Most people [Is TSM not the best choice for informed investors?]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Most people [Is TSM not the best choice for informed investors?]

Post by bertilak »

Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
cacophony
Posts: 1363
Joined: Tue Oct 16, 2007 9:12 pm

Re: Most people

Post by cacophony »

Well if you didn't have at least some people investing in individual securities then how would they be accurately priced?
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: Most people

Post by livesoft »

What if instead of "most people" the words were "many people"?
Wiki This signature message sponsored by sscritic: Learn to fish.
reln
Posts: 718
Joined: Fri Apr 19, 2019 4:01 pm

Re: Most people

Post by reln »

bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
If you're smart enough to beat the market or if you're willing to take the risk of underperforming to beat the market, then you should try to beat it. For everyone else that isn't either smart enough or risk taking enough, TSM is a fine solution.
jebmke
Posts: 25474
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: Most people

Post by jebmke »

livesoft wrote: Wed Sep 22, 2021 4:20 pm What if instead of "most people" the words were "many people"?
You might be right
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

livesoft wrote: Wed Sep 22, 2021 4:20 pm What if instead of "most people" the words were "many people"?
Pretty much same question.

"Most" (or "many") just seems wishy-washy to me. Both imply that there IS a better choice for some people so why not hunt that down? How does one know if one falls into the most/many people class or the some other people class? Does it take a lot of reading of investment books to find out? If one is not in the most/many class what is the better investment choice?
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

cacophony wrote: Wed Sep 22, 2021 4:19 pm Well if you didn't have at least some people investing in individual securities then how would they be accurately priced?
Not my problem!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people

Post by secondopinion »

reln wrote: Wed Sep 22, 2021 4:23 pm
bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
If you're smart enough to beat the market or if you're willing to take the risk of underperforming to beat the market, then you should try to beat it. For everyone else that isn't either smart enough or risk taking enough, TSM is a fine solution.
Beating the market is not the only reason. Sometimes, the distribution of returns best for a particular investor may not match the TSM or TBM (because their needed distribution is skewed). One has to determine what distribution of returns is acceptable to their needs.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

reln wrote: Wed Sep 22, 2021 4:23 pm
bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
If you're smart enough to beat the market or if you're willing to take the risk of underperforming to beat the market, then you should try to beat it. For everyone else that isn't either smart enough or risk taking enough, TSM is a fine solution.
Thus my question "Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?" If not, how DO I get there?
Last edited by bertilak on Wed Sep 22, 2021 4:33 pm, edited 1 time in total.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
cacophony
Posts: 1363
Joined: Tue Oct 16, 2007 9:12 pm

Re: Most people

Post by cacophony »

bertilak wrote: Wed Sep 22, 2021 4:29 pm
cacophony wrote: Wed Sep 22, 2021 4:19 pm Well if you didn't have at least some people investing in individual securities then how would they be accurately priced?
Not my problem!
It would quickly become your problem!
namajones
Posts: 778
Joined: Sat Aug 08, 2020 12:41 pm

Re: Most people

Post by namajones »

I've had the best luck in life not doing what "most people" do.
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

cacophony wrote: Wed Sep 22, 2021 4:32 pm
bertilak wrote: Wed Sep 22, 2021 4:29 pm
cacophony wrote: Wed Sep 22, 2021 4:19 pm Well if you didn't have at least some people investing in individual securities then how would they be accurately priced?
Not my problem!
It would quickly become your problem!
But without a hint of how I can solve it.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
reln
Posts: 718
Joined: Fri Apr 19, 2019 4:01 pm

Re: Most people

Post by reln »

secondopinion wrote: Wed Sep 22, 2021 4:31 pm
reln wrote: Wed Sep 22, 2021 4:23 pm
bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
If you're smart enough to beat the market or if you're willing to take the risk of underperforming to beat the market, then you should try to beat it. For everyone else that isn't either smart enough or risk taking enough, TSM is a fine solution.
Beating the market is not the only reason. Sometimes, the distribution of returns best for a particular investor may not match the TSM or TBM (because their needed distribution is skewed). One has to determine what distribution of returns is acceptable to their needs.
Good point.
TheHiker
Posts: 491
Joined: Fri Feb 05, 2021 8:34 pm

