# Time to Go Shopping - Global shares nosedive



## Jim2007 (24 Aug 2015)

I always find these kind of articles amusing: Global shares nosedive on China economic woes.  Especially when they are peppered with statements like these:

"_Global investors are worried about growth in the world's second largest economy._"

What utter nonsense!  The fast majority of investors did the same thing today as they did last week and the week before - nothing!  It is the dealers and the funds managers that are loosing it - these are the times when you see how little they really known.

It is all ways a good time to go shopping when the idiots are selling.  They through away really good stuff without even knowing it.


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## Brendan Burgess (24 Aug 2015)

Hi Jim

For those of us who have most of our assets in shares, it's a funny time. I am long term buy and hold, so I have no intention of selling, but it's still unsettling. 

I have felt that the market has been overvalued for some time, but I know that I have no way whatsoever of measuring the valuation of the market. So the feeling has no basis in reason. 

Is it a temporary  panic which will correct itself in the near future ? Is it the start of a long-term reduction in the value of shares? I have really no idea.  I do need to sell some shares over the next few months. I don't know whether to sell now or wait until the last minute?  

I am poorer tonight than I was on Monday night last week. But overall shares have done very well over the past few years.  If I had been asleep for the last year and just checked the prices tonight for the first time, I would be happy, enough. If I had been asleep for 5 years, I would wake up very happy.



Brendan


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## joe sod (24 Aug 2015)

alot of people have set limits and stop losses which get triggered on days like today, this creates an avalanche of selling which causes the market to fall more. Stop losses are good in theory but they usually all get triggered at the same time like today. Its been a bad few weeks all round.


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## rob oyle (24 Aug 2015)

I've been trying to diversify my portfolio recently and bought (at previously set prices and submitted requests) shares today that I thought would help with my mix of holdings. Then the shares tank and I think - 'if only I had waited'. If I had though I wouldn't have sold my other holdings and had the funds to buy other shares, so it's swings and roundabouts. Then you got exceptions like FBD. I think I examine things too often - I have a portfolio page on Yahoo Finance that gives me live valuations and prices, but it's not great on days like this and it's one of my homepages, so I see it every day. 

What has happened in the last fortnight will probably put people on edge for a while though, even if things recover quickly.


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## zephyro (25 Aug 2015)

Brendan Burgess said:


> Is it a temporary  panic which will correct itself in the near future ? Is it the start of a long-term reduction in the value of shares? I have really no idea.  I do need to sell some shares over the next few months. I don't know whether to sell now or wait until the last minute?



Hi Brendan,

some of your questions require a crystal ball to answer which unfortunately I don't have! However while simplistic, the p/e or earnings yield can give an initial idea of what kind of return you can expect from a market, which is I think a more useful way to look at it than guessing about "overvaluation".

Also needing to sell some shares in a few months seems like not such a good idea, isn't it advisable to keep funds you need in the short term out of risky assets?

Finally my impression from previous posts is that most/all of your shares are Irish. Just in terms of risk reduction, have you looked at diversifying into EU/US/etc.?


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## Brendan Burgess (25 Aug 2015)

zephyro said:


> Also needing to sell some shares in a few months seems like not such a good idea, isn't it advisable to keep funds you need in the short term out of risky assets?



Not really. I have shares so they are very liquid. If I sell them in September when I need the money, they may go down further and I will be happy. It's probably a good idea to have a rainyday fund, rather than to pay off a mortgage or to invest in property, but when you have liquid shares, you don't need a rainyday fund. 





zephyro said:


> Finally my impression from previous posts is that most/all of your shares are Irish. Just in terms of risk reduction, have you looked at diversifying into EU/US/etc.?



I diversified some years ago, mainly to German shares when there was a danger of a euro crash.  Two of my shares diversified for me by moving their quote abroad - DCC and Arztya. 

But as it happens, diversification outside Ireland would not have helped in the current crash. Most markets tend to rise and fall together as most big companies have diversified their earnings.  "Irish" shares such as Ryanair and CRH earn only a very small part of their profits in Ireland.


