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There are many ways to be an investor

Does Monevator speak from two faces?

I have fielded a few comments and emails recently accusing Monevator of inconsistency.

Actually “accused” is too strong a word to ascribe to our well-mannered audience.

Let’s say “querying” instead.

And I can see where they are coming from.

There are many publications and investing experts who talk in absolutes about investing. What you must do because such and such will happen and that guarantees some particular result.

Long-time readers will know I put little stock by such expressions of certainty.

Yet even among our own tight cadre of contributors, there are clear differences in thinking and even a few red lines where strong opinions get stated as something close to truth.

For instance readers have asked why we have run articles extolling using investment trusts for income when the bulk of this site warns you off managed funds like they were radioactive.

Or why we discussed the higher returns you might enjoy from investing in small cap or value shares, only to then warn that chasing these so-called return premiums may not be worth the bother – or that they could even be irrational investments.

Or why we explain how to create multiple ETF portfolios in one article, only to talk up using just a single global tracker fund in another.

Especially as I then write an article saying you shouldn’t put all your money into one of anything, be it a fund, a bank account, a gold bar, or a hole cut into your mattress.

You say tomato, I say portfolio

The answer is there are many ways to be an investor – and a successful one too on your own terms.

And Monevator’s contributors are all longstanding investors who have learned what works for them – and what chimes with their personalities.

That latter point is important.

For people in the real-world, investing isn’t just about theoretically deciding on the optimal mix of assets to deliver the highest returns over the next year, or even the next decade.

It’s about discovering what frame of mind is right for you when it comes to investing – and devising the best process to match or compensate for your mental and emotional strengths and weaknesses, as well as your particular goals and means.

Now that certainly doesn’t mean just doing what your gut tells you to do.

Perhaps in your everyday life you’re a freewheeling risk taker whose ideal holiday involves bungee jumping and shark diving – but you’ve read all the evidence and decided passive investing makes the most logical sense to you.

Accordingly, you might set up an automatic investing routine to lock your money away in a pension for 30 years, and perhaps even into a Vanguard LifeStrategy fund to take all the rebalancing decisions out of your hands to boot.

In this case it’s the opposite of how you drive your car, run your love life, or even choose your poisonous pet scorpion – but it’s a decision you made in the cold light of day that you believe will leave you best off over the decades. So you act to make it happen.

In other words, knowing your temperament and its potential downsides, you build a strategy around it.

On the other hand you might be like me.

When I started socking money into the stock market I was a pretty textbook believer in passive investing into index funds.

I still am – in theory – but how have I sinned!

Or another thing we see quite often at the moment is a commentator on the site chiding another reader or an article for highlighting the ongoing point of bonds in a portfolio.

The bond-hater can’t stand the thought of buying or owning an expensive asset that seems likely to deliver very mediocre returns over the next 5-10 years.

But the investor who decides to put say 40% of her assets into bonds and cash regardless can’t stand the thought of an equity crash that might halve her net worth in a matter of months.

Neither is right or wrong. They just want different things.

Investor know thyself, as they almost say.

You can go your own way

Undoubtedly the confusion factor is increased by the decision I made long ago to feature multiple voices on this site.

But in the light of my comments above, you can understand why I do it.

I believe we’re all best off understanding there are many roads to Rome, even if the one we take looks to our eyes like a glassy-surfaced superhighway compared to the potholed backstreets that others bump along.

That isn’t to say there aren’t truths in investing, or that returns are subjective.

Most people investing in hard-charging active funds will do worse than the average passive investor, for example.

It’s mathematically incontrovertible, and the historical evidence tells us the same story.

Yet some few will do better than average, and some of those who did worse could never have stomached index trackers anyway. Better they invested in active funds than sat in cash for 30 years – or worse didn’t save or invest at all.

When people turn up on Monevator in the comments writing “Of course you should only buy active funds, it’s easy to pick winners, I’ve done really well and passive investing is for losers” then they’re liable to meet a robust response.

Indeed when I’ve had spats with readers over the years, talking in absolutes has almost always been the reason why.

But if an active fund investor says: “Personally I decided to go for it and whether by luck, judgement – or likely both – I’ve done better than the odds would suggest” then I applaud their candor, their results, and their humility.

