Short Takes: Switching to Index Investing, Capital Gains on Investment Real Estate, and more
Here are my posts for this week:
Crashing a 2014 stock-picking contest
When would you offer more than the asking price?
Here are some short takes and some weekend reading:
Robb Engen at Boomer and Echo gives a thoughtful discussion of his 2014 portfolio return and his decision to switch to simple ETF-based index investing.
Preet Banerjee explains how your capital gains on investment real estate can be much less than simply the sale price minus the purchase price.
Canadian Couch Potato has made some extensive changes to his model portfolios. I like the changes. He’s sticking to the major asset classes instead of including REITs and other assets. Simplicity is important. It’s amazing how complicated things can get as you try to manage several types of accounts in a single portfolio. For the ETF-based portfolios, he’s focusing on Vanguard's ETFs. This makes sense to me because they're a great company.
Canadian Portfolio Manager analyzes 4 actively-managed funds that appear to offer market-beating returns, but after accounting for value tilts and small-cap tilts the shine comes off. I’m of two minds about these factor regressions. On one hand they show that outperformance is often just overweighting in value and small-cap stocks. On the other hand, what if a fund manager had the skill to know whether such stocks would outperform over a given period of time? Factor regression will deny the existence of such skill by definition. Taken to the extreme, if we add enough factors so that every stock is in its own category, then buy-and-hold outperformance is impossible by definition. All that said, I think 3-factor regressions are likely a useful way to examine outperformance.
Big Cajun Man pays homage to the humble Mason jar as a versatile source of frugality.
My Own Advisor is musing about transitioning out of the work force. Sounds like someone who doesn’t feel like going to work today. That probably applies to many of us.
Crashing a 2014 stock-picking contest
When would you offer more than the asking price?
Here are some short takes and some weekend reading:
Robb Engen at Boomer and Echo gives a thoughtful discussion of his 2014 portfolio return and his decision to switch to simple ETF-based index investing.
Preet Banerjee explains how your capital gains on investment real estate can be much less than simply the sale price minus the purchase price.
Canadian Couch Potato has made some extensive changes to his model portfolios. I like the changes. He’s sticking to the major asset classes instead of including REITs and other assets. Simplicity is important. It’s amazing how complicated things can get as you try to manage several types of accounts in a single portfolio. For the ETF-based portfolios, he’s focusing on Vanguard's ETFs. This makes sense to me because they're a great company.
Canadian Portfolio Manager analyzes 4 actively-managed funds that appear to offer market-beating returns, but after accounting for value tilts and small-cap tilts the shine comes off. I’m of two minds about these factor regressions. On one hand they show that outperformance is often just overweighting in value and small-cap stocks. On the other hand, what if a fund manager had the skill to know whether such stocks would outperform over a given period of time? Factor regression will deny the existence of such skill by definition. Taken to the extreme, if we add enough factors so that every stock is in its own category, then buy-and-hold outperformance is impossible by definition. All that said, I think 3-factor regressions are likely a useful way to examine outperformance.
Big Cajun Man pays homage to the humble Mason jar as a versatile source of frugality.
My Own Advisor is musing about transitioning out of the work force. Sounds like someone who doesn’t feel like going to work today. That probably applies to many of us.
I like the changes too -- it fixed the two most common issues people had with the model portfolios. I think the Canonical Portfolio post must have had a big effect on Dan ;)
ReplyDelete@Potato: Sadly, the biggest issue some people have with model portfolios is that they end up with some of their money invested in asset classes that didn't perform well. I find it funny and sad when I hear people say they're index investors, but they plan to shift more into U.S. stocks (or whatever performed best the previous year).
DeleteThanks for the inclusion this week, I think if we just used the Mason Jar for canning tasty treats and bank accounts are left for money hoarding, life might be a little better....
ReplyDeleteThanks for the mention! I like the new model portfolios as well (obviously - my two-fund solution is the Vanguard model, minus the bonds).
ReplyDeleteEnjoy your weekend!
If a fund manager correctly guessed that small cap stocks would outperform, it still seems like they could do just as well by using the correct index rather than picking stocks in that category. In the current model of financial services no one really looks at that option though so it's just a matter of whether the manager is a "good stock picker" or not.
ReplyDeleteGiven the growing popularity of indexing along with the difficulty people have in resisting the temptation to modify their portfolio, I wonder how long it is will be until we have professional "index fund pickers". They could create a fund where they simply hold a mix of ETFs with an added fee of 0.5 - 1%. I'm sure that would find a willing market. A model like that may well be less risky than many of the current mutual funds that investors hold.
@Richard: The second half of your first paragraph gives the reason why a hypothetical fund manager who has the skill to know when small cap stocks will outperform would still likely pick individual stocks. The world expects fund managers to picks stocks and pays them well to do so.
DeleteI suspect that some financial advisors whose niche is to offer index strategies to clients end up succumbing to clients' indirect demands to try to pick winning asset classes. Whether we get to more explicit "index fund picking" is anyone's guess. I'm guessing that genuine skill in this area will be exceedingly rare, but that wouldn't necessarily stop investors from betting on it anyway.
Well, it was about thinking ahead but yes, I suppose that could apply as well!
ReplyDeleteHave a good weekend,
Mark