Quote:
Originally Posted by mispoken
By no means am I here to pursued you to deviate from what makes you comfortable. But I’m living proof that the s&p can be out performed.
It is ESSENTIAL I compare percentages until I’m blue in the face because you must keep score. If anyone uses an advisor, I challenge you to demand their annualized rate of return versus the S&P 500. 99% chance they don’t track it and will reply with some nonsense as to why.
The traditional wisdom you mention is accurate regarding outperformance of the S&P but I ask you, compared to what? John Smith, individual investor? Or Mega Fund actively invested fund? The traditional wisdom is often comparing the S&P to the ladder. Actively managed funds charge a higher fee and therefore people demand ACTION for that fee. The ACTION the funds take is what kills their performance. My point is that you can concentrate your portfolio and do NOTHING and outperform the S&P by holding great companies, many of whom are listed on the S&P.
The argument is that the law of averages will return my peformanxe to that of the S&P, but this is why Its essential that track performance. If it ain’t working join the crowd and index, but given a 12 year collection of data I’m beginning to see the reality of out sized performance. It’s astounding what outperforming by 5-10% annualized does to a portfolio when you run hypotheticals on a calculator.
Just consider who is telling you that indexing is the only way (institutions, media) and if it’s an advisor demand their performance versus the S&P. And whatever you do, accept no less than the average, it can cost you millions in the long run!
Well said. For the portfolio/mutual fund/hedge fund manager managing hundreds of millions if not billions of dollars its difficult to outperform the SPY. However for the individual investor managing small funds it is significantly easier granted they have dedicated time learning different strategies and have picked one that fits their personality and temperament.
This is probably diving alittle deeper into the weeds than necessary but I think it needs to be discussed due to the focus by Index investors on the SPY as "the market". The SPY is only 1 of several "markets" that technically are called asset classes. Many use the SPY as a proxy for US Domestic equities Asset Class in a diversified portfolio including a strategic mix of other asset classes like Foreign Developed index, Emerging market index, US REITs(Real Estate) Index, Foreign REITs, Bond Index, and Commodities.
The goal of maintaining a diversified portfolio is its difficult to determine with consistency which of these markets will outperform as every 10 years or so there is a completely new performance leader. There are periods of over 10 years where REITs, Gold, Emerging markets, you name it has destroyed the SPY. While the SPY has had a spectacular run over the past decade, the expected returns over the next 10 years look bleak due to high valuations. I wouldn't expect more than 5% compounded annually returns for the SPY over the next 10 years. Foreign Developed and Foreign Emerging markets have much better valuations and therefore better expected returns of 7%+.
The US is a great country and still will be over the next decade but successful investing is not primarily about investing in the best companies but investing at the best prices/valuations. Google the "The Nifty 50" for a famous example about paying too much for great companies.
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