The voices of reasons

That’s not to say Monevator contributors aren’t prone to making the odd sweeping statement.

I guess I give them extra leeway as they’re working behind the bar.

  • The Accumulator, my long-standing sidekick, clearly believes the logical approach for the vast majority of people is to invest passively. He is actually not against active investing if you are honest about exactly why you’re doing it, as revealed in our Christmas debate a few years ago. But he’s the closest thing we have to a passive fundamentalist.

One of The Accumulator’s strengths is he has never forgotten how bewildered he was when he first started investing. To that end, he believes that too many caveats and prevarication can hurt new investors as much as they appease old worrywarts like me.

This does bring us into occasional conflict when he writes “It is better” rather than “I believe it is better”. And for his part he chafes when I pull editorial rank and insert “mights” and “maybes” into his copy.

He even took fellow contributor Lars Kroijer to task the other day. I see this as a strength of our site, not a weakness.

  • The Greybeard is the newest addition to our ranks, albeit our most time-seasoned contributor. He’s an investor of the old school who has picked stocks and likes actively managed investment trusts for retirement income. He makes coherent arguments as to why he prefers such trusts to both passive income vehicles and also to total market solutions where you’d sell capital if you required cash from your holdings, rather than bias towards income-generation in advance. I sympathize, but Lars and T.A. are in the other camp.
  • Lars Koijer was a successful hedge fund manager who is still active at the board level in that industry. Yet Lars preaches efficient markets to the point of saying you should invest all your equity allocation into just one global tracker fund, and let the market get on with it. He eschews the lure of smart beta and return premiums and the like, believing even a 50-100 year record of superior returns could be a blip, and that it’s irrational to bet on it. On that score he’s even more of a purist than T.A. (who disagrees with him) and yet I wouldn’t say Lars is as pure a passive promoter as T.A., given that Lars still works with hedge funds who actively hunt for an edge.
  • The Analyst hasn’t been able to contribute for a while for professional reasons. I hope this won’t last forever, because he’s a successful market-beating stock picker who has about the most focused investment process I’ve ever come across in person, as opposed to in a textbook. The Analyst and I have talked for hours in seeming agreement about various investing topics over the years, yet we’ve rarely been invested in the same things. Go figure, as he’d say.
  • As for me, The Investor, at my worst I see myself as some sort of stock picking mixed martial artist, happily adopting all kinds of different investing ‘hats’ if I believe they’re appropriate at the time. Others may see me as some sort of rag and bone tinker man, shuffling my wares about to skim a few percent and lacking an investing core. I take the point, but there are some things even I always believe – the market is a fierce competitor, costs always matter, people are irrational individuals and can go mad in crowds, and nothing lasts forever. My investing toolkit suits my gadfly temperament, but I wouldn’t recommend it to anyone.

Definitely maybe

If that run-through of fanciful monikers sounds to you like a nerdy version of the X-Men, then perhaps you’re reading via an email subscription.

Monevator readers who don’t visit the site don’t always realize there are multiple writers here, albeit with myself and T.A. doing by far the bulk of the heavy lifting. That’s perhaps another reason for the recent confusion.

In any event, don’t expect this to change.

As my personal investing style indicates, I am pretty broad-minded about what can work investing (note: that’s not the same as what is most likely to work).

Moreover I believe hearing different (sensible) points of view is more beneficial to you guys – and to me, for that matter – even if it ultimately just reinforces our own contrary convictions.

Until I manage to get Warren Buffett signed up as a contributor (The Wallet, perhaps?) I don’t think any of us has earned the right to preach the one true path of investing, whether we happen to be writing articles or are readers responding to them in the comments.

“To learn which questions are unanswerable, and not to answer them: this skill is most needful in times of stress and darkness.”
Ursula K. Le Guin, The Left Hand Of Darkness

The very best of luck in finding what works for you.

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{ 31 comments… add one }
  • 1 Cowboy April 30, 2015, 3:06 pm

    I think that what you are asking for with this range of opinions is for readers to think critically about what is being said. I disagree with a number of the points I have seen on this site over the past couple of years but I never fail to learn a little bit more about both investing and my own behaviours related to it. The site is all the richer for the extra breadth and I for one hope it continues. Just don’t start letting vested interests and confident idiots (http://en.wikipedia.org/wiki/Dunning–Kruger_effect) take over the reigns and we are all good 🙂

  • 2 Gregory April 30, 2015, 3:47 pm

    “Aut inveniam viam aut faciam”

  • 3 weenie April 30, 2015, 4:11 pm

    It’s good to read different stuff from different contributors – thanks and long may this continue.

