Good reads from around the Web.
I am not one of those who believes active investing will always gobble up the majority of our savings, like some baleen whale mainlining krill with a cheeky glint in its eye.
The trend is your friend, as most good active investors know, and the trend is towards passive investing:
- The advantage of low cost funds is undeniable.
- The secret is out – active investing is a zero sum game.
- The simplicity of pairing a global equity tracker fund with a bond tracker is impossible to beat. For many people that might be all the portfolio they need.
True, there are some counters.
For example, much of the growth of passive funds under management to-date has been into ETFs, and much of that money is traded actively. So the growth in passive may be somewhat exaggerated.
I’m also regularly reminded by Radio 4’s Moneybox – which I almost always listen to after filing my Weekend Reading articles – that sadly there’s no shortage of suckers out there. Every week seems to bring another person who gave their life savings to a man on a phone, or who thought a 15% return per year with no risk sounded reasonable, or who bought big into the Kazakhstan vodka boom1.
Hedge funds, too, make me wonder. Despite the side-splittingly hilariously dreadful performance of hedge funds as an asset class, they still have $3 trillion in funds under management.
If the rich will throw their money away like that, why shouldn’t the rest of us?
Then again, have you seen the bathrooms, cars, and the plastic surgery favoured by many of the world’s truly loaded?
‘Discerning buyer’ isn’t the first phrase that springs to mind.
The world’s greatest active investors
Whether active investing will eventually be shunted to the sidelines by passive investing in the years ahead is still too early to call.
But one thing I am sure of is that even if only a minority of money is put into active funds in the future, there will always be some people – like me – who try to beat the market for ourselves.
Regular readers will know of this tension at the heart of this blog. I’m surely in the top 0.01% of being informed about the case for passive investing. (Does that sound arrogant? Editing a blog that champions exactly that, week in, week out, for a decade, could get you there, too!)
But despite this excess of knowledge, I myself invest actively. Much to the amusement of the fully passive and superior role model, The Accumulator.
The following table – tweeted out by fellow seeker after glory Richard Beddard – reminds me why:
Returns of (apparently) the greatest fund managers of all-time, to 2014.
This data comes courtesy of Excess Returns, a 2014 book by Frederik Vanhaverbeke. I haven’t read it but I might soon.
Now, I can already imagine some readers readying their rebuttals: Survivorship bias! One in a million monkeys would toss heads one hundred times! Some of those records were built in older, more inefficient markets! This or that structural benefit is available to them and not to us! You don’t need to beat the market to retire happy!
And of course I agree. I’ve written a blog about this stuff, remember.
I’m just being honest. I’m still fascinated by the intersection of markets and businesses. I like pitting my wits against the world’s millions.
And this table shows what’s possible – however unlikely.
If you can’t join ’em, beat ’em
When I was 16-years old I bet my father I could run a four minute mile. I never did, not least because I was in hospital two years later. But I was getting there.
I was sprinting 100m close to 11 seconds, too, which was pretty fast for my frame.
Well, those days are gone. I try to keep physically fit – on a budget, of course – but the flaming torch of failing to be one of the world’s genetically gifted freaks long ago passed to another generation.
But Warren Buffet, on the other hand, he’s 86-years old.
Watch your back, Buffett!
