should be mandatory reading for everyone interested in finance

[TUK020]

It's only simple logic though I quite see why you find it challenging, all I can suggest is that you persevere and with some intellectual effort "the penny may drop" Good luck.

Colin,
I hope you didn't mean it this way, but this comment comes across as very condescending.
May I suggest that you re-read tjh's input more carefully
tuk020

[OhNoNotimAgain]

Each hedge fund is unique so considering them as an asset class is missing the point.

I beg to differ.

Each hedge fund takes your money, locks it up for a period of time and charges 2% fee of your assets and 20% of all gains.

In exchange for that outrageous appropriation of your assets in promises to deliver a better return than achieved by other investors by methods unspecified.

This exercise showed that they didn't.

Some might believe the mantra that past performance is no guide to future returns but compound interest doesn't care what you do with the money. It just works away giving worse returns to those that charge more and better returns to those that have higher income.

[hiriskpaul]

I agree that comparing the performance of hedge funds with the S&P 500 is not necessarily appropriate, but in this particular case the remit was all about performance, not risk adjusted return. In which case I would assume that whoever chose the hedge funds did so with the intention of achieving the best performance over 10 years.

The S&P 500 yields about 2%, so investing in a hedge fund with the 2/20 fee structure is like trying to beat the index whilst throwing away all the dividends and 20% of all gains*. Hardly surprising the hedge funds were a dismal failure.

* edit, I would add that 20% of positive gains are thrown away. HFs don't issue refunds when they lose money!

[hiriskpaul]

Perhaps a more appropriate title for the thread would be "Should be mandatory reading for everyone NOT interested in finance". Buffett has highlighted an extremely straightforward strategy that can be followed by the least financially literate and that beats the vast majority of high cost managed funds.

[Hariseldon58]

@colin

Nothing wrong with index investing, I do it myself, alongside other strategies.

It’s not the only rational investment process. Investors as a whole can be irrational , Ben Graham’s “Mr Market”

Take a look at the stats on the AIC website and compare them with the relevant benchmarks.

The Monthly Information Report from the AIC is very interesting (it used to contain a series of benchmark returns for easy comparisons) I have studied a number of these, I downloaded previously from around 2007 and they in turn look back 10 years. Index investing can work well but it’s not a no brainier as you may think.

The private investor may not have an information edge, but he can invest without looking over his shoulder at an investment committee, this time frame can be immensely profitable.

[colin]

If I were younger I would would look to creating a portfolio of the lower cost investment trusts with a view to replicating index performance with the addition of gearing, whether the gearing might provide a return over the extra costs I don't know as the extra volatility would not be appropriate for me .
Certainly the discounts which investment trusts can fall to have provided me with opportunities in the past with a high yield IT and a property IT, I am quite aware that the high subsequent return was the result of my willingness at the time to take on the higher level of implied risk and I really did get lucky.Today not all my investments are trackers. So It would be hypocritical for me to suggest that index trackers are the only sensible investment, however to argue in the negative to the original premise of this thread is undoubtedly stupid and i do find it bizarre that anyone with real money at risk would argue otherwise.

[JNC3]

Buffett has highlighted an extremely straightforward strategy that can be followed by the least financially literate and that beats the vast majority of high cost managed funds.

Do you mean Buffett's strategy of having - 90% in a S&P 500 tracker and 10% in short dated US treasuries ?

I assume for a UK investor this might translate to - 90% in a world tracker and 10% in short dated Gilts ?

JNC

[colin]

Hariseldon%* wrote...Take a look at the stats on the AIC website and compare them with the relevant benchmarks.

Ok done that but something that has bamboozled me is the difference between month end and year end statistics.
For instance on a NAV TR 10year basis the Aic Global sector achieved 363% month end but 154% year end,
likewise the UK All Companies Sector achieved 271% month end and 152% year end. Why the difference? and when comparing these sector returns to indices which figure should one use?

[mc2fool]

Hariseldon%* wrote...Take a look at the stats on the AIC website and compare them with the relevant benchmarks.

Ok done that but something that has bamboozled me is the difference between month end and year end statistics.
For instance on a NAV TR 10year basis the Aic Global sector achieved 363% month end but 154% year end,
likewise the UK All Companies Sector achieved 271% month end and 152% year end. Why the difference? and when comparing these sector returns to indices which figure should one use?

If you look to the left of the Previous working day / Month end / Year end selector you'll see "Data as at:" and for month end it's 30/11/2018 and for year end it's 29/12/2017.

At least that's what they show today

[colin]

Sorry but I still don't understand, I can see what the figures are the question is why? global markets have not risen 160% since 29/12/2017 , I am clearly missing something?

[mc2fool]

Sorry but I still don't understand, I can see what the figures are the question is why? global markets have not risen 160% since 29/12/2017 , I am clearly missing something?

And what you're missing -- given that you're looking at the 10 year NAV TR return -- is that there hasn't been 10 years since 29/12/2017.

The figures shown for the 10 year NAV TR return under any of Previous Working Day/Month End/Year End are what is was for the ten years up to the "Data as at:" date.

I.e. the 154.83% 10 year NAV TR return for the Global sector was from 29/12/2007 to 29/12/2017.

[hiriskpaul]

Buffett has highlighted an extremely straightforward strategy that can be followed by the least financially literate and that beats the vast majority of high cost managed funds.

Do you mean Buffett's strategy of having - 90% in a S&P 500 tracker and 10% in short dated US treasuries ?