    As an investor, you can just pick and choose what works for you and ignore what doesn’t.

  • 4 Topman April 30, 2015, 4:24 pm

    @TI – “Better they invested in active funds than sat in cash for 30 years.”

    I don’t claim to have originated it but I like the thought that says, “To take no risk is in itself a risk”.

  • 5 UK Value Investor April 30, 2015, 4:57 pm

    I guess there is no one true “right” way to invest in the same way that there is no “right” way to live or to get from London to Brighton.

    It depends on what you like to do, what you don’t like to do, what interests you and what doesn’t, how much risk you want to take, how quickly you want to arrive at your destination and so on.

    Each to his or her own, as they say.

  • 6 Tim G April 30, 2015, 7:16 pm

    It’s the multiplicity of voices and perspectives – from you and your fellow contributors, and also in the comments – that make this site so great. Keep up the good work!

  • 7 Dawn April 30, 2015, 9:15 pm

    yes, I second what Weenie has said above.
    I think ‘The Invester’ himself is my favourite contributor on this site.
    I like his logic, sense of humour and easy way he presents his articles.
    Ive learned SOOOOO much this past 12 months its unbelievable.
    plus a wealth increase of 12%.
    keep up the good work.

  • 8 PK April 30, 2015, 11:12 pm

    The variety and mix of the discussion on the site is all bound together by important themes based on research and reason. It has been hugely important in helping me develop a structure around which I can make rational investment choices (surprisingly successful one at that which I have confidence will help see me through the next crash…….)
    I for one would be instinctively mistrustful of any atempt to sell me any one particular line, and would have lost interest an age ago. We are all in different places and have different needs.
    So echoing other comments; Keep up your excellent work, you are a lighthouse in a restless and unpredictable sea!

  • 9 Dave May 1, 2015, 6:41 am

    Great to have a run down of who’s working behind the bar! I read the website version and had never really worked out who’s who. Nice also to see biases and preferences explicitly laid out. I love the breadth of opinion here, and it is sure to prevent the site from becoming myopic or too focused on any one approach. Thanks too all for their contributions. They have been a great help to me.

  • 10 Vanguardfan May 1, 2015, 8:23 am

    Debate and disagreement are not only healthy, they are essential for learning and progress. In the land of social media, it is all too easy for group-think and cult like intolerance of different views to gain hold (eg MMM). There is never only one true way…of course one can come to a deeply held conclusion about what one thinks is ‘right’, but people may also have different outcomes and different values which lead them to come to different conclusions even if they basically agree on the evidence base. Hence Lars values a rational approach, TA values a simple and pragmatic approach to encourage more people to a good enough outcome, TI loves investing in companies for its own sake, and probably enjoys the challenge of trying to do better, TGB I haven’t quite worked out yet but the psychological need for secure income is important there I think.
    Long way of saying, please don’t apologise for inconsistencies and disagreements!

  • 11 Minikins May 1, 2015, 9:11 am

    How very decent of you to explain the concept, design and structure of the good ship Monevator and crew positions for those who might not yet have got their sea legs!

  • 12 Moongrazer May 1, 2015, 9:15 am

    I really appreciate the opposing/mixed viewpoints in the commentary on this blog – it helps me as a new investor to formulate which approach works better for me. If it was all one-sided I fear I could far more easily be sucked into a single path without properly considering all angles.

  • 13 Fremantle May 1, 2015, 12:17 pm

    I don’t really understand all the fuss about bonds. The reason I buy them is to hedge against the risk in the equity portion of my portfolio. If the bottom drops out of my equities tomorrow, I’ll be able to move some of the funds from my bonds (which should have held up better) in to the equity market. Just because a bond may be offering negligible returns doesn’t mean that they aren’t a more secure store of value than equities.

