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  • #16
    Originally posted by Gemini View Post
    ^You're talking about high rollers I'm talking about your average Joe/Jane. I'm talking about investing hundreds/thousands. I'm talking about buying stocks for the long term for modest growth. The high rollers buy millions of stocks and usually take higher risks because they can afford it but I bet even they have stocks that just slowly gain over time. Average Joe will no doubt over time make money it's just holding out until that time. Don't risk more than you can afford to loose.
    No, I am absolutely not talking about high rollers. Index investing is applicable to just about any one looking to invest, whether they have thousands or millions. If it's just hundreds, then yeah, you're probably best off just finding the highest interest savings account that doesn't charge any fees. But outside of that, buy and hold index investing works quite well for any net worth. The strategy might change a little, in terms of lower net worth individuals being better off with buying low MER mutual funds as opposed to ETF's, as mutual funds don't have transaction costs like ETF's do, but that's about it.

    You seem to have a fundamental misunderstanding of what index investing is, how it works, and who it works for. If you're truly interested, take 5 minutes and read this FAQ: http://canadiancouchpotato.com/couch-potato-faq/

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    • #17
      ^I have my limited funds in index funds. Its not as "fun" as going out and buying a portfolio, but its reliable, easy, and a lot lower cost. I think it would be interesting if CPP, AIMCO or similar, simply purchased index's of Canada / US, and some global, it would certainly save a lot of management time (like CPP having to deal with the Laricina default).

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      • #18
        Originally posted by moahunter View Post
        ^I have my limited funds in index funds. Its not as "fun" as going out and buying a portfolio, but its reliable, easy, and a lot lower cost. I think it would be interesting if CPP, AIMCO or similar, simply purchased index's of Canada / US, and some global, it would certainly save a lot of management time (like CPP having to deal with the Laricina default).
        A lot of the huge pension and sovereign wealth funds still have management costs that are pretty darn low even though they're actively investing, because of their scale. And they're investing in things that go above and beyond simple equities/indexes. So long as they're not trailing comparable benchmark indexes, I don't think it's a big problem. And the CPP has to be a bit more risk averse than the average investor. Imagine the headlines if the CPP shrunk by 30-40% in 2008. Heads would roll.

        That's the one thing with index investing: not every market participant can do it, or even a significant minority of participants can, because then markets will start to get very inefficient since no one is trying to actively trade and beat the market. Where that line is drawn exactly, I have no idea.

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        • #19
          Originally posted by Marcel Petrin View Post
          Originally posted by moahunter View Post
          ^I have my limited funds in index funds. Its not as "fun" as going out and buying a portfolio, but its reliable, easy, and a lot lower cost. I think it would be interesting if CPP, AIMCO or similar, simply purchased index's of Canada / US, and some global, it would certainly save a lot of management time (like CPP having to deal with the Laricina default).
          A lot of the huge pension and sovereign wealth funds still have management costs that are pretty darn low even though they're actively investing, because of their scale. And they're investing in things that go above and beyond simple equities/indexes. So long as they're not trailing comparable benchmark indexes, I don't think it's a big problem. And the CPP has to be a bit more risk averse than the average investor. Imagine the headlines if the CPP shrunk by 30-40% in 2008. Heads would roll.

          That's the one thing with index investing: not every market participant can do it, or even a significant minority of participants can, because then markets will start to get very inefficient since no one is trying to actively trade and beat the market. Where that line is drawn exactly, I have no idea.
          Pensions and endowments have different, usually current and near term, cash flow requirements and so are more like someone already in retirement in that sense. Moreover, people endlessly look at equity index returns and then without thinking, compare say the TSX return to their pension return and become critical of the pension's performance. Insane, since when would you want you pension fund to put 100% of their funds into equities - even in situations like we've seen lately.