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## Branz (25 Aug 2015)

For what is worth, its not just shares.
I incurred a NZD liability last April, which I settled this morning at todays Xrate
http://www.x-rates.com/graph/?from=EUR&to=NZD&amount=1
It was 1.40 NZD to euro in April, settled at 1.75 NZD to euro


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## Grizzly (25 Aug 2015)

Most of my shares are tied up in UK stockmarket. I had thought about selling some of them back in May. The prices had increased and I would be getting paid in Sterling. I decided not to sell because my dividend yield was far greater than the interest rate I would be getting in Ireland on the proceeds, the dividend is also paid in Sterling. I also didn't need the money.
One of my shares was a UK housebuilder and the outlook for them was/is very good. I have owned most of my shares since 1998. I could have sold these and bought them back again at lower prices on numerous times but didn't. I often wonder why I don't do this. Take my profits and then wait for the share price to drop back again and purchase again. Assuming that the fundamentals are still looking good that is.
I have a few dogs in my portfolio. I will never get my money back on these. At times I think I am expecting my good shares to make up for my bad shares which when you think about it, is a stupid kind of thinking. O.K. next time I am selling when I am happy with my profit, then I am going to buy them back again when they drop. That's a promise.


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## joe sod (29 Aug 2015)

Many people have been talking about the uninterrupted bull market in stock markets since 2009, and they were due a big correction. However stock markets have only been recovering from the financial crisis of 2008. If you look at the performance since 2007 they are less than stellar, only the US stock market has improved on 2007, the UK is about even and the european indexes have not recovered to 2007 levels. Also 2007 was a recovery only from the 2001 dot com, 9/11 crisis. We have not had a 1980s or 90s stock market boom. Many people are not invested in the stock market now especially after 2008. Even in the US the value of the DOW is comprised of the mega cap techs like Apple and Google and that has caused the outperformance in the US, the rest of the US market is not so stellar.
         The last year has not been good for me due to ill timed investments in oil and mining companies which have been in the eye of the storm recently. Even though mining stocks had already fallen alot when I bought they again fell heavily in the last 6 months.


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## noproblem (29 Aug 2015)

Just a thought but wouldn't it be a great idea if Brendan or a few financial people on this forum invest an imaginary €100k every now and again so we ordinary folk can get ideas and a grasp of what's involved in money investment and gains/losses. Next Tueday is the 1st Sept, might be as good a time as any? A lot of people would appreciate it and we could pick one another's brains and tut tut about people's performances. Might help to keep some lads and girls on their toes.


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## Marc (30 Aug 2015)

Hi,

I really like this idea but I struggle to define exactly what one would use as an "ideal" reference portfolio. In theory an "imaginary" portfolio is a really good idea because it provides a reference point for investors to compare themselves to. We use a risk appropriate benchmark as a reference for all of our clients so that they can see how they should have done for the risk they took. The benchmark we use is a bespoke blend of index data and therefore excludes all costs and taxes. That's a challenge to compare yourself to let me tell you..... Imagine you are playing tennis and your opponent is Novak Djokovic and you get the idea. So, we also use the client's required return which is the rate they need to achieve and have the best chance of never running out of money. Which again, is fine and a really good idea, the problem is that it is also a straight line - and investments don't move in a nice straight line!!

So my question is this; which portfolio should we use for reference? We could use a portfolio of a typical Irish investor but we know that a typical investor in Ireland has an unhealthy exposure to property, too much cash and inadequately diversified equity investments with a home bias to Irish stocks.

The answer is really that, actually, everyone needs a unique portfolio that is appropriate for their need, willingness and capacity for investment risk and which is consistent with their personal objectives and values about money and investment horizon. Each investor will have different answers to each of these substantive issues, and therefore each should have a unique portfolio.

If we look at the way that many products are sold in Ireland the reference point is "ESMA ratings". That is the European Securities Market Authority which measures portfolios on a scale of 1 to 7 based on their volatility over the last 5 years. Some commentators have argued that the ESMA ratings are meaningless or worse, that they mislead investors. We analysed the volatility of portfolios over a 45 year period and found that in practice over discrete 5 year periods the ESMA ratings of portfolios are fairly stable (with the exception of equities, which up until about 2 weeks ago had been less risky than history would predict)

Let's say for the sake of argument that I could provide 7 model portfolios covering the risk spectrum from conservative to higher risk. That would mean that in order to provide a reference point for most investors I would need to illustrate at least 7 different investment portfolios. So, do we just arbitrarily pick one as our reference?

However, we also need to consider different possible implementations so for example in a tax efficient solution I would use a different set of investments entirely to a pension portfolio in Ireland. This is because some funds are subject to income tax and capital gains tax and some funds are subject to exit tax. So let's say that's another 7 portfolios. However, I actually have two different tax efficient implementations so really another 14 portfolios.

Now, I can also apply a different investment approach to each portfolio range so I could have an active management solution, a passive management solution and a smart beta or what we call Strategic Indexing solution. We have 4 implementations for each option times the number of tax efficient strategies and pension implementations. 7x2x4x3 = 168 portfolios to choose from.