Re: Most people

Post by TheHiker »

For some the definition of best may be different.
For example, investing in TSM does not comply with islamic principles.
cacophony
Posts: 1363
Joined: Tue Oct 16, 2007 9:12 pm

Re: Most people

Post by cacophony »

bertilak wrote: Wed Sep 22, 2021 4:34 pm
cacophony wrote: Wed Sep 22, 2021 4:32 pm
bertilak wrote: Wed Sep 22, 2021 4:29 pm
cacophony wrote: Wed Sep 22, 2021 4:19 pm Well if you didn't have at least some people investing in individual securities then how would they be accurately priced?
Not my problem!
It would quickly become your problem!
But without a hint of how I can solve it.
Why do you need to solve it? You effectively asked why the advice isn't that everyone should invest solely in TSM. And one answer is because the statement wouldn't make any sense given how financial markets work.
Last edited by cacophony on Wed Sep 22, 2021 4:42 pm, edited 2 times in total.
reln
Posts: 718
Joined: Fri Apr 19, 2019 4:01 pm

Re: Most people

Post by reln »

bertilak wrote: Wed Sep 22, 2021 4:31 pm
reln wrote: Wed Sep 22, 2021 4:23 pm
bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
If you're smart enough to beat the market or if you're willing to take the risk of underperforming to beat the market, then you should try to beat it. For everyone else that isn't either smart enough or risk taking enough, TSM is a fine solution.
Thus my question "Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?" If not, how DO I get there?
That's for the individual to decide. My hunch is no.

Also, I'd say 49% is generous. Maybe more like 0.01% of people are smart enough to beat the market. I think "most" here means "vast majority".
Last edited by reln on Wed Sep 22, 2021 4:40 pm, edited 1 time in total.
User avatar
David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Most people

Post by David Jay »

bertilak wrote: Wed Sep 22, 2021 4:31 pm
reln wrote: Wed Sep 22, 2021 4:23 pm
bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
If you're smart enough to beat the market or if you're willing to take the risk of underperforming to beat the market, then you should try to beat it. For everyone else that isn't either smart enough or risk taking enough, TSM is a fine solution.
Thus my question "Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?" If not, how DO I get there?
I prefer the construction: "TSM is the default, low regret choice". You get market performance at minimal cost.

That doesn't mean it is the choice for you.
Last edited by David Jay on Wed Sep 22, 2021 4:46 pm, edited 3 times in total.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
livesoft
Posts: 86075
Joined: Thu Mar 01, 2007 7:00 pm

Re: Most people

Post by livesoft »

Someone who has inside information about a company or stock is not "many people." Do you think Jeff Bezos should know more about Amazon than many people? Did he know more about Amazon than most people years ago?
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

TheHiker wrote: Wed Sep 22, 2021 4:38 pm For some the definition of best may be different.
For example, investing in TSM does not comply with islamic principles.
Fair point. There my be other reasons that one is prevented (by court order?) from investing in TSM.

I was really thinking about people who actually had the choice.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Most people

Post by vanbogle59 »

bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
I've never been able to go back and figure out who this story is about, but I'm 99% sure I'm not making it up...

This brilliant guy gets his PhD in econ from U of Chicago. His advisor is Fama (I think), father of the "efficient market" hypothesis.
He goes own to found and run a very successful "momentum" mutual fund, all based on the research he did while getting his degree.
He remained close friends with his mentor.

So, even in the cathedral built to efficient markets, they acknowledge that SOME people can "beat the market".
But the question remains:
1) are you one of them? (probably not)
2) do you even have a way to tell, in advance, if SOMEONE ELSE is one of them? (probably not)
3) even if you say yes to #2, can you hire them to manage your money for less than the advantage they create? (probably not)
Last edited by vanbogle59 on Wed Sep 22, 2021 4:46 pm, edited 1 time in total.
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

livesoft wrote: Wed Sep 22, 2021 4:40 pm Someone who has inside information about a company or stock is not "many people." Do you think Jeff Bezos should know more about Amazon than many people? Did he know more about Amazon than most people years ago?
So insider information can put you on a better path. Of course if one is starting a business then investing in that business is a good idea. I think that falls outside the scope of the audience of the TSM advice.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

vanbogle59 wrote: Wed Sep 22, 2021 4:42 pm
bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
I've never been able to go back and figure out who this story is about, but I'm 99% sure I'm not making it up...

