drejmd wrote:I think Mr Hymas is expounding the virtues of a financial advisor whereas Mr Yogi ( and Bylo up-thread) are poo-pooing the value of "active management" (ie. actively managed mutual funds).
Close, but that's not it exactly.
I am simply stating that boring investments like index funds will never attract a following comparable to active management. That's neither a good thing nor a bad thing. It's simply human nature. And to blame the evil investment management business for it makes about as much sense as blaming the modelling industry and Hollywood for teenage dieting.
(Incidentally, every time I see another headline about the Horrors of Childhood Obesity, I keep wondering just what message the various Powers That Be are sending, in sum. Be skinny but don't think about it, fatso?)
The investment management industry, as a whole, will attempt to sell people what they want to buy. Sir John Templeton popularized mutual funds because he figured he could make a buck doing it. Michael Irwin is in the business because he figures he can make a buck doing it. This applies to any investment manager / advisor / back office clerk I can think of, with the exception of John Bogle, who got into the business because he wanted to help make the world a better place, out of simple human charity. Just like Mother Theresa.
On the whole, it's a good thing. I don't think anybody thinks that a step back to the old days would constitute economic progress - when, basically, Joe Average would put his money in a bank, full stop. If Joe Average can capture the equity premium for a MER of only 2%, he's way ahead of the game.
But but but! Joe Average could capture the equity premium for a cost of only 0.135469782% if he opened an account at Interactive Brokers and paid $7.75 commission + $1 for VWAP because that helps make sure the evil traders don't rip him off.
So what? Joe Average ain't gonna do it. Joe Average wants to be taken care of without having to understand anything or make any decisions. Just like me when something mysterious happens and my computer won't turn on. I'm very happy to pay somebody a ridiculous hourly rate to take my problem away. It's human nature. If you don't like it, complain to God. On the Computer Hardware Webring Forum, they feel sorry for unsuspecting innocents like me who are exploited by the machinations of the hardware repair industry. 'After all', they say, 'you just need Bergenwhatsis' book on motherboard repair and soldering iron! Two minutes and you're done!' You know what? The Computer Hardware Webring Forum can shove it.
So I get a little annoyed at paranoid and unsupported statements like:
OTOH almost all academics, pundits and money managers who don't have a vested interest in active management (and even a few who do) invest their own money in index funds and ETFs.
Now, I'm not going to go so far as to say that's a deliberate lie. After all, even if it's a complete fantasy, maybe it's just marketting spin, which is OK because other people put marketting spin on their statements so it must be ethical right? But I will ask for an actual cite and draw my own conclusions if I don't get one.
Later in this thread, some anecdotal information not contrary to the thesis quoted above was provided:
"some of the largest and most sophisticated investors in the country - the administrators of state pension funds"
administrators of state pension funds? largest, sure, but the most sophisticated investors in the country? hahahhahahaaahahahaha! Somebody should advise Mr. Schultheis that the chief objective in being the administrator of a state pension fund is not to screw up. Nobody ever got fired for buying IBM.
(I was a little surprised to see California on the list, considering CALPERS' activism [they own a lot of private equity and hedge funds, by the way]. However, I do understand that CALPERS made a conscious decision that their version of active managment was going to be shareholder activism rather than shareholder trading. Given their size and clout, that's not an unreasonable view).
So sometimes I get annoyed. I also get annoyed when people are so utterly clueless as to suggest that one book (prescribed by the State, presumably, so that people won't get confused by evil conflicting ideas) and a few hours a year are all that's required for expertise in investing. It's the most patronising, arrogant worldview possible. 'People should simply follow my plan because it's obviously the best plan possible and you don't need to know anything before reaching that conclusion. And they should trust me, because I'm cleverer than the average bear!' When people say silly things, I treat them like silly people.
I also get highly annoyed at Internet anonymity. Things are so easy when you're anonymous and don't have to take any responsibility. I'll have a lot more respect for Bylo & Yogi when they get a license, convince real people that their advice is sound and take the heat when the market's down. Until then ... well, they don't have sufficient confidence in their own statements to put their own names behind them. So who cares?
The wonderful thing about the Internet is that it allows people of all different views to meet in a single place. Wars and prejudice will become a thing of the past once we all get to know each other, right?
Wrong. The internet simply allows a greater specialization in crony-dom. Instead of talking about stocks once a week with Bill down the street, we can talk about stocks all day long on this forum, or, if we wish, a forum dominated by left-handed Marxists who like looking at pictures of girls wearing mittens. In practice, the 'Net simply allows one to spend more time with people who think exactly the same things.
Most, if not all, people on this forum are perfectly capable of looking after their own investments (even if they're just here to ask questions. Wanting confirmation is also human nature), and happier doing so than they would be by blindly writing cheques to buy whatever was advertised most heavily on TV. And they certainly will do better, on average, than those paying a fee will do. Good for them. To leap from that observation to a conclusion that this one size will fit all is simply arrogance.