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The wealth-building thread

blueone

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You should compare apple to apple. S&P 500 is not "growth" fund. Is there another growth index fund that would match better? Maybe Nasdaq qqq index fund?

I don't agree. This isn't apples and oranges. Money is money. Grading investments over a time horizon is an equalizing assessment. Not every growth company is on the NASDAQ exchange.

Edit: I also disagree with the S&P500 not being a growth index. Any index comprised by the top x companies in any category that rebalances on a regular basis is a growth-oriented index.
 

levimax

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For example, the SPRD S&P500 ETF (SPY) returned 14.71% compounded over 10 years, while, just to choose one, the Fidelity Growth Company fund (FDGRX) returned 22.91% (21.18% load adjusted) compounded over 10 years.

I think the QQQ is the correct index to compare FDGRX to in which case FDGRX "loses" 22.85% to 22.23% over 10 years.

https://www.askfinny.com/compare/FBGRX-vs-QQQ
 

Pdxwayne

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I don't agree. This isn't apples and oranges. Money is money. Grading investments over a time horizon is an equalizing assessment. Not every growth company is on the NASDAQ exchange.
Risk and reward. Investing 101.
 

blueone

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The existence of a few funds that outperformed does not prove anything.

Over 10 years? You're wrong. There's no such thing as a bad strategy that out-performs the market over 10 years.
 

levimax

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Over 10 years? You're wrong. There's no such thing as a bad strategy that out-performs the market over 10 years.

The other thing you need to look at is "risk adjusted" returns. If you look at a fund of "high beta" stocks over the last 10 years of course it will outperform the S&P 500.... but that is just higher risk in an up market and will underperform in a down market.
 

levimax

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It only loses post load. The not #1 growth fund still beats QQQ over ten years. The higher ranked growth funds do even better.
Loads don't count? The reason an active fund will lose out 99% of the time to a passive fund is because of loads and fees. Since no one has ever been proven to reliably predict the future at the end of the day the "extra charges" will mean an active fund will under performance a passive fund.
 

blueone

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The other thing you need to look at is "risk adjusted" returns. If you look at a fund of "high beta" stocks over the last 10 years of course it will outperform the S&P 500.... but that is just higher risk in an up market and will underperform in a down market.

Risk is a subjective assessment. Returns over 10 years are measured facts. Hmmm... this quandary sounds familiar...
 

blueone

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Loads don't count? The reason an active fund will lose out 99% of the time to a passive fund is because of loads and fees. Since no one has ever been proven to reliably predict the future at the end of the day the "extra charges" will mean an active fund will under performance a passive fund.

Loads do count, however in this case the difference is about 0.2%. The reason to look at the pre-load return is to judge the managers' strategy. There are also other factors, like whether or not the fund is held in a taxable account and throwing off annual long and short-term capital gains. For any of this actively managed funds these realized gains can be more of an annoyance by far than the loads. If the Democrats are successful in changing the tax laws this year for capital gains it might cause a lot of people to divest from actively managed funds.
 

levimax

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Risk is a subjective assessment. Returns over 10 years are measured facts. Hmmm... this quandary sounds familiar...
Portfolio theory measures risk all the time. It is a mathematical equation that measures volatility... the higher the volatility the higher the risk. You can argue that the "real" number is "expected future volatility" which is unknown but "historical volatility" is good enough for most uses.
 
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JeffS7444

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Peter Lynch destroyed indexes. Actively managed funds can be better than indexes. You don't need 500 companies. Of course, choose carefully. And you don't have to stay with the same ones forever.
Bill Miller may hold the record (15) for consecutive years outperforming the S&P 500, but even the smartest people make mistakes sooner or later.
 

blueone

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"historical volatility" is good enough for most uses.

Not for me. I like forward-looking strategies, not historical analyses. But this sub-thread is just a response to the statement that passive funds out-perform managed ones, and my response was "not always". The rest of this discussion is just rhetoric.
 

Pdxwayne

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Risk is a subjective assessment. Returns over 10 years are measured facts. Hmmm... this quandary sounds familiar...
Say that again to all the growth investors who invested heavily in tech stocks before 2000. Sure, the "facts" from 1990 to 2000 should continue....
 

ahofer

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Over 10 years? You're wrong. There's no such thing as a bad strategy that out-performs the market over 10 years.

sorry, that is just incorrect, it is entirely possible randomly.

And, again, wrong benchmark
 

blueone

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Say that again to all the growth investors who invested heavily in tech stocks before 2000. Sure, the "facts" from 1990 to 2000 should continue....

That was a great bubble. Fortunately I didn't get caught it in much, except for the stock options from my employer at the time. The resulting hangover was why many companies have switched to RSUs from options, at least for those below C-suite levels.
 

PatentLawyer

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I'm on my way out the door to physical therapy appt (bulging disc :mad:) and then I'm packing for my NY trip tomorrow (niece getting married this weekend :)). If I have time (I doubt it) I'll expand on the concept.

In the meantime, think about it and why it may or may not be a solid concept. I'd love to hear opinions.

Congrats to your niece; wishing her many years of happiness. As for your bulging disc, damn that sucker to hell! :) Get well.

I suppose that GDP per capita could be an interesting metric to use, as that metric is commonly used to gauge a country's standard of living. And I suppose the purpose of minimum wage is to ensure a minimum standard of living.

Enjoy your trip; I'll continue to ruminate... :)
 

ahofer

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I just ran that Fund's performance on Bloomberg - the vast majority of its outperformance came in the last two years.

This goes to *persistence* of outperformance, something academics repeatedly find doesn't exist in equities. Compressed outperformance can be a warning. Here's a good place to start learning about it:


https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3099723

Now, there actually *is* literature claiming that some fund managers have discernible skill. But they do not make their case by citing a random fund whose excess returns are dominated by the last two years.

We should apply the same evidential rigor to these claims as those about audible differences between cables and DACS, because the current evidence is just as lopsided.
 
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