  • 14 dearieme May 1, 2015, 1:57 pm

    “Just because a bond may be offering negligible returns doesn’t mean that they aren’t a more secure store of value than equities.” But why bonds rather than cash? My non-taxpaying wife can get 5% p.a. on some of her cash; 4% p.a. on rather more. Short-dated gilts are paying about one tenth of that.

  • 15 PC May 1, 2015, 5:27 pm

    Far too many people I meet look for “the answer” especially if I reveal my former life as a futures trader.

    These days I’ve almost reached the Lars approach of putting everything in a world index fund and leaving it at that.

    I don’t think this is because I’ve changed, or aged (although I have done both), it is just the rational conclusion I have come to – that the price inefficiencies that I relied on have been reduced to next to nothing.

  • 16 Malcolm Beaton May 1, 2015, 6:49 pm

    Hi All
    As a longtime investor-15 yrs plus -coming to this site was a revalation.
    Been a BogleHead or Vanguard fan all this time but had to learn basic investing truths from American sites.
    Managed to cope with Equitable Life ,Investment Trusts and various “crashes” 2000 and 2008.
    Now this UK site does the business with a UK twist!
    Lars was a breath of fresh air-he has indexing taped but in a UK context.
    Keep up the good work. We badly need UK sites of this depth and integrity-still few and far between on this side of the Pond.
    xxd09

  • 17 EUOrphan May 1, 2015, 8:49 pm

    I like the UK focus as well, but need good EU ideas as well

  • 18 diy investor (uk) May 1, 2015, 10:35 pm

    There are indeed many ways up the mountain – some a little riskier than others but what matters is not so much the route taken but staying the course and getting to the top.

    It will always pay to remain open to different approaches and to maintain a flexible mind. I have definitely learned a lot over the past 4 or 5 yrs from reading this and other diy sites, from the comments and from the links to other sites. As a result, my approach to investing has developed and, in particular, I have a much better understanding of passive investing and have started to graft this into my own strategy.

  • 19 Fremantle May 1, 2015, 10:44 pm

    @dearieme That’s hard work outside the SIPP and ISA I currently squirrel away into. Great for emergency funds though. My offset mortgage works for me.

  • 20 Uncertain May 1, 2015, 10:53 pm

    These different routes to investing are all well and good but if you don’t understand the basic premise of the market which is right now to be long gold and short S&P500 you really are clueless.

    On a different note keep up the good work a really fabulous site.

  • 21 dearieme May 1, 2015, 10:53 pm

    @Fremantle: we’re coming to view the high-interest cash outside our ISAs as part of our portfolio, and the low-interest cash inside the ISAs as our emergency funds. Droll, eh?

  • 22 Fremantle May 1, 2015, 11:04 pm

    @dearieme Horses for courses. It’s a neat trick to pull off emergency funds in tax free wrappers and above inflation fixed income outside. I’m still accumulating, so the 40% contribution from the exchequer helps me a along.

  • 23 magneto May 2, 2015, 11:30 am

    @Uncertain
    “These different routes to investing are all well and good but if you don’t understand the basic premise of the market which is right now to be long gold and short S&P500 you really are clueless.”
    Confess to being ‘clueless’.
    S&P500 does seem overly expensive by CAPE, but merely expensive by PE1 @ 18.45. But then UK All Share blipped to 18.03 this past week, if FT data correct. If we factor in growth US could be argued as preferable to UK?
    How anyone determines a fundamental value for gold seems problematic, unless comparing with cost of production or ratio to DOW/S&P, which seems tenuous, or are TA methods relevant?
    Any insights into the methodology used to arrive at the quoted statement would be extremely interesting.
    All Best

  • 24 The Investor May 2, 2015, 11:55 am

    @magneto — I’m presuming irony was the main input, though I might be wrong. 😉

  • 25 Naeclue May 2, 2015, 12:43 pm

    @dearieme, I agree with you about the poor returns on short dated gilts. The difficulty with investing in high interest cash accounts has been with sheltering it from tax. This has been alleviated to a degree by the ability now to move S&S ISA assets to Cash ISAs. I am not sure how this works out in practice, having heard horror stories in simply moving cash ISAs between providers and my own experience last year in moving my S&S ISA, which took months. Next year we will no longer be taxed on the first £1000 of interest on deposits, which should help, provided banks don’t pocket the benefit by cutting rates.