          Unfortunately, pensions make the same mistakes everyone else does - they chase rainbows or drive by the rear view mirror as it's called. Arnold van den Berg described this very suscinctly in an Outstanding Investor Digest article in the 1990s where he talked about how the conservative nature of pensions essentially caused them to load up with gold in the late 1970s at the end of its bull market. Basically, pensions are conservative. They wait for academic proof before moving. That comes fro the academics who need to wait for to quantifiable evidence to study and once they have it, as occurs in a bull market, they start to reason that the outperforming sector is a logical addition to any portfolio. So by the time the justification has arrived and policy benchmarks are adjusted and approved, the rational reasonable justification has long passed. On several occasions Buffett has taken pension management to task as well.
          Last edited by KC; 04-03-2015, 09:38 AM.

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          • #20
            Originally posted by Gemini View Post
            I don't think it's naïve reading the business section to find out who is expanding were and who is closing out and who is being taking over. Anyone buying stock has to be prepared to hold out for returns. Very few people buy shares then find them soaring to great heights after they buy them. If it happens they are exceptionally lucky. If a person bought Apple shares for a low price when Apple first started out I should imagine by now they have a tidy profit. If the bulk of a persons shares are in big food companies like Kraft etc. I should imagine they show modest returns. We all have to eat but I doubt the stock on those companies fluctuates much unless they buy someone else out or they invent a new product that everybody wants. Some people make money in stocks while directing their own portfolios but I should imagine if it's the average Joe their investments are very modest.
            Skim this video. One can be determined to match an index and therefor potentially go right off a cliff with everyone else. People need to read and understand what their money is doing and why. They need to understand that riding out most things makes sense and probably will for most of their life, however, that periodically, they need to think for themselves - maybe once, maybe twice in an average lifespan and seek to protect their savings and not try to match an index.


            Robert Shiller Examines Whether We Are Headed Towards Another Financial Crisis
            March 03, 2015

            http://www.gurufocus.com/news/321091...nancial-crisis

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            • #21
              Market timing is a mug's game. You don't just have to predict a crisis, you have to predict the timing of it. And then you have to predict the timing of the recovery. Many of the doomsday predictors had been doing so for years before the crisis finally hit, and almost none got the timing right. If you'd listened to them and sold in 2006, you'd have missed a huge amount of the run up before the crisis.

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              • #22
                Originally posted by Marcel Petrin View Post
                Market timing is a mug's game. You don't just have to predict a crisis, you have to predict the timing of it. And then you have to predict the timing of the recovery. Many of the doomsday predictors had been doing so for years before the crisis finally hit, and almost none got the timing right. If you'd listened to them and sold in 2006, you'd have missed a huge amount of the run up before the crisis.
                That's being a bit too dogmatic. Sometimes its reasonable and rational to step back to protect one's capital when the world seems to be behaving irrationally. In those cases I don't really care if my timing is off and I suffer opportunity cost. I can instead sleep at night.

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                • #23
                  ^When has the world not behaved irrationally?

                  Regarding market timing, I agree with Marcel. I was tempted to sell my mutual funds last September before a dip in the market that turned out to be temporary. Glad I didn't since my portfolio has since gone up 15% from September 2014 to today.

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                  • #24
                    Most of the time I'd say it's impossible to tell rational from irrational market behaviour. However, if in 1999 I held a NASDAQ index fund I think I would have had a very had time believing that it was valued rationally and that I shouldn't rebalance but instead hold for the long term.

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                    • #25
                      No question that depending on the size of your account, you should be rebalancing several times a year as you re-invest dividends, contribute more funds, and so on. But again, holding a fund that tracks the NASDAQ is pretty much the antithesis of index investing. No different than if you were heavily invested in gold, mining, or energy stocks. The whole point of index investing is to be widely diversified, and the NASDAW is anything but. For the most part, a good and simple indexing portfolio for a Canadian really only needs to hold about 3 different funds: a Canadian equity index fund, an international ex-Canada fund, and a bond index fund. Cutting and slicing much more than that makes managing your portfolio more difficult, and also tempts you to try to guess at which funds might outperform etc.

