Passive vs Active Investing, and role of the PP
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- dualstow
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Re: Passive vs Active Investing, and role of the PP
Great OP Sophie.
I was a mod on a non-investing-related forum once upon a time. I was a longtime member, and the mods there were pretty inconsistent. Some heavy handed, some too lax, in my opinion.
It wasn't long before I became one of the heavy handed among the new mods. While I thought I was acting in the forum's best interests, keeping things orderly, I ran up against complaints that every time a topic got going, I split it up. How hard is it to follow the new thread, I thought, if I insert a link.
Still, some members felt like they had a sword hanging over them.
Bogleheads is fairly strict. It's like the Singapore of forums. The good part is that topics don't drag on too long. The bad is that you can't really chit chat organically without private messages, and not everyone wants to use PMs.
I like that they don't tolerate political comments, b/c when I read the Washington Post or the Wall Street Journal, the comment section whether it's under a piece about fuel cells or a recipe for dandelion wine, inevitably turns to "thanks, Obama" or now, to Trump. And Bogleheads is free of that.
I don't like the same policy at other times because I can't insert a relevant comment about rising grocery prices in a thread about dividend growth. (not an argument for dividends).
I haven't learned my lesson b/c I am still very much in favor of moving-not-deleting, or as one airline CEO would say, re-accommodating. Like Tenn said, it can be a daunting task. It can be like cleaning the Agaean stables.
I have been too abrasive with mathkak in the past where I should have made one anti-timing post (per thread) and dropped out. Even getting too friendly is a mistake, lest it be misconstrued as a tacit acceptance of market timing.
I have voiced my displeasure with all the non-pp or modified pp's that contain the word Permanent in the title. Some cannot even be called Lazy Portfolios. The most common one is the so-called pp without cash. Then there's leverage. Now there's timing.
I hate that newbies have to wade through that stuff,that non-pp strategy disguised as an acceptable variation in the main subforums. That's really where we should be as Draconian as the bogleheads forum. We should move it to the vp, and then I won't have to feel like such a dick for constantly calling it out.
I was a mod on a non-investing-related forum once upon a time. I was a longtime member, and the mods there were pretty inconsistent. Some heavy handed, some too lax, in my opinion.
It wasn't long before I became one of the heavy handed among the new mods. While I thought I was acting in the forum's best interests, keeping things orderly, I ran up against complaints that every time a topic got going, I split it up. How hard is it to follow the new thread, I thought, if I insert a link.
Still, some members felt like they had a sword hanging over them.
Bogleheads is fairly strict. It's like the Singapore of forums. The good part is that topics don't drag on too long. The bad is that you can't really chit chat organically without private messages, and not everyone wants to use PMs.
I like that they don't tolerate political comments, b/c when I read the Washington Post or the Wall Street Journal, the comment section whether it's under a piece about fuel cells or a recipe for dandelion wine, inevitably turns to "thanks, Obama" or now, to Trump. And Bogleheads is free of that.
I don't like the same policy at other times because I can't insert a relevant comment about rising grocery prices in a thread about dividend growth. (not an argument for dividends).
I haven't learned my lesson b/c I am still very much in favor of moving-not-deleting, or as one airline CEO would say, re-accommodating. Like Tenn said, it can be a daunting task. It can be like cleaning the Agaean stables.
I have been too abrasive with mathkak in the past where I should have made one anti-timing post (per thread) and dropped out. Even getting too friendly is a mistake, lest it be misconstrued as a tacit acceptance of market timing.
I have voiced my displeasure with all the non-pp or modified pp's that contain the word Permanent in the title. Some cannot even be called Lazy Portfolios. The most common one is the so-called pp without cash. Then there's leverage. Now there's timing.
I hate that newbies have to wade through that stuff,that non-pp strategy disguised as an acceptable variation in the main subforums. That's really where we should be as Draconian as the bogleheads forum. We should move it to the vp, and then I won't have to feel like such a dick for constantly calling it out.
- mathjak107
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Re: Passive vs Active Investing, and role of the PP
i guess there are some things that can never be over stated
Re: Passive vs Active Investing, and role of the PP
Several finance boards are now posting that all portfolios are "active" as a basic underlying premise...I agree to include the PP. The guy at pragcap started it I think and the idea is now proliferating for very good reasons. Really someone should start with what fits them and their circumstances vice get overly dogmatic about it. There are a host of wonderful tools for best guessing what a mix of assets might do under various circumstances. The main problem in reality is it normally takes years of mistakes to fully realize what does "fit" them.
Agree that just about anything that isn't pure PP should go over to the VP section...it's true to HB's concepts and detracts from this part of the board.
