Investing, Stock Market and Retirement Planning Thread

[FlyEaglesFly]

Source of the post Much discussion since the first of the year wondering if the era of passive investing has run it's course.

I've seen a few of these articles by people who nobody has ever heard of before. I don't think index investing is coming to an end, especially given that more and more people turn to it every single year.

There's a difference between popular and successful.

And being one doesn’t preclude you from also being the other. Index investing is becoming more popular because of its proven success over a very, very long time period. It’s not going away anytime soon.

Who said it was going away? The point is that the very thing that made it popular, it's ability to be more successful, may now be working against it. When the bad stocks in a sector benefit more because of inflows to that sector, and when good stocks benefit less because they're lumped in with the bad stocks, that creates opportunities. The same logic holds true for the overall market with good and bad sectors. Who knows, maybe these picks will show that at least one investor, me, can't beat the S&P 500 index. I guess we'll see.

[willeyeam]

It will be interesting to me if index trading gets popular enough that there isn't enough underlying trading to track, to see what happens

[MrKennethTKangaroo]

well, passive investing has been easy for almost a decade now. the market hit its recession era low in march 2009 and since then, things have been rosy.

things will eventually turn south, and when the markets get turbulent, it will be interesting to see how investors in passive funds react to turbulence.

[Tomas]

well, passive investing has been easy for almost a decade now. the market hit its recession era low in march 2009 and since then, things have been rosy.

things will eventually turn south, and when the markets get turbulent, it will be interesting to see how investors in passive funds react to turbulence.

They will be sitting tight and wait for their 10+% p.a. appreciation generated over pretty much any long-term horizon in the history of this country (that includes Great Depression, Vietnam,...) while having that warm feeling that by doing so they will outperform the vast majority of stock-picking funds (once again, a claim that works throughout the whole history of the US).

[MrKennethTKangaroo]

No, Thomas. YOU will be sitting tight and waiting for their 10% price appreciation.

You know better than to assume that the market as a whole somehow gained that sort of patience in fortitude since the recession. When the next market meltdown comes, index funds are going to take a beating.

[Tomas]

It will be interesting to me if index trading gets popular enough that there isn't enough underlying trading to track, to see what happens

The whole "passive vs active" argument in the nutshell (the future developments start at 12:00) from likely the biggest valuation guru of the present, Aswath Damodaran:



The large picture:

While active investing has contributed to its own downfall, there is a dark side to the growth of passive investing and many in the active money management community have been quick to point to some of these.
...
Information Efficiency: To the extent that active investors collect and process information, trying to find market mistakes, they play a role in keeping prices informative. This is the point that was being made, perhaps not artfully, by the Bernstein piece on how passive investing is worse than Marxism and will lead us to serfdom. I wish that they had fully digested the Grossman and Stiglitz paper that they quote, because the paper plays out this process to its logical limit. In summary, it concludes that if everyone believes that markets are efficient and invests accordingly (in index funds), markets would cease to be efficient because no one would be collecting information. Depressing, right? But Grossman and Stiglitz also used the key word (Impossibility) in the title, since as they noted, the process is self-correcting. If passive investing does grow to the point where prices are not informationally efficient, the payoff to active investing will rise to attract more of it. Rather than the Bataan death march to an arid information-free market monopolized by passive investing, what I see is a market where active investing will ebb and flow over time.

http://aswathdamodaran.blogspot.com/201 ... ce-or.html

The "small picture" -despite of what Aswath Damodaran it is indeed getting more and more difficult to optimally diversity, because due to passive index trading, the correlations among stock returns for many types of investments are now higher than those in the past.

[Miami Vice]

Anecdotally there seems to be interest among some of the institutional investors I work with in moving to passive investments. I've seen an uptick moving to mutual funds or ETFs instead of a customized managed account.

[NTP66]

Anecdotally there seems to be interest among some of the institutional investors I work with in moving to passive investments. I've seen an uptick moving to mutual funds or ETFs instead of a customized managed account.

We've added at least two index funds (Institutional class, at that) to our plan over the last two years.

[MrKennethTKangaroo]

Anecdotally there seems to be interest among some of the institutional investors I work with in moving to passive investments. I've seen an uptick moving to mutual funds or ETFs instead of a customized managed account.

speaking of which, there was a blurb in the WSJ about a large number of shares in high yield bond etfs that are being shorted. to me the article seemed a big alarming but when I read the article I thought of 5af's residence financial niche employee

[FlyEaglesFly]

Much discussion since the first of the year wondering if the era of passive investing has run it's course. Has this become a stock pickers market?

Based on the most recent closing prices on March 29th, since March 30th the markets were closed.
$10,0000 to invest, where would you put it?

