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  #31  
Old 07-12-2005, 08:02 PM
Recliner Recliner is offline
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Default Re: Why Mutual Funds are better than Index Funds

You still fail to see the key problem IMO with mutual funds. Someone can easily outperform the market with a couple hundred million in assests. After that the fund is heavily marketed and people dump in tons of cash so the fund could go from maniging 200 million to 2 billion. Cash flows into the fund faster than it is able to be invested so it sits around earning very low interest rates which will drag the funds performance down in the near future. Then the fund manager is faced with not being able to find enough companies to invest in that will provide for a high return. That cuts down the funds long term performance.

The fund managers are faced with playing split pot poker with a 10% no max rake and only have enough time to play 20,000 hands.
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  #32  
Old 07-12-2005, 11:35 PM
Sniper Sniper is offline
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Default Re: Why Mutual Funds are better than Index Funds

All mutual funds are inheretly handicapped by the size of their roll, and other rules governing mutual funds. This handicap only increases as the size of their dollars under management increases.

In poker terms, the small limit player has an advantage over the multi-millionaire poker pro in terms of ROI. While the guy with the small bankroll may be able to multiply their roll many times over rolling over fish and collecting bonuses, the high stakes player may have a tough time even doubling up their roll.
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  #33  
Old 07-13-2005, 12:30 AM
DesertCat DesertCat is offline
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Default Re: Why Mutual Funds are better than Index Funds

[ QUOTE ]
Now, if Warren Buffet said that an intelligent person who used the value investing style could not only beat the index but also Berkshire Hathaway (and value inveting is inherently less subject to fluctuation than the normal index) than a good value minded fund manager should easily overcome the 2% or so MER and deliver good long term performance. The handicap of huge holdings is much less than BRK anyway. This type of fund should easily beat the index.


[/ QUOTE ]

I guess you must have some vested interest in selling clients mutual funds (i.e. fees) as you are just not listening.

Buffett has said that a good individual value investor can beat Berkshire's performance. By this he means someone investing only a few million, or maybe tens of millions, but not hundreds of millions.

Buffett does not think this exact same person could reliably beat the S&P 500 if he was forced to invest hundreds of millions or billions in a MUTUAL FUND STRUCTURE! We've told you over and over and over again the problems with this structure.

Clearly Bill Miller is a great example who's an exception to this rule. But he's not very likely to beat the S&P going forward, not with the huge fund he's stuck with. Bill's very good, and he's been very lucky. He is not likely to be both for another ten years.

Buffett has recommended some mutual funds in the past, but those funds are long since closed to keep themselves small and limit the mutual fund handicap on their returns. Buffett no longer recommends any mutual funds, including Bill Miller's. He recommends Index funds.

I'm sorry you don't get as big a fee for selling index funds, but it's in your clients best interest to do so.
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  #34  
Old 07-13-2005, 08:04 AM
TN_POKER_MAN TN_POKER_MAN is offline
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Default Re: Why Mutual Funds are better than Index Funds

The S&P 500 Index is so top heavy. I don't know the exact figures, but I seem to recall something in the neighborhood of 80% of the index return is dictated by the performance of less than 20% of its holdings.

S&P 500 index funds have underperformed over the past few years because of the lackluster performance of the HUGE stocks out there (Pfizer, AIG, MSFT, WMT, etc.)

In reality, the S&P 500 is not really all that diversified. And contrary to what many feel, index funds are actively managed (who do you think decides on which stocks make the list?).

If you are looking for a Large (mega)cap fund, it's decent, but if you want a diversified portfolio the S&P 500 fund is hardly enough.
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  #35  
Old 07-13-2005, 12:04 PM
meow_meow meow_meow is offline
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Default Re: Why Mutual Funds are better than Index Funds

I'd like to ask OP a question:
What attracts you to post on the 2+2 forums?

After your posts in this thread got a bit strange, I browsed your other posts - no poker content whatsoever.

BTW, my personal favorite is the one where you suggest that homosexuality (or "men boning each other in the bum" as you put it) threatens the continued existance of the species.

So I guess I'm outing you as homophobic, mutual fund-loving, non-poker discussing Canadian.
Ha. I didn't think we had any of those up here...
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  #36  
Old 07-13-2005, 02:27 PM
DesertCat DesertCat is offline
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Default Re: Why Mutual Funds are better than Index Funds

[ QUOTE ]
The S&P 500 Index is so top heavy. I don't know the exact figures, but I seem to recall something in the neighborhood of 80% of the index return is dictated by the performance of less than 20% of its holdings.