This brilliant guy gets his PhD in econ from U of Chicago. His advisor is Fama (I think), father of the "efficient market" hypothesis.
He goes own to found and run a very successful "momentum" mutual fund, all based on the research he did while getting his degree.
He remained close friends with his mentor.

So, even in the cathedral built to efficient markets, they acknowledge that SOME people can "beat the market".
But the question remains:
1) are you one of them? (probably not)
2) do you even have a way to tell, in advance, if SOMEONE ELSE is one of them? (probably not)
3) even if you say yes to #2, can you hire them to manage your money for less than the advantage they create? (probably not)
I think you are getting at the heart of my dissatisfaction of advice given to "most people." "Most" is not specific enough and may imply that all you need to do is educate yourself out of that "most" category in order to be better at "investing."

Perhaps if it could be worded something like "Unless you have some personal, unique, situation or skill then TSM is right for you." But that is perhaps too wordy for concise "words of wisdom."
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Most people

Post by vanbogle59 »

bertilak wrote: Wed Sep 22, 2021 4:54 pm I think you are getting at the heart of my dissatisfaction of advice given to "most people." "Most" is not specific enough and may imply that all you need to do is educate yourself out of that "most" category in order to be better at "investing."

Perhaps if it could be worded something like "Unless you have some personal, unique, situation than TSM is right for you." But that is perhaps to wordy for concise "words of wisdom."
When visiting Denali, most people should stay near the bus.

That sort of "most". :D
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

vanbogle59 wrote: Wed Sep 22, 2021 4:57 pm
bertilak wrote: Wed Sep 22, 2021 4:54 pm I think you are getting at the heart of my dissatisfaction of advice given to "most people." "Most" is not specific enough and may imply that all you need to do is educate yourself out of that "most" category in order to be better at "investing."

Perhaps if it could be worded something like "Unless you have some personal, unique, situation than TSM is right for you." But that is perhaps to wordy for concise "words of wisdom."
When visiting Denali, most people should stay near the bus.

That sort of "most". :D
Works for me unless you re trying to talk people out of buying all that climbing gear!
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
DaufuskieNate
Posts: 605
Joined: Wed May 28, 2014 11:53 am

Re: Most people

Post by DaufuskieNate »

This sounds a bit like Benjamin Graham's two types of investors - Defensive and Aggressive. Defensive investors would fall into the index fund category. Aggressive investors look for individual securities. Graham warns that success as an Aggressive investor requires such a significant amount of time and energy that many (most) will not be advised to follow that path. Reading the Intelligent Investor might be a good place to start if you want to explore this further.
User avatar
David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Most people

Post by David Jay »

bertilak wrote: Wed Sep 22, 2021 4:54 pmPerhaps if it could be worded something like "Unless you have some personal, unique, situation or skill then TSM is right for you." But that is perhaps too wordy for concise "words of wisdom."
In the flow of the thread, did you bypass my earlier bid? Shortened further it could be "TSM is the default choice". That fits nicely with your "personal, unique, situation or skill"
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people

Post by secondopinion »

DaufuskieNate wrote: Wed Sep 22, 2021 5:05 pm This sounds a bit like Benjamin Graham's two types of investors - Defensive and Aggressive. Defensive investors would fall into the index fund category. Aggressive investors look for individual securities. Graham warns that success as an Aggressive investor requires such a significant amount of time and energy that many (most) will not be advised to follow that path. Reading the Intelligent Investor might be a good place to start if you want to explore this further.
The nature of individual stocks and individual bonds are different (stocks usually underperform but might massively outperform; bonds usually outperform but might massively underperform). I wonder what Graham would say about this...
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
One More Thing
Posts: 107
Joined: Mon Sep 20, 2021 10:02 pm

Re: Most people

Post by One More Thing »

namajones wrote: Wed Sep 22, 2021 4:34 pm I've had the best luck in life not doing what "most people" do.
To be fair most people do not invest at all.
User avatar
CRC_Volunteer
Posts: 568
Joined: Fri Sep 10, 2021 10:57 am
Location: Southeast USA

Re: Most people

Post by CRC_Volunteer »

vanbogle59 wrote: Wed Sep 22, 2021 4:57 pm
bertilak wrote: Wed Sep 22, 2021 4:54 pm I think you are getting at the heart of my dissatisfaction of advice given to "most people." "Most" is not specific enough and may imply that all you need to do is educate yourself out of that "most" category in order to be better at "investing."