Benchmark:
SPY 38@263.15 = $9,997.00 ( leaving almost enough for a commission)

My choices:
Long SOXL 50@152.82 = $7,641.00
Short CMG 7@323.15 = $2,262.05
Cash $96.95 (Let's call it $85 after commission)

Took a profit on my CMG Short at $309.00 for a profit of $24.15 @ share $169.05 leaving it in cash for now.
Major paper losses on my SOXL Long position. Around an $850 paper loss for the day. Holding on to it hoping for a rally.

The benchmark SPY is off around $260, 38@$6.75 as well.

[NTP66]

When I started at my current job, I went through my retirement benefits selection process and opted for the matching program. Somehow, my entries were not recorded, and I was automatically put into the pension plan (with the normal 403b). They wouldn't budge when I asked them to correct it one day after the deadline, when I found out.

Fast forward to yesterday, where I get a letter in the mail saying that they're doing away with the pension plan and replacing it with a 4% match 401a, and also bumping up the normal 403b from a 4% to 6% match. It took five years, but I'm very pleased with this news.

[dodint]

Similarly, when I became a defense contractor the second week of November 2012 they had a 5% 401k match. The week of Christmas they announced they were doing away with the match, and to be fair anyone that had opted in to the match prior to November 30th got a 5% salary bump. Score.

They had a nice discounted stock purchase plan that they held onto so I was pretty happy all around.

[NTP66]

The salary bump is a nice consolation, but I think I'd prefer the match, personally.

[dodint]

That wasn't the concession offered, though. I was just happy to be given something.

It was funny to me because I negotiated my salary and ended up taking the minimum I would've been happy with. They ended up giving me close to what I wanted after the 5% anyway.

[NTP66]

I totally understand - something is better than nothing. I have always negotiated my salary, and I'm still stunned when I hear of others simply accepting the first offer without even attempting to negotiate. I negotiated an extra two weeks of vacation time at my last job, and when another guy I work with found out he tried to get HR to give him more time to match me. It was hilarious watching this.

[dodint]

Yeah, short of taking a very hard to fill vacancy those days are behind me.

ProTip; if you come to FedGov from the private sector to do the same kind of work, they'll often match your salary if you ask, instead of starting at the bottom of the pay ladder.

[Tomas]

I guess Drew Brees never heard of passive index fund investing!

http://www.tmz.com/2018/04/03/drew-bree ... g-lawsuit/

[shafnutz05]

My wife works for a prominent investment company, and she is a financial whiz/expert, so I let her handle the finances in the house. Every now and then, I like to poke the bear, and decided to last night when I asked her "I noticed our 401k is way down this year, I think we should just withdraw now so we don't lose any more"

[Tomas]

My wife works for a prominent investment company, and she is a financial whiz/expert, so I let her handle the finances in the house. Every now and then, I like to poke the bear, and decided to last night when I asked her "I noticed our 401k is way down this year, I think we should just withdraw now so we don't lose any more"

If your 401k is "way down" during the year when S&P declined by less than 4%, maybe you should be poking the bear more often!

[NTP66]

[mikey]

Fair to say that he should cash out early and dump it all into cryptocurrency to help make up the ground they lost...?

[dodint]

Buy gold, stupid.

[Troy Loney]

I'm down 1.82% so far this year. I'm pretty happy about that.

[Tomas]

Now, Brees has issued a statement through his attorney Andrew Kim saying, "From 2010 to 2016, Moradi advised [my wife and I] to allocate funds into an alternative asset class of investment grade diamonds and told us that he would use his connections and expertise to acquire them on our behalf at or below market value."

"In an effort to diversify our investment portfolio, we trusted Moradi and invested. Moradi assured us he was being compensated by the sellers for any investment grade diamonds he acquired on our behalf."

"In the end it was all a scam.

You don't say!

http://www.tmz.com/2018/04/04/drew-bree ... statement/

One of my very good friends has run personal finance courses for NFLPA - and has tons of stories like this...

[Miami Vice]

My first internship was for a portfolio manager at Smith Barney. This guy worked in our office:

http://triblive.com/business/headlines/ ... cial-money

A former Pittsburgh financial adviser siphoned $2.35 million from the investment accounts of professional athletes to invest in movies, including a 2013 horror flick shot in the city, and replaced some of the misappropriated funds with “Ponzi-like payments” when he was discovered, securities regulators alleged Friday in announcing the settlement of civil fraud charges.

Much of the Steelers defense and most notable recent Pitt and PSU graduates were his clients. You might remember his name from whatever plea deal he turned in in exchange for this:

https://www.cnbc.com/2017/09/26/key-wit ... viser.html

One complaint accuses the Auburn University assistant coach Person of soliciting and obtaining more than $91,000 in bribes from Blazer in exchange for agreeing to steer certain players at that school to retain Blazer's services after they entered the NBA. Those bribes were allegedly originally arranged by Rashan Michel, a former NBA official who now runs a clothing company.