Agree that just about anything that isn't pure PP should go over to the VP section...it's true to HB's concepts and detracts from this part of the board.
Re: Passive vs Active Investing, and role of the PP
Sounds like market timing may be taking over those other finance boards you're reading. Give us more detail?
It's true that within the confines of the PP, it's very tempting and not at all difficult to incorporate some market timing into it - by which I mean attempting to predict market trends and acting accordingly. For example, I'm engaging in a bit of market timing myself: I'm assuming the Fed will make good on at least some of its planned interest rate increases, so instead of buying 1-3 year short term bonds for "medium" depth cash, I'm sticking with 3 or 6 month T bills. There's also the question of when to rebalance and how to add new investments - both events ripe for market timing. In the pure PP, you add all new investments to cash and rebalance when you hit a 15/35 band - but I suspect few of us do that. Harry Browne's original prescription also called for buying a set of 20 stocks, picking the most volatile ("Best Laid Plans"). He later changed this to buying an index fund, once those became available (Radio show).
The problem is that once you start down the market timing path and get to the point of flipping portfolios, things get really dicey. For example, several people have declared they've switched to the Golden Butterfly. Why? I think the main reason is recency bias - the stock bull market has gone on long enough that people no longer remember their visceral reaction to watching their investments drop 40% in value, or realizing that the 10 year return of the S&P 500 was approximately zero. The Golden Butterfly is a perfectly sound portfolio, but I suspect that the moment the stock market gets in trouble, many of its adopters will switch back to the PP. The effect will be the general fate of market timers: they will have bought stocks at market highs, and either not bought them or sold them at market low points.
Unfortunately, in order to be a passive investor you have to buy assets that scare you and sell assets that you love. That's hard to do! About the only way to make this easier is to detach a bit from your investments. Focus on your career, family, hobbies etc, and make investments something you look at briefly a few times a year. However, I guess that's a bit contrary to the idea of taking part in an investment forum. Maybe that's why the biggest category in this forum is "Other".
It's true that within the confines of the PP, it's very tempting and not at all difficult to incorporate some market timing into it - by which I mean attempting to predict market trends and acting accordingly. For example, I'm engaging in a bit of market timing myself: I'm assuming the Fed will make good on at least some of its planned interest rate increases, so instead of buying 1-3 year short term bonds for "medium" depth cash, I'm sticking with 3 or 6 month T bills. There's also the question of when to rebalance and how to add new investments - both events ripe for market timing. In the pure PP, you add all new investments to cash and rebalance when you hit a 15/35 band - but I suspect few of us do that. Harry Browne's original prescription also called for buying a set of 20 stocks, picking the most volatile ("Best Laid Plans"). He later changed this to buying an index fund, once those became available (Radio show).
The problem is that once you start down the market timing path and get to the point of flipping portfolios, things get really dicey. For example, several people have declared they've switched to the Golden Butterfly. Why? I think the main reason is recency bias - the stock bull market has gone on long enough that people no longer remember their visceral reaction to watching their investments drop 40% in value, or realizing that the 10 year return of the S&P 500 was approximately zero. The Golden Butterfly is a perfectly sound portfolio, but I suspect that the moment the stock market gets in trouble, many of its adopters will switch back to the PP. The effect will be the general fate of market timers: they will have bought stocks at market highs, and either not bought them or sold them at market low points.
Unfortunately, in order to be a passive investor you have to buy assets that scare you and sell assets that you love. That's hard to do! About the only way to make this easier is to detach a bit from your investments. Focus on your career, family, hobbies etc, and make investments something you look at briefly a few times a year. However, I guess that's a bit contrary to the idea of taking part in an investment forum. Maybe that's why the biggest category in this forum is "Other".
Re: Passive vs Active Investing, and role of the PP
I'm a big timing guy and I agree non-PP discussions belong in the VP thread. Beginners will get confused.
Re: Passive vs Active Investing, and role of the PP
Sophie,
Active as a term is somewhat in the eye of the beholder but the general notion is that choice of portfolio, its construction and its maintenance are all active decisions and there is no doubt the indexes are all active in that they are rule based in their construction and maintenance. Thus, "everything" is in fact active. Some bloggers will say the only non-active portfolio is one that basically aligns with the total global asset mix.
With regard to getting dicey...yup. All the challenges you mentioned are what I meant by making mistakes until you find something that fits you. Live example...the standard PP is not for me but I love the leveraged version of it I post on and have a good chunk of money in on the 20% returns thread in the VP section. Definitely HB inspired, but definitely not a PP.
