As an advisor, into the shark tank...

[Anonymous]

OTAlexFA wrote:So as to not continue quoting such long responses, I will say that we are on the same page, yes. Steeped investors like yourself who are passionate about doing it themselves would likely not need an advisor, unless there was some area you thought were lacking (planning aspect, insurance, estate, etc.). Everyone should be so knowledgeable. (Well, maybe not, because then I'd be out of a job.)

My concern lies when people throw around recommendations on here without knowing the depth of what the concerned is asking. People immediately shout "index funds!" when it isn't always the right answer.

Obviously people have different desire/need to take risks, but I have a hard time thinking of a situation where an equity index fund is not appropriate for the equity portion of a person's portfolio (esp. for people coming on DCUM to ask questions). Care to suggest one?

[OTAlexFA]

Anonymous wrote:

OTAlexFA wrote:So as to not continue quoting such long responses, I will say that we are on the same page, yes. Steeped investors like yourself who are passionate about doing it themselves would likely not need an advisor, unless there was some area you thought were lacking (planning aspect, insurance, estate, etc.). Everyone should be so knowledgeable. (Well, maybe not, because then I'd be out of a job.)

My concern lies when people throw around recommendations on here without knowing the depth of what the concerned is asking. People immediately shout "index funds!" when it isn't always the right answer.

Obviously people have different desire/need to take risks, but I have a hard time thinking of a situation where an equity index fund is not appropriate for the equity portion of a person's portfolio (esp. for people coming on DCUM to ask questions). Care to suggest one?

Sure. I would say anyone looking to get involved right now with a 3-5 year time horizon. The market environment suggests it is currently a stock picker's market. So, active management for that hypothetical client is where I would lean. That being said, I wouldn't concentrate any equity position into a singular fund, index or otherwise, unless the level of assets is too low and limits our options.

[Anonymous]

OTAlexFA wrote:The market environment suggests it is currently a stock picker's market. So, active management for that hypothetical client is where I would lean.

This is 12:57, 14:05 and 14:33 again.

Why specifically does this environment suggest it's a "stock picker's market"?

I find that during big bull periods when almost everything goes up, people make this assumption that there was not a lot of variance within different segments of the market, or between individual stocks, when this isn't actually true. It's just that because everything went up, people don't notice the variances as much, as 30% versus 50% between two stocks doesn't trigger any emotional reaction.

By contrast, when a market is likely to churn sideways, these same variances will actually involve red versus green on a screen (i.e., you now see a -10% versus 10% between these same two stocks), so it's more noticeable to people. Hence, all the active managers pipe in with the "stock picker's market" cliche, as if every market isn't a stock picker's market.

Put another way, what statistical or empirical evidence can you point to that "alpha" can be generated in a market like this more than in a different environment?

[Anonymous]

OK, so here is your opportunity to help someone i. Your line of work keep a client. If my net of fees return on my investments so far this year is 5.2% and the S&P 500 Price Index return for the same period is 6.1%, why am I not better off just putting all my money into an S&P 500 Price Index fund?

Especially given your earlier comment that advisors can't beat the market.

[Anonymous]

Anonymous wrote:OK, so here is your opportunity to help someone i. Your line of work keep a client. If my net of fees return on my investments so far this year is 5.2% and the S&P 500 Price Index return for the same period is 6.1%, why am I not better off just putting all my money into an S&P 500 Price Index fund?

Especially given your earlier comment that advisors can't beat the market.

Never mind, I see you addressed this question already.

[OTAlexFA]

Anonymous wrote:OK, so here is your opportunity to help someone i. Your line of work keep a client. If my net of fees return on my investments so far this year is 5.2% and the S&P 500 Price Index return for the same period is 6.1%, why am I not better off just putting all my money into an S&P 500 Price Index fund?

Especially given your earlier comment that advisors can't beat the market.

Because I would hope that you hired an advisor for something more than picking stocks. That's only a portion of what they are there for.

[OTAlexFA]

Anonymous wrote:

OTAlexFA wrote:The market environment suggests it is currently a stock picker's market. So, active management for that hypothetical client is where I would lean.

This is 12:57, 14:05 and 14:33 again.

Why specifically does this environment suggest it's a "stock picker's market"?