From the blogs
Making good use of the things that we find…
Passive investing
- What’s the best strategy for moving money into the markets? – Elm Funds
- Vanguard UK equity income fund: Two-year update – DIY Investor (UK)
- More returns data adds to active managers’ woes – Evidence-based Investor
Active investing
- Why not Google it? – Wexboy
- Seven traits needed for successful active investing – What Works On Wall Street
- Why does inflation tend to be good for value investors? – The Value Perspective
- Active investors must be allowed to pick stocks – Enterprising Investor
- How to avoid yield traps [PDF] – UK Value Investor
- 10 long-term UK shares to hold in an ISA portfolio – Part One and Part Two
- Charlie Munger and the art of stock picking – Investing Caffeine
- Gravity and Apple – Asymco
Other articles
- Long-term investing is about saving yourself from yourself – Financial Samurai
- The eight wonder – What I learned on Wall Street
- Why is my life so hard? [Podcast] – Freakonomics
- Lessons for living from the older generations – A Wealth of Common Sense
- Regret less, act on your wish list now – Behaviour Gap
- Robert Shiller on income inequality and robots [Podcast] – Wharton
Product of the week: Fancy paying less than 1% a year for a two-year fixed mortgage? Of course you do – it’s the joint lowest rate on record, says ThisIsMoney. But it also warns you’ll need a 40% deposit and £1,495 free to pay fees to win over the good people at the Yorkshire Building Society.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.2
Passive investing
- DALBAR’s ‘poor timing’ maths is apparently wrong – Advisor Perspectives
- More on this: Just how bad is fund investors’ timing? – Morningstar
Active investing
- The global economy is enjoying an upswing. Really. – The Economist
- Merryn blows the dust off her ‘Buy Japan’ thesis [Search result] – FT
- Running an active fund? Win early, then be consistent – Bloomberg
- Dividend bonanza was prompted by tax reforms [Search result] – FT
- 20 surprising facts about Warren Buffett – Entrepreneur
- Why the big bond bull market needn’t crash [Podcast] – Bloomberg
A word from a broker
- Ten most frequently asked questions about ISAs – Hargreaves Lansdown
- A deep dive into “the top 25 UK equity fund managers” – TD Direct
Other stuff worth reading
- Squeeze an extra £1,000 a year from your cash nest egg – ThisIsMoney
- U-turn over Budget plan to increase NIC rate for self-employed – BBC
- How to use ISAs to reduce your inheritance tax bill [Boo! Hiss!] – Telegraph
- Space, the final frontier for investors [Search result] – FT
- The insightful ThisIsMoney show quoted us this week! [Podcast] – ThisIsMoney
- But, but… I thought Bitcoin was supposed to be cheap? [Search result] – FT
- Defending Jim Cramer’s call to sell stocks in October 2008 [Search result] – FT
- Comma comeuppance: When rogue punctuation proves costly – BBC
- Five things you should never say to a woman in tech – Recode
- Iceland’s recovery will be tough to sustain – Bloomberg
- Oh, and New Zealand is getting full – Bloomberg
Book of the week: I re-watched The Big Short the other night, and I enjoyed it even more second time around. Who would I rather be, I wondered? Christian Bale’s hedge fund outsider Michael Burry, Ryan Gosling’s hilarious big banking insider, or the lunatic played by Steve Carell? Probably none of those… maybe Brad Pitt’s character, who I thought was super cool even if Pitt’s fans boycotted the film on account of his supposedly ill-fitting suits. (I suppose Mr. Pitt is held to a higher standard.) It also reminded me that I still haven’t read Michael Lewis’ most recent effort, The Undoing Project, which tells of the genesis of behavioural finance. Seems a bit worthy by comparison, doesn’t it?
Like these links? Subscribe to get them every week!
- No, there’s been no such boom. But if there had been then someone from Tunbridge Wells would have tried to get in early – late – and invested the kids’ inheritance. [↩]
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
Comments on this entry are closed.
Quick question — This list of links is getting longer every month. (10 years ago it was just five or six top picks!) Does anyone have a strong view that it’s getting too unwieldy? Friends have said ‘the more the merrier’ but there’s obviously a point where that merriness becomes a bit mental. 🙂
“one minute mile”? You were cocky. You’d need to be some weird cheetah-antelope hybrid to achieve that. (Or just a car.) Did you mean 4 minutes perhaps?
What a coincidence! I watched The Big Short second time this week. I think I’m close to Mark Baum character.
Possibly a dumb question but why do you say a bond ETF rather than a bond tracker fund?
Thanks!
@Tim — Oh dear, thank you. Have fixed it now. Like everyone I look back on my youth with rose-tinted glasses, but that would be drug-addled kaleidoscope!
@RobH — No, it was just me instinctively trying to write a cleaner sentence than repeating “tracker fund” without enough thought. Have tweaked it.
@Gregory — Well, I’m a bit like him at heart, but it’s buried deep. (Or not so deep, some of my friends might say. Perhaps I’m just more concerned about being punched than the Mark Baum character seemed to be!)
Hi, definitely put in as many linked articles as you felt an interest in, it only takes a couple of seconds for us to scan down the list for those that in turn interest us and any you left out could have been the one that made our day 🙂
Thanks for the fast response and re the number of articles – the more the merrier please
The main difference between active and passive gurus is that active ones have proven track record (see the table above) but the passive ones just point to indexes and nobody knows their true personal portfolios.
The great thing about your link list is the range it covers. Always at least one thought provoking, but also several that don’t interest me. I am very happy with what you do and would not like you to be over-selective.
Links are great, about the right number.
The short titles you give provide an excellent guide to if it’s of interest and your links have led me to many informative articles I would have never otherwise seen and been the poorer for not reading, particularly those that challenge are prejudices are the most useful!
