I’ve been looking into a new portfolio service here in the UK that’s combined with quite a vibrant discussion forum. Seems to track dividends etc. Alas everyone on it started at the bear market lows, and is also investing in oil explorers. In other words, lots of private investors with notional portfolios that have risen 400%! They’ll have to do really badly to undo that over the next few years…

My safety first value portfolio would certainly lag them, if not the market, but I think I can get over that hurdle. Watch that space.

(I’m here to entertain you, Mike! )

My understanding is that both of the headlines I quoted refer only to mutual funds available to individual investors.

And from what I’ve read, you’re right: Pension funds and other institutional investors hold a huge part of the market.

Just in the last couple days, I read an article (having trouble trying to find the link at the moment) about the recent shift of institutional investors toward passive investing as well. I’ll add the link if I can manage to find it.

The notion that active trading outperforms in bear markets it the result of inaccurate benchmarking. It doesn’t matter whether we’re in a bull market or a bear market, the math is the same, and the parts can never exceed the sum. Even if you found a strategy that outperforms in bear markets, it is not sustainable. Sooner or later, it would underperform in bear markets too.

@Monevator, I would enjoy seeing your ideas in action. No matter the performance, it would at least help you clarify your ideas and strategies. If you want an easy process to keep track of your returns, TimerTrac.com could be very useful.

I’m sure such tinkering has done me better to date over the credit crunch and subsequent bear market than sticking in trackers throughout.

Before that though it’s a bit unclear – I belatedly realized that most of my excess gains could be due to small cap exposure (/risk), not stock picking skills. Oh well, we all have to learn. (I was also astonished when I added up my trading fees…)

I am thinking about keeping better records taking into account all payments in and out etc and benchmarking, but it’s a lot of work and of course it wouldn’t prove anything – I could just be lucky or unlucky.

Alternatively, I may start a Monevator monthly portfolio pick or similar on the blog in 2010, and compare its performance with putting £1,000 into an index tracker.

I don’t know if I can stand the almost inevitable humiliation, however.

One can try to time the market, and with enough research & dedication consistent and sustained success may be possible. However the data does NOT support this position. Many actively managed funds consistently under-perform the market. Consider that these are professional outfits with research staff, economists, and access to top quality information, etc. If the pros can’t beat the indices, how do you as an individual have a prayer of doing a better job?

I’m not saying it can’t be done, it’s just highly unlikely. This is why investing savants like Buffet recommend a diversified, indexed portfolio for average investors.

As for Indexing, my view is that its association with Passive Investing has given Indexing a bad name. The great power of Indexing is that it makes long-term timing so easy to pull off. Future prices of individual stocks are not predictable, so timing doesn’t work well for non-indexers. With indexing, all that you need to know to engage in effective long-term timing is the starting-point P/E10 level and the long-term average return for U.S. stocks (6.5 real).

Rob

Because of the relationship between performance and portfolio balance, an underperforming future year can easily wipe out all of the outperformance gains earned prior years. You could potentially avoid this if you did in fact have a winning strategy AND knew exactly when to abandon it.

A recent piece from Financeware demonstrates how one could outperform by 1% each and every year for 10 years and all it takes is one year of underperformance by 3.2% in the 11th year to completely wipe out a decade of consistent, superior returns.

http://www.financeware.com/ruminations/wems/09.23.09/AM_09.23.09.WinningbyNotLosing.pdf