Perhaps if it could be worded something like "Unless you have some personal, unique, situation than TSM is right for you." But that is perhaps to wordy for concise "words of wisdom."
When visiting Denali, most people should stay near the bus.

That sort of "most". :D
That is one way to avoid being eaten by bears. Safety in numbers.
"Let me explain. No, there is too much. Let me sum up." (Inigo Montoya) | | 65/30/05 | 53% VTSAX | 12% VTIAX | 30% VAIPX | 5% CASH
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people

Post by secondopinion »

BMWrider1986 wrote: Wed Sep 22, 2021 5:25 pm
vanbogle59 wrote: Wed Sep 22, 2021 4:57 pm
bertilak wrote: Wed Sep 22, 2021 4:54 pm I think you are getting at the heart of my dissatisfaction of advice given to "most people." "Most" is not specific enough and may imply that all you need to do is educate yourself out of that "most" category in order to be better at "investing."

Perhaps if it could be worded something like "Unless you have some personal, unique, situation than TSM is right for you." But that is perhaps to wordy for concise "words of wisdom."
When visiting Denali, most people should stay near the bus.

That sort of "most". :D
That is one way to avoid being eaten by bears. Safety in numbers.
Especially if the bear's name is "Denali".
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
NerdJock
Posts: 100
Joined: Thu Jul 02, 2015 6:52 am

Re: Most people

Post by NerdJock »

49 % of the people would not do as well.
andypanda
Posts: 2009
Joined: Sun Nov 12, 2017 8:11 pm
Location: Richmond, Virginia

Re: Most people

Post by andypanda »

You only have to outrun one person in order to escape from the bear.

What's the old joke about the guy who showed up for a hike in brown bear country with a little .22 rimfire revolver and everyone was laughing at him?
"It's not for the bear, it's to shoot you in the leg so I can outrun you."
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Most people

Post by retired@50 »

bertilak wrote: Wed Sep 22, 2021 4:28 pm
livesoft wrote: Wed Sep 22, 2021 4:20 pm What if instead of "most people" the words were "many people"?
Pretty much same question.

"Most" (or "many") just seems wishy-washy to me. Both imply that there IS a better choice for some people so why not hunt that down? How does one know if one falls into the most/many people class or the some other people class? Does it take a lot of reading of investment books to find out? If one is not in the most/many class what is the better investment choice?
I think it's not the right choice for some portion of the world's stubborn (for lack of a better term) people.

With most pursuits in life, years of study, practice, and continuing education have a real benefit for improved performance. For investing or "beating the market" that just doesn't seem to be the case. 10,000 hours of guitar playing or free throw shooting will yield significant improvement in the vast majority of cases. But not so for consistently picking stocks or funds or fund managers.

This is somewhere between hard to impossible for some folks to accept or believe.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people

Post by secondopinion »

lawlopez wrote: Wed Sep 22, 2021 5:33 pm 49 % of the people would not do as well.
Define "would not do as well". The comment assumes that the TSM was the best choice for those 49%; it is not always the case. Throw in risk tolerance and positive/negative risk skew seeking as part of the portfolio selection, the assumption that TSM is the best starts to weaken.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

David Jay wrote: Wed Sep 22, 2021 5:09 pm
bertilak wrote: Wed Sep 22, 2021 4:54 pmPerhaps if it could be worded something like "Unless you have some personal, unique, situation or skill then TSM is right for you." But that is perhaps too wordy for concise "words of wisdom."
In the flow of the thread, did you bypass my earlier bid? Shortened further it could be "TSM is the default choice". That fits nicely with your "personal, unique, situation or skill"
Agreed.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people

Post by bertilak »

andypanda wrote: Wed Sep 22, 2021 5:34 pm You only have to outrun one person in order to escape from the bear.