Active as a term is somewhat in the eye of the beholder but the general notion is that choice of portfolio, its construction and its maintenance are all active decisions and there is no doubt the indexes are all active in that they are rule based in their construction and maintenance. Thus, "everything" is in fact active. Some bloggers will say the only non-active portfolio is one that basically aligns with the total global asset mix.
With regard to getting dicey...yup. All the challenges you mentioned are what I meant by making mistakes until you find something that fits you. Live example...the standard PP is not for me but I love the leveraged version of it I post on and have a good chunk of money in on the 20% returns thread in the VP section. Definitely HB inspired, but definitely not a PP.
- dualstow
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Re: Passive vs Active Investing, and role of the PP
Sheer stupidity. What do you do with that information?Kbg wrote:Several finance boards are now posting that all portfolios are "active" as a basic underlying premise..
.get overly dogmatic...
It's like telling an Inuit that cold doesn't exist; it's just the absence of heat where molecules are not in motion.
An excuse to tinker.
And stupid.
Re: Passive vs Active Investing, and role of the PP
Agreed. That's a pretty lame argument. Lots of self-justification going on.
In other news, the dualstow newsfeed just punched me in the gut. I'll have to binge on Soundgarden tonight.
In other news, the dualstow newsfeed just punched me in the gut. I'll have to binge on Soundgarden tonight.
- dualstow
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Re: Passive vs Active Investing, and role of the PP
Sorry about that. We lost him too soon.
Re: Passive vs Active Investing, and role of the PP
I 100% disagree. I think it is an extremely useful, though simple, insight. The net effect is no matter how you trade or invest you are making a bet of one kind or another (or multiple bets based on various assumptions and data sources) and there are zero ways you can avoid that simple fact.dualstow wrote:Sheer stupidity. What do you do with that information?Kbg wrote:Several finance boards are now posting that all portfolios are "active" as a basic underlying premise..
.get overly dogmatic...
It's like telling an Inuit that cold doesn't exist; it's just the absence of heat where molecules are not in motion.
An excuse to tinker.
And stupid.
I assume you know the history behind the 60/40 and the SPX's original construction which is (supposedly) the "standard" for a "passive" portfolio. If you don't, do some digging.
And here's what you do with that information...you look at your personal circumstances and tailor your investing assets to your particular situation, psychological inclinations and hope to heck the historical data you based your decision(s) on has any relevance/predictive power for what you decided to do.
Re: Passive vs Active Investing, and role of the PP
Meh. IMHO, there's a big difference between making an educated decision on a passive portfolio that works for you and managing other active trading methodologies. One can certainly argue that there's a spectrum involved, but conflating all approaches as "active" changes the meaning of the word for the benefit of only one party controlling the wordplay.
Maybe I'll try this later. "Hey babe. Don't mind the mistress. We're all monogamous. After all, everyone here only has one spouse!"
That's not to say that active methods don't work well for some people or that a passive portfolio doesn't require a thoughtful decision, but everyone is better served if we own our differences and honestly discuss the tradeoffs rather than pretend every method is the same.
Maybe I'll try this later. "Hey babe. Don't mind the mistress. We're all monogamous. After all, everyone here only has one spouse!"
That's not to say that active methods don't work well for some people or that a passive portfolio doesn't require a thoughtful decision, but everyone is better served if we own our differences and honestly discuss the tradeoffs rather than pretend every method is the same.
Re: Passive vs Active Investing, and role of the PP
This is definitional (yours) which as I mentioned up front is in the eye of the beholder. You are defining "active" as more frequent trading (which is fine). But I would suggest what is more important about the distinction you are making with regard to frequency is the following:Tyler wrote:Meh. IMHO, there's a big difference between making an educated decision on a passive portfolio that works for you and other active trading methodologies. Conflating both approaches as "active" changes the meaning of the word.
Maybe I'll try this later. "Hey babe. Don't mind the mistress. We're all monogamous, after all. I'm only married to one person just like you!"
That's not to say that active methods don't work well for some people or that a passive portfolio doesn't require a thoughtful decision, but everyone is better served if we own our differences rather than pretend every method is the same.
- increased trading costs
- in the US, more ST vs. LT gains and the accompanying tax effects
- greater likelihood of damaging expected performance via more opportunities to screw up individual trading decisions
There are likely other negatives (and positives) you could add to the list, but my main point is that knowing what you are doing, why you are doing it and what the pros/cons are is far more important then thumping one's chest that they are a "passive" or "active" investor.
If I could pull off Renaissance Technologies in-house fund I'd be a be a super happy camper grossly rich active investor wondering why the little people are so enamored with "passive low cost investing." ;-)
Re: Passive vs Active Investing, and role of the PP
Trust dualstow to call a spade a spade!!dualstow wrote:Sheer stupidity. What do you do with that information?Kbg wrote:Several finance boards are now posting that all portfolios are "active" as a basic underlying premise..
