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Ice
02-05-2005, 07:13 PM
To All

Making money in the stock market is a tough job. Very few money managers can even beat an index fund over the long haul.The question is if the best and brightest can't beat
an index fund what makes you the individual investor think you can beat it?

I think you can but it takes the right framework. Most investors just jump on the next hot stock or ipo and think thats investing. Sorry that won't cut it. You need to think about the company your buying and trying to figure out WHAT
IT IS WORTH.That is the single most important advice any investor should have tattooed on their forehead.

Most investors have NO CLUE to the value of the stock they are buying. I'm not saying it is easy and their are different ways to value companies,i.e DCF,P-B.P-CF,P-E and more.What i'm saying is before you go out and buy a stock try to figure out what it is worth and leave yourself a margin of error in case your wrong before you buy and you"ll
be ahead of 90% of the investors out there.Good luck to all. Ice

adios
02-05-2005, 08:59 PM
I agree with you about 90% of investors. I might put that number even higher. However, IMO the big time investment firms have a big advantage in forecasting sales and earnings. Also their valuation models are more sophisticated and I would think tend to be more accurate than what the individual comes up with generally speaking.

Ice
02-06-2005, 09:19 AM
Adios

There is no question they have more advanced models and forecasting tools.Yet i know of very few of these firms that have individuals/employees that have good long term track records. I think most of these firms are in the business of SELLING information or generating FEES.

Also,if any these employees are good at researching and uncovering undervalued companies their opening their own hedge fund or mutual fund pretty quickly.

IMO one of the big reasons so many funds don't do well is they have so many FEES. There is a 5% front end load and their mgmt fee etc which is a real handicap to performance.In addition,so many of these funds have so many stocks in their portfolios they begin to look like index funds but their FEES are so much higher.

I think if an individual investor wants to beat the market he/she is going to have te get an expertise in an area and CONCENTRATE their holdings.IMO 10 stocks should be enough and if your really good less stocks. I know it is contrary to everything you hear but i have followed many of the great invetors over the last 20 years and most have CONCENTRATED their holdings.

Another thing most of these great investors do is their buying stocks that have been hammered or stocks that have not been disovered yet by the rest of the street therefore,they are getting them cheaper.There are so many examples of this it would make your head spin but i'll give you a couple.Warren Buffetts purchase of Moodys when it got spun off from D&B,Fairholme funds purchase of MCI after it came out of bankruptcy,Longleaf partners purchase of Disney during all the problems with ABC and Eisner,Clipper funds purchase of El Paso after the energy trading scandal hammered the stock to 4 or David Dremans fund purchase of UST after they got hit with a monoply lawsuit and drove the price to 15 about 5 years ago and is now trading at 50.

Those are are examples of hammered stocks except for Moodys but there are many examples of companies that investors overlook that are doing well.Probably, many of the small caps are an area where there are not as many analysts following them thus bargains are better. Good Luck to all.
Ice

crazy canuck
02-07-2005, 03:22 AM
Mutual fund managers have strict regulations and that's why they have a tough time beating the market. However, you are correct about the funds being sales. My girlfriend worked for a actuarial/consulting firm and they monitored and recommended funds to clients. The funds had to disclose their techniques (most of the clients were pension funds), and most of these tecniques used were pretty basic and there is no way that they had any kind of edge over the market. The only reason the funds existed because the people who are in charge of the pension funds have no idea what tecniques work consistently in the market. So if the sales people convinced the people in charge the fund had new investors. Not surprisingly many of the funds had poor performance and huge variance.

gvibes
02-07-2005, 04:24 PM
Making money in the stock market over time is easy (i.e. index funds).

Beating the market over the long term is at best extremely difficult, and at worst a crap shoot.

AceHigh
02-08-2005, 12:18 AM
[ QUOTE ]
Very few money managers can even beat an index fund over the long haul.The question is if the best and brightest can't beat
an index fund what makes you the individual investor think you can beat it?

[/ QUOTE ]

Because fund managers don't make money by beating indexes...they make money by generating fees. So they need to generate fees first and then try to beat the indexes second.

ruleof72
02-08-2005, 02:23 PM
80% of managers don't beat the market, that also means that 20% do. if there are 10,000 mutual funds out there surely you can find 4 or 5 that consistently outperform the market over the longhaul. miller/freeney/wanger for stocks, gross/fuss bonds all have outperformed their benchmarks.

gvibes
02-08-2005, 03:23 PM
[ QUOTE ]
80% of managers don't beat the market, that also means that 20% do. if there are 10,000 mutual funds out there surely you can find 4 or 5 that consistently outperform the market over the longhaul. miller/freeney/wanger for stocks, gross/fuss bonds all have outperformed their benchmarks.

[/ QUOTE ]

Correct me if I'm wrong, but I believe the number of funds who outperform their indicies is actually LOWER than a random distribution would suggest.

E.G., say that there are 100,000 funds, and every fund has a 20% chance to outperform its index (completely randomly). After 5 years, a random distribution would suggest that 100,000/5^5 = 32 funds would have outperformed their index every year for the last five.

However, in real life, you would typically see LESS than 32 funds who have outperformed their index over that period.

So, in other words, these "consistently outperforming" funds could be nothing more than the expected result of variance.

Or the guy could be brilliant - who knows?

ruleof72
02-08-2005, 03:57 PM
This is true, a manager is not going to beat its index every year, however on avg. over 5 or 10 yrs there are a number of managers that have done just that. Just as any team can be beaten on any day, the same thing holds true for the market. If you want year after year, look at Bill Miller and the Legg Mason Value trust, it has beaten the S&P 500 for 14 years in a row. So there are managers out there who can do it, find them.

guardianx
02-08-2005, 04:44 PM
[ QUOTE ]
To All

Making money in the stock market is a tough job. Very few money managers can even beat an index fund over the long haul.The question is if the best and brightest can't beat
an index fund what makes you the individual investor think you can beat it?

I think you can but it takes the right framework. Most investors just jump on the next hot stock or ipo and think thats investing. Sorry that won't cut it. You need to think about the company your buying and trying to figure out WHAT
IT IS WORTH.That is the single most important advice any investor should have tattooed on their forehead.

Most investors have NO CLUE to the value of the stock they are buying. I'm not saying it is easy and their are different ways to value companies,i.e DCF,P-B.P-CF,P-E and more.What i'm saying is before you go out and buy a stock try to figure out what it is worth and leave yourself a margin of error in case your wrong before you buy and you"ll
be ahead of 90% of the investors out there.Good luck to all. Ice

[/ QUOTE ]

i'm new to investing is there any other good forum for investing talk?? further more i would like to know more about evauating a stock can u point me to the right information?

AceHigh
02-08-2005, 09:49 PM
[ QUOTE ]
if there are 10,000 mutual funds out there surely you can find 4 or 5 that consistently outperform the market over the longhaul.

[/ QUOTE ]

If you are going to spend hours researching funds to find the goods ones, why not spend hours researching stocks and saving yourself the fees associated with funds?

ruleof72
02-10-2005, 03:43 PM
with mutual funds you only need to do it once. You then need to monitor the fund. Stocks you need to be on top of all the time, thats what the fund managers are for. If you think you can do as good as a job as someone who has a team of people researching all day every day, then you are smarter than I am.

AceHigh
02-11-2005, 12:23 AM
[ QUOTE ]
with mutual funds you only need to do it once. You then need to monitor the fund.

[/ QUOTE ]

If you only need to do it once, why do you need to monitor the fund? Also, won't a fund be a lot harder to evaluate because it is made up of many stocks?