What's the old joke about the guy who showed up for a hike in brown bear country with a little .22 rimfire revolver and everyone was laughing at him?
"It's not for the bear, it's to shoot you in the leg so I can outrun you."
HAH! Good twist on an old joke.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Thesaints
Posts: 5108
Joined: Tue Jun 20, 2017 12:25 am

Re: Most people [Is TSM not the best choice for informed investors?]

Post by Thesaints »

Actually "most people" does not mean 51%, nor 50% +1.
If there are more than two possible strategies, "most people" could very well be less than 50%.
Even with only two possible strategies, 'most people" could be something like 99.9%.

Example: "Most people will be dead before reaching age 100". It is certainly a true statement and in this case "most" means 99% (for males) and 97% (for females).

I'd say that a total stock market approach for one's portfolio stock component is the most suitable choice for way more than 51% of individuals.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people

Post by secondopinion »

retired@50 wrote: Wed Sep 22, 2021 5:40 pm
bertilak wrote: Wed Sep 22, 2021 4:28 pm
livesoft wrote: Wed Sep 22, 2021 4:20 pm What if instead of "most people" the words were "many people"?
Pretty much same question.

"Most" (or "many") just seems wishy-washy to me. Both imply that there IS a better choice for some people so why not hunt that down? How does one know if one falls into the most/many people class or the some other people class? Does it take a lot of reading of investment books to find out? If one is not in the most/many class what is the better investment choice?
I think it's not the right choice for some portion of the world's stubborn (for lack of a better term) people.

With most pursuits in life, years of study, practice, and continuing education have a real benefit for improved performance. For investing or "beating the market" that just doesn't seem to be the case. 10,000 hours of guitar playing or free throw shooting will yield significant improvement in the vast majority of cases. But not so for consistently picking stocks or funds or fund managers.

This is somewhere between hard to impossible for some folks to accept or believe.

Regards,
"Risk skew seeking" does not equal "stubborn". If risk skew is the intended result, you do not need to be a genius at all to obtain it. And they have easily obtained their desire (for better or worse)

Since most managers and stock selectors are taking considerable positive risk skew, it is easy for them to underperform even if they have real skills. It is like doing basketball shots across the entire court; the skilled will make more points than the unskilled over a long time, but they are very likely to miss the hoop the strong majority of the time. And then the crowd thinks the 2-in-a-row (or even 1-in-a-row) scorers are the experts and the rest are not. The index crowd thinks no one can do it better over time.

Lack of consistence does not equal lack of skill. Sadly, percentiles and the arithmetic mean are not friends.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Most people

Post by nisiprius »

secondopinion wrote: Wed Sep 22, 2021 5:57 pm..."Risk skew seeking" does not equal "stubborn". If risk skew is the intended result, you do not need to be a genius at all to obtain it. And they have easily obtained their desire (for better or worse)...
I should have asked this in another thread. What is "risk skew?"

By "risk skew seeker" do you mean, not just a person who want high risk, but a person who wants an investment with nonzero skew?

What sort of people seek positive skew and what sort of people seek negative skew?
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people

Post by secondopinion »

nisiprius wrote: Wed Sep 22, 2021 6:16 pm
secondopinion wrote: Wed Sep 22, 2021 5:57 pm..."Risk skew seeking" does not equal "stubborn". If risk skew is the intended result, you do not need to be a genius at all to obtain it. And they have easily obtained their desire (for better or worse)...
I should have asked this in another thread. What is "risk skew?"

By "risk skew seeker" do you mean, not just a person who want high risk, but a person who wants an investment with nonzero skew?

What sort of people seek positive skew and what sort of people seek negative skew?
Yes, these people are looking for investments with non-zero skew. Very often, the cost of taking the skew is increased volatility but not always.

The people seeking positive skew are those who are taking the side of the low odds but an unlikely massive return. A real example is a random singleton stock; not many stocks will return above the market return for considerable timeframes, but a few will do so massively. When we add more stocks, we reduce the volatility and that risk skew.