                      Although in all honesty, my portfolio is a bit of a mess. When I started it, index ETF's weren't too widely available in Canada, so I've got a mix of iShares ETF's traded on the TSX, and Vanguard ETF's (US, Europe, Pacific, Emerging) traded on the NYSE and denominated in US currency. It's a bit of a disaster to keep things in balance with all the currency conversions etc, but I've got a spreadsheet that does most of it automatically. Going forward I'm likely to just go with some Vanguard ETF's traded on the TSX, but that'll further complicate my spreadsheet. Unfortunately, as I started index investing in earnest in 2009, there's some very large gains on most of the US denominated funds, and selling them would incur some pretty hefty capital gains, so I can't really clean it up.
                      Last edited by Marcel Petrin; 06-03-2015, 08:33 AM.

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                      • #26
                        Originally posted by Marcel Petrin View Post
                        No question that depending on the size of your account, you should be rebalancing several times a year as you re-invest dividends, contribute more funds, and so on. But again, holding a fund that tracks the NASDAQ is pretty much the antithesis of index investing. No different than if you were heavily invested in gold, mining, or energy stocks. The whole point of index investing is to be widely diversified, and the NASDAW is anything but. For the most part, a good and simple indexing portfolio for a Canadian really only needs to hold about 3 different funds: a Canadian equity index fund, an international ex-Canada fund, and a bond index fund. Cutting and slicing much more than that makes managing your portfolio more difficult, and also tempts you to try to guess at which funds might outperform etc.

                        Although in all honesty, my portfolio is a bit of a mess. When I started it, index ETF's weren't too widely available in Canada, so I've got a mix of iShares ETF's traded on the TSX, and Vanguard ETF's (US, Europe, Pacific, Emerging) traded on the NYSE and denominated in US currency. It's a bit of a disaster to keep things in balance with all the currency conversions etc, but I've got a spreadsheet that does most of it automatically. Going forward I'm likely to just go with some Vanguard ETF's traded on the TSX, but that'll further complicate my spreadsheet. Unfortunately, as I started index investing in earnest in 2009, there's some very large gains on most of the US denominated funds, and selling them would incur some pretty hefty capital gains, so I can't really clean it up.
                        Totally agree. People just have to keep in mind that most of the index investing studies have focused on US post-war experience and primarily at the S&P 500.

                        The issue of rebalancing is an interesting one because it introduces passive/formulaic market timing to the equation and is no longer a buy and hold scenario. Dollar cost averaging, value cost averaging, etc. make good cases against "market timing" but against "buy and hold". (And as one study once said, you can't book that average cost.)

                        Jeremy Grantham has said some interesting things about career risk and fund managers' short term focus that should also be taken into account in such analysis. Transaction costs, high MERs combined with short term minded bosses doing short term performance measurements on their fund managers and short term minded investors quick to bail to sell low and buy to dilute fund gains vs a simple index highlights a broken system (on average) that will never beat indexes - on average.
                        Last edited by KC; 06-03-2015, 09:09 AM.

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                        • #27
                          Just remember - put your foreign dividend-paying equities in an RRSP, not a TFSA. Your "tax free" dividends are subject to foreign withholding tax if they are non-canadian. Which really sucks.

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                          • #28
                            More on indexing.

                            Note: One needs to read the whole blog posting discussion on indexes and not just my teaser quotes.

                            Alleghany Annual Report 2014
                            March 8, 2015

                            "But this paragraph was kind of interesting:

                            The S&P 500 is a challenging benchmark because it is not a static population of companies. Losers are kicked out of the index, and vibrant, growing companies are added. It also represents America's leading companies, including a number of companies that dominate their industries. By contrast, the New York Stock Exchange Composite index is more representative of the average company. In 2014, the NYSE Composite returned 6.9%, and has returned about 6.9% a year over the past decade.

                            Honestly, I've never really looked at the S&P 500 that way, but ..."


