The Stock Market, Investments, and Investing Thread
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(06-03-2019, 01:19 PM)Jetset Wrote:
(06-02-2019, 09:12 PM)coffeedrinker Wrote: I have only been investing for 3 years but for me, passive investing has had the best reward to effort ratio.

This is exactly why I no longer actively trade. I'd rather chill with WSJ Weekend than actually think about it every day. I'm not convinced that if I did outperform, that it'd be by enough to justify the stress.

...

Otherwise, the single most important thing is to keep stacking cash. Time in the market always beats timing the market.

I’m happy to see the discussion centering around the benefits of a passive investment strategy. Historically, it seems to be the better play to invest in index funds rather than managing your own book or picking an actively managed mutual fund.

The two major scorekeepers on this, Morningstar and Standard and Poor’s Indices Versus Active (SPIVA), both indicate that active investment funds (where fund managers pick securities based on analysis) are slaughtered by their benchmark index, especially over time:

Morningstar: https://www.morningstar.com/blog/2019/02...funds.html

SPIVA: https://www.spglobal.com/_assets/documen...h-2019.pdf

I’ll admit that one thing that concerns me about the passive strategy is the ‘dogpile’ effect. This year marks a change where the majority of investment capital has been allocated from active to passive funds (https://www.bloomberg.com/news/articles/2018-12-31/shift-from-active-to-passive-approaches-tipping-point-in-2019).

This could be a problem because the valuations of the individual securities that compose these passive funds could be more based on their inclusion in a given index (like the S+P 500) as opposed to fundamental value (in which they’ve earned their inclusion in an index based on aggregate analysis by various investors).  In other words, if most investors are taking a passive approach, then money will flowing into index vehicles will which favor assets because they are already included in those vehicles and you have a sort of circular reasoning and fertile conditions for a bubble in passive vehicles.

For this reason, I've slept easier having a passive portfolio strategy based on general macroeconomic conditions as opposed to one that is primarily equities based. I'll talk about this in another post.
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RE: The Stock Market, Investments, and Investing Thread - by billydingdong - 06-03-2019, 03:57 PM

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