I find that during big bull periods when almost everything goes up, people make this assumption that there was not a lot of variance within different segments of the market, or between individual stocks, when this isn't actually true. It's just that because everything went up, people don't notice the variances as much, as 30% versus 50% between two stocks doesn't trigger any emotional reaction.

By contrast, when a market is likely to churn sideways, these same variances will actually involve red versus green on a screen (i.e., you now see a -10% versus 10% between these same two stocks), so it's more noticeable to people. Hence, all the active managers pipe in with the "stock picker's market" cliche, as if every market isn't a stock picker's market.

Put another way, what statistical or empirical evidence can you point to that "alpha" can be generated in a market like this more than in a different environment?

The returns this year argues that it hasn't been. It doesn't mean that the environment wasn't in place, or so people would lead you to believe. Record highs, perceived "overvaluation", calls to end the bull market which I didn't feel were accurate, etc. Is there economic data to support the upward climb? No. But, is there anything suggesting it won't continue? No. I'm just personally in the camp of, within the next 3-5 years, history suggests a swing. But, no, you're right...there's no data to suggest it, except for historical charts.

[Anonymous]

OTAlexFA wrote:

Anonymous wrote:OK, so here is your opportunity to help someone i. Your line of work keep a client. If my net of fees return on my investments so far this year is 5.2% and the S&P 500 Price Index return for the same period is 6.1%, why am I not better off just putting all my money into an S&P 500 Price Index fund?

Especially given your earlier comment that advisors can't beat the market.

Because I would hope that you hired an advisor for something more than picking stocks. That's only a portion of what they are there for.

If someone is getting a fee to manage a portfolio, what else are they doing other than picking stocks?

[Anonymous]

OTAlexFA wrote:

Anonymous wrote:

OTAlexFA wrote:The market environment suggests it is currently a stock picker's market. So, active management for that hypothetical client is where I would lean.

This is 12:57, 14:05 and 14:33 again.

Why specifically does this environment suggest it's a "stock picker's market"?

I find that during big bull periods when almost everything goes up, people make this assumption that there was not a lot of variance within different segments of the market, or between individual stocks, when this isn't actually true. It's just that because everything went up, people don't notice the variances as much, as 30% versus 50% between two stocks doesn't trigger any emotional reaction.

By contrast, when a market is likely to churn sideways, these same variances will actually involve red versus green on a screen (i.e., you now see a -10% versus 10% between these same two stocks), so it's more noticeable to people. Hence, all the active managers pipe in with the "stock picker's market" cliche, as if every market isn't a stock picker's market.

Put another way, what statistical or empirical evidence can you point to that "alpha" can be generated in a market like this more than in a different environment?

The returns this year argues that it hasn't been. It doesn't mean that the environment wasn't in place, or so people would lead you to believe. Record highs, perceived "overvaluation", calls to end the bull market which I didn't feel were accurate, etc. Is there economic data to support the upward climb? No. But, is there anything suggesting it won't continue? No. I'm just personally in the camp of, within the next 3-5 years, history suggests a swing. But, no, you're right...there's no data to suggest it, except for historical charts.

And you can pick the stocks that will do well in the next bear market, and you are just hanging out on DCUM because you are bored waiting for the correction? Got it.

[Anonymous]

Anonymous wrote:

OTAlexFA wrote:

Anonymous wrote:

OTAlexFA wrote:The market environment suggests it is currently a stock picker's market. So, active management for that hypothetical client is where I would lean.

This is 12:57, 14:05 and 14:33 again.

Why specifically does this environment suggest it's a "stock picker's market"?

I find that during big bull periods when almost everything goes up, people make this assumption that there was not a lot of variance within different segments of the market, or between individual stocks, when this isn't actually true. It's just that because everything went up, people don't notice the variances as much, as 30% versus 50% between two stocks doesn't trigger any emotional reaction.

By contrast, when a market is likely to churn sideways, these same variances will actually involve red versus green on a screen (i.e., you now see a -10% versus 10% between these same two stocks), so it's more noticeable to people. Hence, all the active managers pipe in with the "stock picker's market" cliche, as if every market isn't a stock picker's market.

Put another way, what statistical or empirical evidence can you point to that "alpha" can be generated in a market like this more than in a different environment?