    I have been invested in a short dated corporate bond ETF for a few years as a somewhat poor proxy for cash and the returns on that have certainly beaten cash, but from here cash does look better. Especially so once you take risk into consideration.

    I also run a longer dated gilt ladder and I am concerned about those as well. Past returns have been good, but it is hard to see how future returns can be. I usually take the view that making predictions about the future price of gilts is as futile as trying to predict stock market returns, but the yields now on offer do not seem to justify the risk unless one thinks that negative short dated yields are remotely likely.

    As an example, the shortest dated gilt I hold is Treasury 8% 2021. I bought that in January 2008 for just under 134, for a GRY of 4.6%. Price today is about 138, GRY 1.4%, but if I sold, the internal rate of return I will have achieved is more like 6.3%. If I stick to plan I will sell next January when it is time to rebalance and buy another 12-14 year gilt (currently on GRY slightly above 2%). However, if I did buy something like Treasury 4 1/4% 2027 at the current 2% GRY and the GRY in 7 years time was zero, my internal rate of return would only have been around 3.4%. So 3.4% is the best that could be hoped for over 7 years unless 5 year gilt yields are negative.

    I would have thought that any UK Government would move Heaven and Earth rather than see negative 5 year gilt yields, so it seems to me that cash is offering better risk adjusted returns even if it fails to keep up with inflation.

    People have been saying that gilts offer poor returns for as long as I can remember and have subsequently been proved wrong, but it is hard to see the justification for holding them now and I am seriously considering selling my longer dated gilts. Short dated gilts may still be the better option in my SIPP though unless HL start offering decent returns on cash.

    @Investor – point taken, I will be more circumspect about any comments I make in future, even if I do think abandoning trackers and investing in ITs for retirement income is wrong 😉

  • 26 Naeclue May 2, 2015, 12:53 pm

    @magneto @Uncertain.

    Short S&P 500, long gold? The one thing I do know is that if I invested according to what I think is going to happen in future, I would most likely make less money than if I simply stick to plan. For example, I would have sold my US trackers at the beginning of 2013.

    I am unashamedly clueless.

  • 27 Naeclue May 2, 2015, 1:02 pm

    I meant I would have sold my US trackers at the beginning of 2014, not 2013. The reason being the large rise over 2013 and high valuations at that time.

  • 28 Gregory May 2, 2015, 1:08 pm

    Never mind if You are confused. A lot of people seems to suffer from schizophrenia. “WaveFront Capital is a San Francisco based investment management firm founded on the philosophies and leadership of Dr. Burton Malkiel.
    Our differentiated approach employs a combination of equity, options and event-driven investment strategies designed to systematically capture the economic growth potential in emerging markets, while exploiting persistent market INEFFICIENCIES that offer repeatable and uncorrelated sources of return.” http://www.wavefrontcap.com/ Emphasis again: “exploiting persistent market INEFFICIENCIES” See the bio of the chairman: http://www.wavefrontcap.com/ourteam/

  • 29 Uncertain May 2, 2015, 3:21 pm

    Apologies for those misunderstanding my post , not sure how to put in Smilies but irony was indeed the point.

  • 30 The Procrastinator May 2, 2015, 8:59 pm

    Excellent article, TI. Due Diligence Monevator style! I should be sitting on a profitable, well balanced portfolio – one week I’m swayed by TA and the next week I’m swayed by TI then, while I’m still prevaricating, along comes Greybeard! So I do nothing! If only this site had been around 10/15 years ago I might have been brave enough to embark on a real lifestrategy……now should that be a capital ‘L’?!
    Keep up the good work and the brilliant humour!

  • 31 The Investor May 4, 2015, 12:40 am

    Cheers all. (Especially Dawn, clearly a woman of taste!)

    @Naeclue — I think gentle push back or saying “have you considered this element?” on the different “turfs” is okay. What I fear is that someday we’ll see massed pitchforks and flame-wars due to the different perspectives on the site.

    I suspect the fact I write so little specific to my active investing adventures these days (and when I do it’s heavy with disclaimers, caveats, and pointers to T.A.’s passive HQ!) helps, but who knows what will happen if/when I get the urge to start seriously waxing about my active notions again. 😉

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