I’m also voting for the same number of articles please. Always like a bit of weekend reading. Cheers.
You sort the articles in themes so readers can choose by their preferences.
120% for 19 years! Yes please!
+1 for lots of links cheers
Another vote for links at about this level.
Useful, interesting and thought-provoking links are one of the great things about Monevator. They are not just an add-on.
When Merryn Somerset Webb can’t think of anything else to write she generally rehashes one of five topics:
a) gold is good
b) japanese equities are good
c) inheritance tax is good
d) the SNP is bad
e) owning a house in London is bad
Another vote for more links! Also, I really rate Merryn.
“she generally rehashes one of five topics”: that’s probably what all good investment advice should do, though the choice of topic mighty differ.
I know of a chap who bangs on about IHT, house prices, the unfortunate outcome of the People’s Plebiscite, passive investing, and the importance of holding heaps of equity.
Every investment article written by anyone is a rehash of earlier investment articles written by someone or other. There’s almost nothing new to say abut investing that’s not already been said hundreds of times previously. With half the internet having apparently now been recruited to the FIRE department, if only as probationers, we see the same few dozen or so common sense investing points repeatedly trotted out with only slight variations. Everyone’s at it simply because there’s almost nothing new to say. This is useful for drilling the common sense into our heads, but it’s all rather Groundhog Day.
I don’t seem to have been receiving the weekend reading via email for the last two weeks. Something wrong at my end or yours?
With significant money moving into passive and index tracking collective investments, is there not a consequence that the companies which make them up become overvalued with respect to the companies outside them? A self reinforcing process?
Is it correct, does it matter.
Passive supporter.
Re the number of links to other articles – to me they cover a great range of perspectives.
On the point about the same old investment messages being pumped out, I guess it depends how long someone has been interested in these topics, but I normally learn new things and appreciate the different perspectives core issues.
On passive investing, i do a mix of passive and active. Funds like Fundsmith and Lindsell Train as well as trackers. Possibly ive fallen for the hype and am a victim of recency bias, but watching how the various funds perform keeps me interested.
What i struggle with is that investing is for the long term, so i should ignore weekly gyrations. But if the point of investing (for me) is to hit FI, then subsequently ignoring performance or at least being unmoved by it is a challenge. The articles on this site keep me grounded i think!
@oldie
I think the majority of the money in the stock market has always been passively invested for a very long time
The difference is from the 1970s to the 2000s we went through a phase when professional investment managers persuaded the moderately wealthy to switch from owning a small portfolio of individual stocks into professionally managed funds
Most of these funds were really just closet index funds which underperformed the index due to high fees, which really got showed up by pretty average equity returns over the last twenty or so years meeting ever higher fees as asset managers padded out their margins and paid their employees more and more
Just three examples of how you can stock market bubbles without widespread indexing: the nifty fifty bubble in the early seventies; the japanese stock market bubble in the 80s; and the dotcom bubble in the 90s
Why KZ though?? I get it is a joke, however still wonder as I’m from there.
The final word on financial journalist repeating themselves comes from Jason Zweig:
http://jasonzweig.com/saving-investors-from-themselves-2/
p.s. On Merryn, you forgot ‘Russian equities are good’. But I think she’s alright, and some of her long-form interviews on Moneyweek have been excellent.
The Sage of Omaha has also pondered the weird fact that many mega-rich people prefer to stick with hedge funds and pay “2-and-20” for radical underperformance than bung their dosh into a tracker and get positive returns for 0.2 per cent. In his 2016 letter, Buffett says: “Human behavior won’t change. Wealthy individuals, pension funds, endowments and the like will continue to feel they deserve something “extra” in investment advice. Those advisors who cleverly play to this expectation will get very rich. This year the magic potion may be hedge funds, next year something else. The likely result from this parade of promises is predicted in an adage: “When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”
I like to scan through all the links for my Sunday afternoon reading after playing with the kids 🙂
Keep it up 😀
Yes, please keep the links coming!
There’s always one or two that I’ve missed over the week…
@all — Thanks for the feedback. The vote to keep a good and sizeable mix of links coming has been heard and understood. I’ll keep to the current strategy!