S&P 500 index funds have underperformed over the past few years because of the lackluster performance of the HUGE stocks out there (Pfizer, AIG, MSFT, WMT, etc.)

In reality, the S&P 500 is not really all that diversified. And contrary to what many feel, index funds are actively managed (who do you think decides on which stocks make the list?).

If you are looking for a Large (mega)cap fund, it's decent, but if you want a diversified portfolio the S&P 500 fund is hardly enough.

[/ QUOTE ]

Wow. That's a lot of misinformation in a single post. First, you are right that the S&P 500 isn't the best possible index, it's focused on the largest cap stocks. A russell 2000 fund would be better since it exposes you to the broader market.

But index funds aren't actively managed. The indexes are picked on a regular basis (russell is yearly) based on current market caps and liquidity. Berkshire isn't in the S&P 500 because it's relatively illiquid, for example. But the criteria are pretty mechanical.

Managers of index funds do try clever techniques using their cash to earn extra interest to help outperform slightly, but those moves only have a tiny affect. The key is that because their expense ratios are so low (.2-.3%) they tend to match the index results very closely.

And if you think 500 stocks isn't diversified, you and I have entirely different definitions of the word. Certainly it's not "perfectly" diversified, but it's far more diversifed than any actively managed fund I've heard of.

Think about it. An actively managed fund might have 100-200 stocks, and if the fund is large enough, might only be able to buy S&P 500 stocks anyways. So you end up paying the manager 2% a year to churn money around the same universe of stocks.
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  #37  
Old 07-13-2005, 10:17 PM
Peter666 Peter666 is offline
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Default Re: Why Mutual Funds are better than Index Funds

I actually do not own any mutuial funds, and do have several holdings in index funds within a universal life policy (I had no choice but to pick several of these within the policy. My real investing strategy is to own a handful of closely monitored and well researched stocks, and they have done very well for me. And of course, this is much better than having money in mutual funds with all their inherent weaknesses.

But when comparing mutual funds to index funds, I still believe that the psychological factor of less downward fluctuation in a proven Value Invested mutual fund far outweighs the consequences of eventually being capped. Thus, a beginning investor will be better served by it. And if you do not agree, than we will have to agree to disagree.
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  #38  
Old 07-14-2005, 01:32 PM
DesertCat DesertCat is offline
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Default Re: Why Mutual Funds are better than Index Funds

[ QUOTE ]
But when comparing mutual funds to index funds, I still believe that the psychological factor of less downward fluctuation in a proven Value Invested mutual fund far outweighs the consequences of eventually being capped. Thus, a beginning investor will be better served by it. And if you do not agree, than we will have to agree to disagree.

[/ QUOTE ]

We don't have to disagree. I would agree that if a fund exists that outperforms the indexes and also is less volatile, it's a pretty good choice.

So show me a mutual fund with a ten year track record of outperforming indexes, and with a lower beta. You seem to think these commonly exist, I don't.
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  #39  
Old 07-14-2005, 01:50 PM
player24 player24 is offline
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Default Re: Why Mutual Funds are better than Index Funds

The average S&P 500 index fund returned 5.73%, 7.65%, -2.91% and 9.47% for the past 1 year, 3 years, 5 years and 10 years respectively. (annualized annual returns)

The average multi-cap value fund returned 10.73%, 10.08%, 6.22% and 10.14% over the same horizons.

The average mid-cap value fund did even better, where as large cap value funds did somewhat worse. Growth funds did somewhat worse than value funds, but still tended to beat the S&P 500.

These are not the best of the actively managed funds, these are the averages (after fees and expenses - as reported by Barron's in their quarterly mutual fund review, Monday July 11, 2005).

Actively managed stock funds will not always beat the S&P 500 index funds, but they have, on balance, over the past decade. The best performing funds, of course, killed the indices.
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  #40  
Old 07-14-2005, 04:41 PM
DesertCat DesertCat is offline
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Default Re: Why Mutual Funds are better than Index Funds

[ QUOTE ]
The average S&P 500 index fund returned 5.73%, 7.65%, -2.91% and 9.47% for the past 1 year, 3 years, 5 years and 10 years respectively. (annualized annual returns)

The average multi-cap value fund returned 10.73%, 10.08%, 6.22% and 10.14% over the same horizons.

The average mid-cap value fund did even better, where as large cap value funds did somewhat worse.

[/ QUOTE ]

You have some apples and oranges here, like comparing mid-caps to S&P 500 indexes. How well do they do if you compare multi-caps to a Russell index, for example?
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