The people seeking negative skew are those who are taking the side of the high odds but an unlikely massive loss. A real example is a random singleton high quality corporate bond; most high quality corporate bonds will return above the index of similar bonds (because a few bonds will default), but the singleton bond itself could obviously underperform terribly by defaulting. When we add more bonds, we reduce the volatility and that risk skew.

In slightly inaccurate but simple terms, positive skew has bad returns using the median than what the mean truly is; negative skew has good returns using the median than what the mean truly is.

The cases where the volatility is reduced but the skew is made negative is when a call option is written while holding the stock fund. Likewise, buy a put while holding the stock fund increases positive skew but reduces volatility. However, now we deal with the concavity/convexity pricing problem as well.

Now as to who seeks out what? The need of skew happens when there are two goals rather than one.

The positive risk skew seekers often have two objectives; one that is easy to meet, and one that is rather lofty and open-ended but out of reach by normal means. Taking positive skew, they can achieve the possibility to meet the lofty goal from the possible massive outperformance (albeit unlikely still); but they have to also be careful with returns and volatility as to make sure they meet the easy goal with high probability (so solely taking more volatility is the wrong answer to obtain the hope of much more). Optimization must be done to try to best attempt for both goals.

The negative risk skew seekers often have two objectives; one that is easy to meet, and one that is ambitious and barely in reach (and is more or loss the intended maximum). Taking negative skew, they can achieve the ambitious goal more likely because the odds are that outperformance will happen; but they have to also be careful with returns and volatility as to make sure the easy goal is met with high probability to avoid the nasty downside that could occur (and since they are not trying for much more than the second goal, just adding more volatility is the wrong answer since they want the best chance). Optimization must be done to try to best attempt for both goals.
Last edited by secondopinion on Wed Sep 22, 2021 10:50 pm, edited 2 times in total.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
venkman
Posts: 1338
Joined: Tue Mar 14, 2017 10:33 pm

Re: Most people [Is TSM not the best choice for informed investors?]

Post by venkman »

I think it's analogous to a door labeled "Authorized Personnel Only."

If you don't know whether or not you're an authorized person, you aren't.

If you have to ask whether a TSM fund (or target date fund, or 3-fund portfolio) is right for you, it probably is. "Most people" are not particularly investment-savvy, and would be best-served by something simple and low cost.
User avatar
Beensabu
Posts: 5657
Joined: Sun Aug 14, 2016 3:22 pm

Re: Most people [Is TSM not the best choice for informed investors?]

Post by Beensabu »

bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?
No.

It eventually becomes clear that if you already have a certain amount proportional to your goal or can save a certain amount (due to income level or duration of accumulation stage) proportional to your goal by a certain point in your investment timeline, that the three-fund portfolio is the best choice for you.

If you do not have that and cannot do that, it will not work. That's all there is to it. It may still be the best shot of getting you closest to your goal. Choosing differently may result in ending up even farther away from your goal. Or you may end up closer. Or you may even get there. Or you may end up back at the starting line, or behind it.

If you have enough, or make enough, or start early enough, there is no reason to do something other than the three-fund. If you don't, either accept where it will get you to or best of luck. It's a decision. Some people don't have to make it.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people [Is TSM not the best choice for informed investors?]

Post by secondopinion »

venkman wrote: Wed Sep 22, 2021 10:34 pm I think it's analogous to a door labeled "Authorized Personnel Only."

If you don't know whether or not you're an authorized person, you aren't.

If you have to ask whether a TSM fund (or target date fund, or 3-fund portfolio) is right for you, it probably is. "Most people" are not particularly investment-savvy, and would be best-served by something simple and low cost.
I accidentally pass such doors quite often; I learn a lot about what actually goes on on that side of the door.

I never worry about it; definitely less than the person who left it open. :P
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
FoundingFather
Posts: 407
Joined: Fri Dec 18, 2020 9:20 pm

Re: Most people [Is TSM not the best choice for informed investors?]

Post by FoundingFather »

bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
Bogle once wrote, “While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.”

I feel similar about a total stock market approach. There may be better options, but I think that most approaches are worse.