@Christopher Lynch — Hmm, that’s not ideal to hear. Are you sure the email isn’t coming to a day later, on Sunday? Partly because the volume of links has been growing, I’ve been posting later on Saturday morning, which means that sometimes I miss the window that my mail subscription program uses to see if there are any new posts to send out. So yesterday’s post, for example, actually got dispatched on Sunday, even though it was up on the site by midday Saturday. (I need to bite the bullet and upgrade to a proper mail system at some time, but when I do I’ll have to pay so it’s easy to put off. 🙂 )
@SurreyBoy — Personally I would feel even less good about my chances of beating the market if I was using active funds. I see that as a double derivative sort of edge (you have to pick a manager who then picks the sort of stocks you think will beat the market) with the ever present hurdle of higher costs. Also, I’d never give a fund manager the fun of investing my money. 🙂
@Aliya — Really? I don’t think I’ve ever knowingly had a reader from Kazakhstan. Welcome! It was just a stand-in for a place in the world that the average British person knows nothing about, and is unlikely to be able to do due diligence on in any way, and which is exotic enough (to UK eyes) for anything, such as some micro-distillery vodka boom, to be possible. So ripe for a scam from here. Plus the name sounds long and exciting in English, so from a writing perspective it jumps out more. 🙂
@Hammy — Yes, one of his innumerable best quotes ever. (Of course, as I am someone who was QUOTED IN THE THISISMONEY PODCAST this week (link above) I am going to threaten his ranking on that score too, ha ha. (Not really any more chance of that than me delivering 20% for 50 years to beat his long-term performance, but a blogger has to have goals… 🙂 )
Excellent link posted by tom to Jason Zweig’s article.
On the number of links, for me it is perfect and something I look forward to every weekend.
I watched the Big Short again following this post, which I enjoyed even more than before – I guess as a consequence of being more aware of markets and investment as a result of this blog and others.
I wonder where the next such opportunities will arise for perceptive investors similar to those seen in the film. People sometimes highlight concerns about ETFs, but I am not so convinced from how I see it.
I suppose political risk is a big thing – though the people who perhaps were sucked into sub-prime are now getting their revenge upon sensible people with Brexit, Trump and other such idiotic lunacies.
@tom – 2nd the +1 for the link to the excellent zweig article, many thanks for the heads up..
just been looking into who richard dennis was – fascinating!
There’s at least two reasons that I discern ‘the wealthy’ continue with private banks, ’boutique’ firms, hedge funds etc. One is the service (or perception of service) – if you have a few £million I am sure you like to actually discuss what’s going on with someone, and feel more comfortable dealing with someone in a posh office who takes you out to the polo, than a faceless web interface. The other is that many firms pitch their offering on wealth preservation and risk control – if you are in the top 0.1% by liquid assets, I suppose you’re more concerned about (say) keeping pace with inflation than beating it, even if that means not enjoying all the upside in the good times. Structured products I believe are a big seller in this sphere, as you’re pretty likely to get a predictable result, unless the underlying insurer goes south. And John Paulson put a couple of billion into gold, IIRC, not trackers. I suppose also there must be a lot of old wealth tied up with things like Trusts that have a committee involved, and capital gains tax, where again it’s not that easy as it would be for a non-rich individual to just decide to sell the lot and pick Tracker X. So it’s horses for courses.
Sorry, bit late in the day to say how much I appreciate your links. Don’t always agree with your blog but somehow always find knowledge in the links. Weird huh? By the way, do you have an opinion on MSM’s view on Japan? Or have I missed a vital post?
Another article: “Scottish taxes are out of kilter” by Paul Lewis.
https://goo.gl/hK1ZXC
This sums up the incessant tinkering of the tax system, displaying all the hallmarks of “Fiddling while Rome burns”.
I was away for the weekend but back and reading. The links: while you keep categorising them and providing short summaries, you can get a huge number in — don’t let the temptation to be witty obscure the information given by your short intro: they are extremely useful (but do continue to be witty).
Presumably Kazakhstan because of the wild west mining lawlessness — eg ENRC which grew rapidly out of all proportion to good governance, and even joined the ftse100 before the tide went out. Smugly happened to catch that elevator most of the way up and unusually got out on the top floor.
@Sally — Glad you like the links. I do include stuff that I don’t agree with, if I think it’s interesting or relevant in some way, so that may explain that! 🙂 Don’t think I’ve written about Japan directly in the context of investing.
@Mathmo — If I don’t get to go away on Saturday mornings then I don’t see why you should! 😉
@The Austrian — Indeed. I am pretty sure if I was a high net worth individual then I wouldn’t use cash and a tracker. (Well personally I don’t now but you take my point.)
Here’s some thoughts from a while ago on this: http://monevator.com/preservation-of-wealth/