual investors dissing diversification and advocating high stock allocation with out regarding to risk tolerance. Not only returns matters but sequence of returns matters.

No one predict the future. Japanese market had highest market cap just 30 years back, before that UK had highest market cap. Only free lunch left in the market is diversification.

The premise behind this philosophy is very simple. Company make profits.
Of cause not all of them will be profitable, but as a whole they are making profits.
You are too focused on the valuation when Buffett is focusing on acquiring cash flow. If you looked at the dividend history of S&P500 even during 2008 the dividend payout aren't lowered that much.
Over one's working life even all stocks is a pretty safe bet.

Imagine Japanese mom and pop investor retired in 1989 with that 90:10 allocation, because Japanese market did not suck till 1989 (as you said), they would have died eating cat food.

https://indexes.nikkei.co.jp/en/nkave/archives/data?list=annually
An investor who retired at 1989 and worked 40 years would started buying Nikkei at 1959, which was at 874.88 at the end of the year. S&P 500 was at about 500.

The all time low after the 1989 crash was at 7,054.98 in 2009. With this number, the investor would had only made a losing bet DIVIDEND EXCLUDED from 1983-1989. All bets from 1959-1983 were winning at this lowest level. Even after the crash, the performance of Nikkei 225 still crush S&P 500 by a hefty margin (from 1959 to 2009). Add in exchange rate adjustment Nikkei is crushing even more.

In addition anyone with a brain would had thought twice to put his money when the p/e ratio of an INDEX is more than 70......

Said investor is counting money rather than eating cat food.

Dubious return in which asset class? Ironic we are discussing in the forum where short term chart pattern trading is considered as investment.

Dubious return in whatever hedge fund touting "uncorrelated return", after taking their usual fee. Gold is at least positive return so I don't contest it as a legit way to diversify.

 

[srinir]

The premise behind this philosophy is very simple. Company make profits.
Of cause not all of them will be profitable, but as a whole they are making profits.

I agree with this. In fact, if you search my previous posts I am even advocating levering up stocks in their early years.

You are too focused on the valuation when Buffett is focusing on acquiring cash flow. If you looked at the dividend history of S&P500 even during 2008 the dividend payout aren't lowered that much.

Nothing special about dividend payout or dividend paying stocks. It is total returns that matters (that includes dividend).

Regarding buffet method, I wrote in this thread.
https://www.elitetrader.com/et/thre...t-index-investing.297648/page-11#post-4530533

https://indexes.nikkei.co.jp/en/nkave/archives/data?list=annually
An investor who retired at 1989 and worked 40 years would started buying Nikkei at 1959, which was at 874.88 at the end of the year. S&P 500 was at about 500.

The all time low after the 1989 crash was at 7,054.98 in 2009. With this number, the investor would had only made a losing bet DIVIDEND EXCLUDED from 1983-1989. All bets from 1959-1983 were winning at this lowest level. Even after the crash, the performance of Nikkei 225 still crush S&P 500 by a hefty margin (from 1959 to 2009).

Have you worked out the details?

Here is the link with worked out details.
https://www.elitetrader.com/et/thre...st-index-investing.297648/page-9#post-4528944

With 100% stock portfolio, investor would have lost 50% (inflation adjusted including dividend). 90:10 wouldn't be that different. That is without any yearly withdrawal. With yearly withdrawal of 4% for living expenses, ya he would have been eating cat food.

Add in exchange rate adjustment Nikkei is crushing even more.

In addition anyone with a brain would had thought twice to put his money when the p/e ratio of an INDEX is more than 70......

We are talking about japanese investor investing in japanese market. No exchange rate adjustment needed.

Regarding your other point about p/e ratio, either you are an index investor without any regard to valuation or you are market timer with superior knowledge about valuation and timely withdrawals. In fact, one would have missed greatest bull market in nikkei history once valuation crossed p/e 50 (if i remember right, From 1981 till 1989 was the japanese golden era) and would have had much smaller pie at 1989, if that investor exited the market because of valuation.