To be honest, I think it really comes down to a pride vs humility situation. Most people like to believe that they aren't most people. In my experience, when I start thinking that I am above a general rule applying to me, it is more often arrogance than uniqueness. :wink:

Founding Father
"I do not think myself equal to the Command I am honored with." -George Washington (excerpt from Journals of the Continental Congress, 16 June 1775)
rossington
Posts: 1823
Joined: Fri Jun 07, 2019 2:00 am
Location: Florida

Re: Most people [Is TSM not the best choice for informed investors?]

Post by rossington »

bertilak wrote: Wed Sep 22, 2021 4:14 pm
Asking for a friend.
Have you decided now what you will advise your friend?
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people [Is TSM not the best choice for informed investors?]

Post by secondopinion »

FoundingFather wrote: Thu Sep 23, 2021 1:27 am
bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
Bogle once wrote, “While such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.”

I feel similar about a total stock market approach. There may be better options, but I think that most approaches are worse.

To be honest, I think it really comes down to a pride vs humility situation. Most people like to believe that they aren't most people. In my experience, when I start thinking that I am above a general rule applying to me, it is more often arrogance than uniqueness. :wink:

Founding Father
A quote goes like this (liberties here): "When in doubt, [a tilt] go without".

I never feel I am above the rules, but I am unique in the sense of believing mostly the EMH and not indexing always.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
metacritic
Posts: 413
Joined: Fri Oct 05, 2007 12:58 pm

Re: Most people [Is TSM not the best choice for informed investors?]

Post by metacritic »

99.9 percent is also "most people." Why are you so sure that 51 percent are able to consistently beat the market? The consistency aspect is absolutely crucial, not the year-to-year aspect of the figure you suggest.
bertilak wrote: Wed Sep 22, 2021 4:14 pm Much of the "total market" advice talks about TSM being best for "most people."

Well, 51% is most. Does reading all those words of wisdom put one in the 49% where TSM is NOT the best choice?

Asking for a friend.
User avatar
Topic Author
bertilak
Posts: 10725
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi

Re: Most people [Is TSM not the best choice for informed investors?]

Post by bertilak »

metacritic wrote: Thu Sep 23, 2021 10:05 am Why are you so sure that 51 percent are able to consistently beat the market? The consistency aspect is absolutely crucial, not the year-to-year aspect of the figure you suggest.
I'm not "sure" and I'm not suggesting any figure. I'm saying advice that includes the phrase "most people" leaves the point ambiguous.

How can anyone know if the advice applies to them or not? What is the characteristic "most people" have that prevents them from improving on the market return? Does the reader have that characteristic? Perhaps not, even if "most people" do. How can (or should) someone work themselves out of that hapless "most people" class?

Actually, "most people" probably don't like being lumped in with that "most people" class: They want to think of themselves as special, unique, perhaps even better.

Don't just say "most people" without further clarification! As I said, it is wishy-washy.
Last edited by bertilak on Thu Sep 23, 2021 11:06 am, edited 1 time in total.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Most people [Is TSM not the best choice for informed investors?]

Post by secondopinion »

bertilak wrote: Thu Sep 23, 2021 10:59 am
metacritic wrote: Thu Sep 23, 2021 10:05 am 99.9 percent is also "most people." Why are you so sure that 51 percent are able to consistently beat the market? The consistency aspect is absolutely crucial, not the year-to-year aspect of the figure you suggest.
I'm not "sure" and I'm not suggesting any figure. I'm saying advice that includes the phrase "most people" leaves the point ambiguous.

How can anyone know if the advice applies to them or not? What is the characteristic "most people" have that prevents them from improving on the market return? Does the reader have that characteristic? Perhaps not, even if "most people" do. How can (or should) someone work themselves out of that hapless "most people" class?

Actually, "most people" probably don't like being lumped in with that "most people" class: They want to think of themselves as special, unique, perhaps even better.

Don't just say "most people" with out further clarification! As I said, it is wishy-washy.
Only the last quality, better-ness, is in error. I think everyone is unique in their own way; the question is whether that applies to investing, let alone at getting better returns. Most do not know what they are doing with investing, even those who think they know.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
1789
Posts: 2223
Joined: Fri Aug 16, 2019 3:31 pm

Re: Most people [Is TSM not the best choice for informed investors?]

Post by 1789 »

Regret due to tracking error is real. IMO, TSM portfolios minimizes that regret.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
Post Reply