Comments on: Investing In Index Funds: A Tangible Reward of Overcoming Bias http://www.overcomingbias.com/2007/07/investing-in-in.html Overcoming Bias is economist Robin Hanson’s blog, on honesty, signaling, disagreement, forecasting, and the far future. Sat, 11 Feb 2012 23:23:58 +0000 hourly 1 http://wordpress.org/?v=3.1.3 By: (More Than) A Penny Saved is a Penny Wasted, In Which I Trivialize the Entire Industry of Financial Planning | Messy Matters http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-511077 (More Than) A Penny Saved is a Penny Wasted, In Which I Trivialize the Entire Industry of Financial Planning | Messy Matters Sat, 01 Oct 2011 03:58:25 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-511077 [...] that kind of filtering has gone on. Hence, index funds. Which is pretty conventional wisdom (and James Miller on Overcoming Bias makes the argument particularly succinctly) unless you’re talking to a financial planner [...] [...] that kind of filtering has gone on. Hence, index funds. Which is pretty conventional wisdom (and James Miller on Overcoming Bias makes the argument particularly succinctly) unless you’re talking to a financial planner [...]

]]> By: gh http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417683 gh Wed, 12 Mar 2008 23:49:28 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417683 Read the prospectus & online for the fee adjusted return vs the benchmark. The YTD is always less, but look at the 5 yr,10 yr,etc.. Mutual funds are great just pick ones that outperform the index in the long run and don't be a squirrelly shorter. For avoiding taxes put your funds in a tax sheltered account. People say MOST funds =fail but that is the whole purpose..pick one that outperforms. I mean look at CWGIX/Dodge and Cox. If you are going to be that simplistic then most new businesses fail..so investing in new business won't make you $? Read the prospectus & online for the fee adjusted return vs the benchmark. The YTD is always less, but look at the 5 yr,10 yr,etc..

Mutual funds are great just pick ones that outperform the index in the long run and don’t be a squirrelly shorter. For avoiding taxes put your funds in a tax sheltered account. People say MOST funds =fail but that is the whole purpose..pick one that outperforms. I mean look at CWGIX/Dodge and Cox.

If you are going to be that simplistic then most new businesses fail..so investing in new business won’t make you $?

]]> By: Jason Bourne http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417682 Jason Bourne Sun, 29 Jul 2007 02:17:24 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417682 <i> investors who overcome overconfidence bias and invest in index funds earn much higher average returns than investors who think they can beat the market by investing in actively managed mutual funds.</i> You are really stretching the evidence to make this claim. Most active fund managers fail to beat their relevant benchmarks, but this says precisely nothing about the returns I see on my statement. My behavior has far more to do with it than which funds I'm investing in. Overconfidence might be a small part of it, but there is a veritable stew of biases which affect investor decision-making. That's why there's, like, a whole academic field devoted to the topic. investors who overcome overconfidence bias and invest in index funds earn much higher average returns than investors who think they can beat the market by investing in actively managed mutual funds.

You are really stretching the evidence to make this claim. Most active fund managers fail to beat their relevant benchmarks, but this says precisely nothing about the returns I see on my statement. My behavior has far more to do with it than which funds I’m investing in. Overconfidence might be a small part of it, but there is a veritable stew of biases which affect investor decision-making.

That’s why there’s, like, a whole academic field devoted to the topic.

]]> By: Torben http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417681 Torben Tue, 24 Jul 2007 11:12:26 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417681 Henry Blodget of <a href='http://www.slate.com/id/2160236/' rel="nofollow">Slate.com</a> points out how the past performance of mutual funds says next to nothing about their future performance. Check <a href='http://www.ifa.com/12steps/step5/step5page2.asp' rel="nofollow">figs. 5.2-5.4</a> Henry Blodget of Slate.com points out how the past performance of mutual funds says next to nothing about their future performance. Check figs. 5.2-5.4

]]> By: zzz http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417680 zzz Mon, 23 Jul 2007 23:44:50 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417680 <i>isn’t it true that if a higher and higher percentage of the money invested in stocks goes into index funds, won’t the market for stocks at some point loose its mind and the managed money start to win.</i> Yes. The real point of the random walk hypothesis is that returns to speculative activity are competed down to the lowest wages of superintendence that the market will bear. This means that speculation is a very bad deal for casual traders. isn’t it true that if a higher and higher percentage of the money invested in stocks goes into index funds, won’t the market for stocks at some point loose its mind and the managed money start to win.

Yes. The real point of the random walk hypothesis is that returns to speculative activity are competed down to the lowest wages of superintendence that the market will bear. This means that speculation is a very bad deal for casual traders.