Dubious return in whatever hedge fund touting "uncorrelated return", after taking their usual fee. Gold is at least positive return so I don't contest it as a legit way to diversify.

Some of the hedge fund methods are easy to replicate like momentum investing, carry trades and short vol. So fees are not the issue for sophisticated traders in this forum .
Gold has negative real returns see my chart up-thread

 

[srinir]

I have another misgiving about CTAs (and similar) that I find difficult to let go of, about which I'd be curious to hear peeps' thoughts (if any).

Specifically, it appears that these strategies are inherently of the 'greater fool' variety. In other words, the economic significance of the investment decisions made is often not a meaningful consideration. Instead, it's mostly about predicting, with varying accuracy, who is likely to buy/sell the relevant instrument next. This violates one of my most basic risk management principles, so I find it hard to muster the necessary enthusiasm.

Having this view means there is no momentum premium. That is exactly reason the momentum premium survives. In fact momentum premium is the largest premium available in the market much more so than value (fundamental) premium.

 

[alexpun]

I agree with this.
Have you worked out the details?

Here is the link with worked out details.
https://www.elitetrader.com/et/thre...st-index-investing.297648/page-9#post-4528944

With 100% stock portfolio, investor would have lost 50% (inflation adjusted including dividend). 90:10 wouldn't be that different. That is without any yearly withdrawal. With yearly withdrawal of 4% for living expenses, ya he would have been eating cat food.

You can't really be serious. The link you gave describe an investor who go all in at the peak and without any other contribution to his investment. Nicely done fear mongering with the starting date and completely ignore how an average guy put his money over 40-45 years.

 

[srinir]

You can't be serious either. My post was about investor retiring 1989 following Buffet allocation of 90:10 and your mention of "performance didn't suck". How does retiree contribute to the pie, once he retires?
Fear mongering? Data is the data. If i am fear mongering, I wouldn't advocate lever up for younger people.

 

[Martinghoul]

Having this view means there is no momentum premium. That is exactly reason the momentum premium survives. In fact momentum premium is the largest premium available in the market much more so than value (fundamental) premium.

Well, this is my point... How do you explain the presence of momentum premium without incorporating various behavioural biases? If you can't, then your investment thesis, by construction, is of the "greater fool" variety, no?

 

[alexpun]

You can't be serious either. My post was about investor retiring 1989 following Buffet allocation of 90:10 and your mention of "performance didn't suck". How does retiree contribute to the pie, once he retires?
Fear mongering? Data is the data. If i am fear mongering, I wouldn't advocate lever up for younger people.

I already said

The all time low after the 1989 crash was at 7,054.98 in 2009. With this number, the investor would had only made a losing bet DIVIDEND EXCLUDED from 1983-1989. All bets from 1959-1983 were winning at this lowest level.

Said investor have a wonderful time the first 30 years (874 points to 38915 points, 44x returns) and now whine about the 6 losing years (1983-1989) he had in 2009

 

[srinir]

Well, this is my point... How do you explain the presence of momentum premium without incorporating various behavioural biases? If you can't, then your investment thesis, by construction, is of the "greater fool" variety, no?

Then I would question the investment thesis, without incorporating behavior biases.

I was pointing out to the fact that delayed reaction by investors is one of the main reason for momentum affect. Finally they give up and chase returns. Skeptic view is persistent, that is main reason that premium prevails.

https://www.aqr.com/library/aqr-publications/explanations-for-the-momentum-premium

 

[truetype]

www.aqr.com/library/aqr-publications/explanations-for-the-momentum-premium

Of course, if momentum had a negative return, the boffins would find an "explanation" for that also.

 

[srinir]

Of course, if momentum had a negative return, the boffins would find an "explanation" for that also.

I had to lookup the word "boffins".

How would you invest with out looking into past?