The returns this year argues that it hasn't been. It doesn't mean that the environment wasn't in place, or so people would lead you to believe. Record highs, perceived "overvaluation", calls to end the bull market which I didn't feel were accurate, etc. Is there economic data to support the upward climb? No. But, is there anything suggesting it won't continue? No. I'm just personally in the camp of, within the next 3-5 years, history suggests a swing. But, no, you're right...there's no data to suggest it, except for historical charts.

And you can pick the stocks that will do well in the next bear market, and you are just hanging out on DCUM because you are bored waiting for the correction? Got it.

I'm not sure I said that either, as I'm not a fund manager. I don't think people have an understanding of what financial advisors do. Maybe I should have started there but I'm not sure how many times or ways I can say it so let me just say this...

If you're #1 and only concern is returns, I am not your guy. And, I think it is fair to say, to achieve that, you might very well be taking on more risk than you should. But again, it varies based upon each individual investor's risk tolerance. I'm no day trader. I'm no daily player. I develop a long-term strategy that includes retirement, multi-generational planning, estate, charitable, et al. Yes, returns are a part of that overall plan. But, my main concern is reaching clients' goals and objectives. If your main goal is, "Get me the highest return possible," you'd be better served elsewhere, because I'm also going to take into account what is in your best interests and that risk probably isn't it.

I hope that makes sense because I can't spell it out any further.

[Anonymous]

OTAlexFA wrote:

Anonymous wrote:OK, so here is your opportunity to help someone i. Your line of work keep a client. If my net of fees return on my investments so far this year is 5.2% and the S&P 500 Price Index return for the same period is 6.1%, why am I not better off just putting all my money into an S&P 500 Price Index fund?

Especially given your earlier comment that advisors can't beat the market.

Because I would hope that you hired an advisor for something more than picking stocks. That's only a portion of what they are there for.

Correct, they are also there to sell you crappy insurance products that you don't need.

[Anonymous]

Anonymous wrote:

OTAlexFA wrote:

Anonymous wrote:OK, so here is your opportunity to help someone i. Your line of work keep a client. If my net of fees return on my investments so far this year is 5.2% and the S&P 500 Price Index return for the same period is 6.1%, why am I not better off just putting all my money into an S&P 500 Price Index fund?

Especially given your earlier comment that advisors can't beat the market.

Because I would hope that you hired an advisor for something more than picking stocks. That's only a portion of what they are there for.

Correct, they are also there to sell you crappy insurance products that you don't need.

I work with another FA that does zero insurance for his clients. He says, "Insurance is a bet that you hope you lose." While I agree with that statement, I still think it is very important, much like car insurance, health insurance... You can argue that insurance is a crappy product...until you need it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

OTAlexFA wrote:

Anonymous wrote:OK, so here is your opportunity to help someone i. Your line of work keep a client. If my net of fees return on my investments so far this year is 5.2% and the S&P 500 Price Index return for the same period is 6.1%, why am I not better off just putting all my money into an S&P 500 Price Index fund?

Especially given your earlier comment that advisors can't beat the market.

Because I would hope that you hired an advisor for something more than picking stocks. That's only a portion of what they are there for.

Correct, they are also there to sell you crappy insurance products that you don't need.

I work with another FA that does zero insurance for his clients. He says, "Insurance is a bet that you hope you lose." While I agree with that statement, I still think it is very important, much like car insurance, health insurance... You can argue that insurance is a crappy product...until you need it.

The problem is that insurance salesmen are typically contemplated to sell you insurance that you don't need (e.g., whole life insurance).

[Anonymous]

^ sorry, "compensated" not contemplated

[Anonymous]

My only nit is just to note that there's a bit of a straw man being built though, as indexing doesn't mean having some simplistic asset allocation where you only own one fund. For example, you could give a very simplistic answer to the hypothetical question you posed and answer that everyone should put 1/3 of their money (dollar cost averaging) in each of a US total stock market index fund, international total stock market (ex-US) index fund and a total bond fund (rebalancing annually) and that person would have a decent allocation mix that has a very good chance of accomplishing their goals with low fees and low hassle, while also protecting against some of the bear market risks you're mentioning. You can obviously create much more complex allocations than that (and there may be sub-components of an allocation where it's easier to generate alpha versus an applicable benchmark - small caps or emerging markets, for example, where an active fund is more appropriate), but a simple strategy like that can actually be just fine for many people.

NP here. I see I have a fellow Boglehead posting in DCUM