]]> By: Patri Friedman http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417679 Patri Friedman Mon, 23 Jul 2007 22:09:49 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417679 There is a pretty good book which talks about how to overcome bias in financial decisions, it is a bit dated, but it was one of the first things I read about overcoming bias: http://www.amazon.com/Smart-Money-Decisions-change-better/dp/0471296112 There is a pretty good book which talks about how to overcome bias in financial decisions, it is a bit dated, but it was one of the first things I read about overcoming bias:

http://www.amazon.com/Smart-Money-Decisions-change-better/dp/0471296112

]]> By: Floccina http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417678 Floccina Mon, 23 Jul 2007 22:06:40 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417678 BTW Matthew C I have in the past shorted MCel and Bldp based on my belief that many MCel and Bldp investors seem to support those companies for charity reasons rather than value reasons. Also MCel and Bldp are what they call suckers bets very very long shots that cpuld pay out very big but if I use puts I limit the damage if the stock home runs but I win in most cases. BTW Matthew C I have in the past shorted MCel and Bldp based on my belief that many MCel and Bldp investors seem to support those companies for charity reasons rather than value reasons. Also MCel and Bldp are what they call suckers bets very very long shots that cpuld pay out very big but if I use puts I limit the damage if the stock home runs but I win in most cases.

]]> By: Floccina http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417677 Floccina Mon, 23 Jul 2007 21:51:23 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417677 First I am a big fan of “A Random Walk Down Wall Street” and thus I am a cost minimizer, but isn’t it true that if a higher and higher percentage of the money invested in stocks goes into index funds, won’t the market for stocks at some point loose its mind and the managed money start to win. After all stock investing is all about dividends and future dividends (stock buy backs and liquidation being equal to dividends) they are the only real return on stocks so that it is possible to be right apart from what the market does. I have an E*Trade account and I AM buying one stock at a time building up to 60 + stocks buying in approximate $5,000 chunks which I hold for 10s of years/indefinitely will I not end up with even lower costs ($5.00/trade = 5/5000 = 10 basis points over 10 years = less than 2 basis points expense) than index finds? First I am a big fan of “A Random Walk Down Wall Street” and thus I am a cost minimizer, but isn’t it true that if a higher and higher percentage of the money invested in stocks goes into index funds, won’t the market for stocks at some point loose its mind and the managed money start to win. After all stock investing is all about dividends and future dividends (stock buy backs and liquidation being equal to dividends) they are the only real return on stocks so that it is possible to be right apart from what the market does.

I have an E*Trade account and I AM buying one stock at a time building up to 60 + stocks buying in approximate $5,000 chunks which I hold for 10s of years/indefinitely will I not end up with even lower costs ($5.00/trade = 5/5000 = 10 basis points over 10 years = less than 2 basis points expense) than index finds?

]]> By: Hollywood_Freaks http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417676 Hollywood_Freaks Mon, 23 Jul 2007 20:43:47 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417676 However, the market needs these researchers in order to keep it efficient. While the index fund does not bear the cost of researching, they certainly are receiving the benefit. This could turn out to be a problem if the amount invested in index funds becomes significantly larger than those invested in managed funds. However, the market needs these researchers in order to keep it efficient. While the index fund does not bear the cost of researching, they certainly are receiving the benefit. This could turn out to be a problem if the amount invested in index funds becomes significantly larger than those invested in managed funds.

]]> By: Eric Falkenstein http://www.overcomingbias.com/2007/07/investing-in-in.html#comment-417675 Eric Falkenstein Mon, 23 Jul 2007 19:05:32 +0000 http://prod.ob.trike.com.au/2007/07/investing-in-index-funds-a-tangible-reward-of-overcoming-bias.html#comment-417675 Ross Miller has a neat paper where he measures the active portfolio manager by his deviation from a benchmark like the S&P500. Thus one's position in IBM is the amount by which it differs from the S&P weights. As these differences are much less than the absolute position weights, and reflect the active part of the adviser's skill, he then figures the actual expense ratio by dollar is more like 5%! You pay a lot for a quasi index fund with a couple of anecdotes. Puts the hedge funds 2% of assets and 20% of profits in perspective. see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=746926 Ross Miller has a neat paper where he measures the active portfolio manager by his deviation from a benchmark like the S&P500. Thus one’s position in IBM is the amount by which it differs from the S&P weights. As these differences are much less than the absolute position weights, and reflect the active part of the adviser’s skill, he then figures the actual expense ratio by dollar is more like 5%! You pay a lot for a quasi index fund with a couple of anecdotes. Puts the hedge funds 2% of assets and 20% of profits in perspective.

see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=746926

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