Comments on: The Optimal Investment Strategy for Individual Investors http://www.theskilledinvestor.com/wp/the-optimal-investment-solution-for-individual-investors-32.htm Personal Financial Articles Thu, 18 Mar 2010 16:49:31 +0000 http://wordpress.org/?v=2.3.3 By: The Skilled Investor http://www.theskilledinvestor.com/wp/the-optimal-investment-solution-for-individual-investors-32.htm#comment-84167 The Skilled Investor Fri, 04 Apr 2008 23:22:38 +0000 http://www.theskilledinvestor.com/wp/the-optimal-investment-solution-for-individual-investors-32.htm#comment-84167 Tom, Thank you for your comment. Unfortunately, I must disagree. The evidence from scientifically constructed statistical studies uniformly indicates that amateur and professional investors are not prescient. Furthermore, if a minority have skill, they cannot reliably be identified beforehand. Furthermore, if they are professionals who offer their asset management services through actively managed mutual funds, their fees far exceed their value-added. There is no such thing as affordable alpha for retail investors. (Note that actively managed ETFs are just being introduced to the market, so there is not record to evaluate.) Risk is ever present in investing. It just manifests itself at different times in different sectors. However much one might hope, nobody has a crystal ball to say when. If someone did, over time they would own the world. To determine whether passive investors have done poorly since 1999 consider the evidence. For example, Standard and Poors tracks active versus passive performance. It is not a pretty picture for those who advocate active strategies. For example, see the The Standard & Poor's Index Versus Active (SPIVA) quarterly reports. Here is the link: <a href="http://www2.standardandpoors.com/portal/site/sp/en/us/page.hottopic/indices_spiva/3,1,1,0,0,0,0,0,0,0,0,0,0,0,0,0.html" rel="nofollow">SPIVA</a> The Skilled Investor Tom,

Thank you for your comment. Unfortunately, I must disagree.

The evidence from scientifically constructed statistical studies uniformly indicates that amateur and professional investors are not prescient. Furthermore, if a minority have skill, they cannot reliably be identified beforehand. Furthermore, if they are professionals who offer their asset management services through actively managed mutual funds, their fees far exceed their value-added. There is no such thing as affordable alpha for retail investors. (Note that actively managed ETFs are just being introduced to the market, so there is not record to evaluate.)

Risk is ever present in investing. It just manifests itself at different times in different sectors. However much one might hope, nobody has a crystal ball to say when. If someone did, over time they would own the world.

To determine whether passive investors have done poorly since 1999 consider the evidence. For example, Standard and Poors tracks active versus passive performance. It is not a pretty picture for those who advocate active strategies. For example, see the The Standard & Poor’s Index Versus Active (SPIVA) quarterly reports. Here is the link: SPIVA

The Skilled Investor

]]> By: Tom in TX http://www.theskilledinvestor.com/wp/the-optimal-investment-solution-for-individual-investors-32.htm#comment-84145 Tom in TX Thu, 03 Apr 2008 00:38:09 +0000 http://www.theskilledinvestor.com/wp/the-optimal-investment-solution-for-individual-investors-32.htm#comment-84145 The reason that passive investing is so popular is that most people are afraid to make a mistake, therefore they do nothing. Most investors have no clue how and when to sell. Therefore they go by this mantra that passive investing costs less and thus is superior. Those investors have done poorly over since 1999. What passive investing ignores is that risk changes in sectors and industries. Investors who have solid buy AND sell strategies will take less risk than passive investors and make more money. The reason that passive investing is so popular is that most people are afraid to make a mistake, therefore they do nothing. Most investors have no clue how and when to sell. Therefore they go by this mantra that passive investing costs less and thus is superior. Those investors have done poorly over since 1999. What passive investing ignores is that risk changes in sectors and industries. Investors who have solid buy AND sell strategies will take less risk than passive investors and make more money.

]]>