I assume for a UK investor this might translate to - 90% in a world tracker and 10% in short dated Gilts ?

JNC

That is the retirement strategy for Buffet's wife. I was just talking about his bet against hedge funds. His strategy was to buy the S&P 500 fund, hold it and reinvest dividends. No trading in and out, shorting, trading options against it or attempting to use his judgement to pick winners, as the HFs with their army of market mystics, analysts, smart traders, etc will have done.

[colin]

mc2fool wrote..I.e. the 154.83% 10 year NAV TR return for the Global sector was from 29/12/2007 to 29/12/2017.

Ok thanks for that explanation, so which dates provided the month end 10yr TR Nav return of 363%, 30th Nov 2008-30th Nov 2018? massive difference!

[mc2fool]

mc2fool wrote..I.e. the 154.83% 10 year NAV TR return for the Global sector was from 29/12/2007 to 29/12/2017.

Ok thanks for that explanation, so which dates provided the month end 10yr TR Nav return of 363%, 30th Nov 2008-30th Nov 2018? massive difference!

Yes. If you remember there were some events during 2008 that affected stock prices a little.

[colin]

Yes. If you remember there were some events during 2008 that affected stock prices a little.

No need to be facetious .
For UK as far as I remember markets fell about 30% 2008 and rose about the same in 2009.
Perhaps Hariseldon58 with access to a library of AIC stats might tell us what the year end return for the IT Global sector was in 2007 and 2008?

[colin]

Hariseldon58 wrote.. Index investing can work well but it’s not a no brainier as you might think.

Yes I am starting to see what you mean. The ishares website allows total return between specific dates to be selected . Comparing their FTSE 250 tracker returns to the Aic All companies sector there is not a lot in it really, the 2017 10 year returns are weirdly almost identical, but comparing the MSCI tracker to the Aic Global sector and the investment trust returns are way ahead even when allowing for the MSCI tracker returns being based on dollars. Is there any survivorship bias concealed in the Aic stats I wonder? Has the performance record of all Global trusts since 2007 been preserved in the the Aic Stats for 2017 even though the name of the trust may no longer exist?

[mc2fool]

No need to be facetious .
For UK as far as I remember markets fell about 30% 2008 and rose about the same in 2009.

I wasn't, sorry if it came across as such.

The FTSE 100 closed 30-Dec-07 at 6348.5 and 11 months later on 30-Nov-08 at 4049.4, down some 36%. (Of course the 2007 peak to 2008 bottom was down almost 50%).

It closed 29-Dec-17 at 7687.8 and 30-Nov-18 at 6980.2, giving 10 year capital only returns of +21% and +72% respectively.

I'll leave FTSE 100 TR figures and figures for other indices as an exercise for the reader ...

[colin]

Ok Thanks
but i am still mystified by the total return 10 year Aic Stats for Global sector.
The difference in returns for the two periods 10 years up to 30th Nov 2018 and 10 years up to 29th Dec 2017 is 209%, now there are only two 11 month periods which are not shared by those two 10 year time spans, one is 30th Dec 2017 to 30th Nov 2018 at this end and 29th Dec 2007 to 29th Nov 2008 at the back end. The Aic Global sector fell a few percent in the 11 month period at this end which must mean that the entire 209% difference plus a few percent more for this year must be accounted for in the 11 months 29th Dec 2007 to 29th Nov 2008, a period when the MSCI World index fell 40%. ? It does not seem credible that the Aic Global sector fell over 200% back in 2007/08 so why the big difference?

[mc2fool]

Ok Thanks
but i am still mystified by the total return 10 year Aic Stats for Global sector.
The difference in returns for the two periods 10 years up to 30th Nov 2018 and 10 years up to 29th Dec 2017 is 209%, now there are only two 11 month periods which are not shared by those two 10 year time spans, one is 30th Dec 2017 to 30th Nov 2018 at this end and 29th Dec 2007 to 29th Nov 2008 at the back end. The Aic Global sector fell a few percent in the 11 month period at this end which must mean that the entire 209% difference plus a few percent more for this year must be accounted for in the 11 months 29th Dec 2007 to 29th Nov 2008, a period when the MSCI World index fell 40%. ? It does not seem credible that the Aic Global sector fell over 200% back in 2007/08 so why the big difference?

It's not only not credible that it fell over 200%, it's impossible, as stock/IT prices don't go negative. The maximum fall possible is 100%, to zero.

Also, in regards to the difference in return between the two periods being 209%, no, not really. %age returns are geometric, not arithmetic, and so you can't usefully subtract % returns from each other -- a return of 100% means doubling your money, 200% tripling, but the end difference between the two periods is not three times as much.

One was 154% and the other 363%, so for each £1 invested you'd have ended up with £2.54 and £4.63 respectively, and the latter is 82% more than the former, not over three times as much.

And don't forget that a 40% fall requires a 66.6% gain to recover to the same level, however I'm not at all sure the MSCI World is a useful comparison for the AIC Global sector when you consider the sector includes stuff like Scottish Mortgage, BMO Smaller Cos, Lindsell Train, Law Debenture and plenty of other "non-MSCI World type" ITs.

Happy New Year

[hiriskpaul]

I don't have the AIC stats to hand, but one explanation for strange jumps in performance might be that ITs being included are not identical. Maybe some poor performers were moved out or good performers moved in? The AIC stats don't work the same way as indices and are subject to survivorship bias, so moving a poor performer out could significantly increase the average performance.