                            "McGraw Hill Greatest Fund Manager on the Planet!
                            So, wait a second. The S&P 500 index is actively managed (as described above) and everyone has trouble beating them. Doesn't that make the S&P 500 index committee the best portfolio managers around? There is more than $1.25 trillion of assets directly tied to the index. If they are that good and can outperform everyone else, surely they can charge 1.0% management fee. That's $12.5 billion in management fees right there...."

                            http://brooklyninvestor.blogspot.ca

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                            • #29
                              And more on indexing... Note that he's sounding very much like Warren Buffett.


                              The upside of a market decline: Burton Malkiel
                              Published: Mar 12, 2015

                              excerpts:


                              "After a great run in 2013 and a respectable return in 2014, it might seem that stocks are overdue for a down year, if not a collapse. And maybe that will happen.

                              But it won't be a bad thing when it happens, if it happens at all, says Burton Malkiel in an NPR interview. "The only people who should pray for higher stock prices are people who are in retirement who are liquidating their portfolios," Malkiel told NPR. "Everybody else should actually be very happy when stock prices go down."

                              Malkiel, a Princeton professor and author of A Random Walk Down Wall Street, is a member of the Investment Committee of my firm, Rebalance IRA. Now a classic of the investment genre, the recently updated “Random Walk” truly set the stage for the passive portfolio approach revolutionizing retirement. ..."


                              "So what is Malkiel talking about when he says lower stock prices are good? ..."


                              "I think that for most people who are saving for retirement, they're going to be investing year after year after year. And so for those people, while everyone prays for higher stock prices, you actually ought to pray for lower stock prices," Malkiel continued. ..."


                              http://www.marketwatch.com/story/the...dist=countdown

                              "But now for the final exam:

                              If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

                              1997 Chairman's Letter

                              http://en.wikiquote.org/wiki/Warren_Buffett
                              Other sourced Buffett quotes:

                              c2e thread: House Prices - due to tumble?

                              Originally posted by KC View Post
                              Originally posted by maclac View Post
                              Originally posted by KC View Post
                              ^ the more you pay for oil (as in gas for you car, etc) the less income you have for other things, like RRSP contributions. The more you pay for housing, the less you have for other things, like RRSP contributions.
                              Or, one could say that the higher price for oil - the valuation of one's RRSP's - if that person is heavily vested into Energy and Resources - such as myself. I am more willing to pay $1.50/L of gas, knowing full well that my RRSP's are going through the roof. Unfortunately, people get get excited with cheap gas and don't think of the long term effects - such as the ridiculour salaries guys are making on the project that I am part of on the 881.
                              In the ideal world: a high salary, and low prices for anything you buy.


                              Buffett quotes:


                              “If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”


                              “To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”


                              “It seems everybody says [the recession] will be short and shallow, but it looks like it’s just the opposite. You know, deleveraging by its nature takes a lot of time, a lot of pain.”


                              “What we learn from history is that people don’t learn from history.”

                              KC, please stop fooling others with these non-sense quotes from that tax-cheater-in-chief, even if yourself buy it.

                              Holy crap man, comparing a consumable product like hamburger to investments where you put your savings for a rainy day or retirement!!!! Why don't you or Buffet go buy some Russian stocks then...it falling like stone.
                              http://www.connect2edmonton.ca/forum...reply&p=647179
                              Last edited by KC; 12-03-2015, 02:15 PM.

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                              • #30
                                And one of many (actually very few relatively speaking) making the case for independent thought:

                                Albert Edwards Happy Not To Be The Only ‘Party-Pooper’
                                Society Generale’s Albert Edwards sees a kindred spirit when Ray Dalio compares today’s economy to 1937
                                Michael Ide, March 19, 2015

                                “While all around are euphoric we are rattling our chains with an increasing sense of imminent doom. I like to think I’m not the only party-pooper,” writes Edwards."
                                ...

                                "Edwards doesn’t actually have a better alternative, he figures that the damage from QE is already done and the next recession is on its way, whether the Fed starts tightening this June or next year.

                                “It is indeed a dilemma but likely already too late to avert another crisis,” he writes."


                                http://www.valuewalk.com/2015/03/alb...rds-ray-dalio/

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