.get overly dogmatic...
It's like telling an Inuit that cold doesn't exist; it's just the absence of heat where molecules are not in motion.
An excuse to tinker.
And stupid.
I think I defined active vs passive already. Passive = trading in order to maintain a pre-set asset allocation. Active = buying and selling in response to an individual's prediction of future market trends. Agreed?
The results of passive vs. active investing is not a subject for debate. It's been well established by now that a low-cost, passive approach overwhelmingly beats active trading over long time frames, not to mention that passive investing incurs less of a tax burden. The PP was designed to be exceptionally low cost and tax-efficient.
Question for the market-timers on this board: are you aware of the above and if so, why do you choose to market time?
Re: Passive vs Active Investing, and role of the PP
-- Mark Twain"October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February."
- dualstow
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Re: Passive vs Active Investing, and role of the PP
This is the essence of it. Maybe if I'd gotten a proper night's sleep. :-) (where's the afro smiley??)Tyler wrote:One can certainly argue that there's a spectrum involved, but conflating all approaches as "active" changes the meaning of the word for the benefit of only one party controlling the wordplay..
- dualstow
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Re: Passive vs Active Investing, and role of the PP
P.S.No offense meant to you, kbg, and apologies if any were taken. I'm just frustrated at the constant onslaught against the passive way.
At least we got a funny analogy from Tyler out of it. :afrosmiley:
At least we got a funny analogy from Tyler out of it. :afrosmiley:
Re: Passive vs Active Investing, and role of the PP
This pretty much nails it.sophie wrote:I think I defined active vs passive already. Passive = trading in order to maintain a pre-set asset allocation. Active = buying and selling in response to an individual's prediction of future market trends. Agreed?
Don't agree with me too strongly or I'm going to change my mind
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Re: Passive vs Active Investing, and role of the PP
I'm a passive investor, in that I keep the same portfolio for many years unless my situation (or my evaluation of it) changes so that it is not optimal.sophie wrote: Unfortunately, in order to be a passive investor you have to buy assets that scare you and sell assets that you love. That's hard to do! About the only way to make this easier is to detach a bit from your investments. Focus on your career, family, hobbies etc, and make investments something you look at briefly a few times a year. However, I guess that's a bit contrary to the idea of taking part in an investment forum. Maybe that's why the biggest category in this forum is "Other".
For example, I just sold a fair chunk of gold to pay off my mortgage because I'm trying to reduce my living expenses. I got get a guaranteed "return" from not having to pay interest any more.
I don't think that change makes my portfolio active, because I didn't do it to time the market or switch portfolios to get "alpha".
- JohnnyFactor
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Re: Passive vs Active Investing, and role of the PP
Found this article today that says some states are beginning to declare passive investment accounts as abandoned and taking the money for themselves.
http://www.investmentnews.com/article/2 ... serAgent=1
http://www.investmentnews.com/article/2 ... serAgent=1
Re: Passive vs Active Investing, and role of the PP
I feel like I'm supposed to be surprised, but I'm not. Damn thieves!JohnnyFactor wrote:Found this article today that says some states are beginning to declare passive investment accounts as abandoned and taking the money for themselves.
http://www.investmentnews.com/article/2 ... serAgent=1
Don't agree with me too strongly or I'm going to change my mind
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Re: Passive vs Active Investing, and role of the PP
I don't think I'm in any danger of that, since I'm taking money out every month.eufo wrote:I feel like I'm supposed to be surprised, but I'm not. Damn thieves!JohnnyFactor wrote:Found this article today that says some states are beginning to declare passive investment accounts as abandoned and taking the money for themselves.
http://www.investmentnews.com/article/2 ... serAgent=1
But I'm not surprised either.
Re: Passive vs Active Investing, and role of the PP
Scary. I hope just logging into the account qualifies as "activity"! There are definitely accounts that I haven't touched for years except to log in to check messages and the account balance.
- dualstow
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Re: Passive vs Active Investing, and role of the PP
I hope so, too. This is ridiculous.sophie wrote:Scary. I hope just logging into the account qualifies as "activity"! There are definitely accounts that I haven't touched for years except to log in to check messages and the account balance.
Re: Passive vs Active Investing, and role of the PP
Continuing off topic...
It's also a good idea to visit one's safe deposit box annually and gently fondle the gold within so as to not be mistaken for a dead person.
It's also a good idea to visit one's safe deposit box annually and gently fondle the gold within so as to not be mistaken for a dead person.