We also have an implementation for Ethical and Sustainable Investing with each 7 portfolios having another 4 implementations depending on the degree of exclusion that the client wishes to apply to their portfolio. We also have implementations for all of the above including and excluding Real Estate and including and excluding Emerging Markets.

Using this simplified methodology we get to something like 5,040 different reference portfolios that I could use to illustrate a single investment of €100,000.

Now, the problem is complicated further by the fact that I don't actually use 7 models for each implementation but actually 100.

So in my universe of possible investment portfolios I actually have a choice of 504,000 different combinations of investments to choose from.

Now here is an interesting observation; many investors are offered just 3 or 5 models.

Google the Financial Conduct Authority and "shoehorning" for the UK regulator's views on investors being squeezed into a narrow range of reference portfolios.


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## Brendan Burgess (30 Aug 2015)

Hi Marc

Thanks for that. It really knocks the idea on its head!   

Brendan


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## Fella (30 Aug 2015)

No disrespect to Marc but he's a financial advisor it's in their interest to make investing seem as complex as possible when it's rather simple. 

500k different portfolios is just silly just buy a an ETF that tracks the total stock market if you want more risk pick your own stocks.


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## Marc (30 Aug 2015)

Hi Fella

I think you may have missed my reference to regulatory concerns:

http://www.fca.org.uk/static/pubs/guidance/fg12-16.pdf

http://citywire.co.uk/new-model-adv...-shoe-horn-clients-into-dfms-and-difs/a573997

http://www.moneymarketing.co.uk/woo...ng-clients-into-one-size-fits-all-portfolios/



[broken link removed]


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## Marc (30 Aug 2015)

Fella

I have a client who's father died from lung cancer as a result of smoking.

An ETF that tracks the total stock market would include companies such as Philip Morris and BAT

This is just one example of tens of thousands of reasons why a one size fits all solution is never the right answer.


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## Fella (30 Aug 2015)

Marc said:


> Fella
> 
> I have a client who's father died from lung cancer as a result of smoking.
> 
> ...



I know Marc I appreciate what your saying but just google ethical ETF's and buy one that excludes tobacco companies .
I think the majority of financial advisors make things extremely complicated deliberately your saying 500k portfolios I could make a million portfolios myself combining different companies ,  it's a zero sum game you can't make a bad purchase of any stocks in an efficient market once the spread is low you are buying at par value , the more you buy in different sectors the less variance you should feel , I think financial advisors won't make much money just telling everyone to stick their money in a low cost index tracker and forget about it. So they make it more complex than it has to be.


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## Marc (30 Aug 2015)

I accept some of your argument given that it is the basis of a 12 week course I teach at Dublin business school,but you assume that the role of a competent financial adviser is to pick winning funds.

This is an increasingly outdated view of the world.

I don't manage investments so much as I manage investors.

Ben Graham who is Warren Buffett's mentor said that "the investors chief problem, and even their worst enemy, is likely to be themselves"

On average the damage that an investor does to their returns simply due to emotions is around 3%pa. see Dalbar studies.

You can't be objective about your own money. That's why I have an adviser to keep between me and stupidity.

Secondly in Ireland the biggest single value add I bring is managing taxation.

The taxation of ETFs is horrible for an Irish resident investor.

For example if you buy a Ucits you are subject to exit tax at 41% on both income and gains and each ETF is treated as a separate investment with its own tax reporting obligations and no loss relief between investments

If you buy a Luxembourg domiciled fund that invests in U.S. Equities you pay dividend withholding tax at 30% with no credit against your exit tax liability.

If you buy a U.S. ETF you are subject to federal estate tax at a rate of up to 40% on investments over $60,000 with no credit against Irish CAT so a theoretical estate tax liability of 73%!

You also seem to imply that the only portfolio that is relevant is one that is 100% stocks.

You don't mention how asset allocation between stocks, bonds. Cash and other assets such as real estate has been shown to explain around 90% of the variation of portfolio returns. Brimson Hood et al.

You also don't discuss the optimum allocation between developed and emerging market equities. Do you go with the market cap weight and if so which index provider are you using FTSe msci or other. Have you considered GDP weighting for emerging markets? Also do you equally weight of market cap weight.

What is your view on fundamental indexing. Do you overweight small and value stocks based on the Fama French three factor model.

What about other factors such as momentum and quality. How do you assign portfolio weights to these factors?

I do all these things and more for my clients all within  the context of indexing


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## Fella (31 Aug 2015)

Marc I just had a look at one of your studies I know you like to quote a lot , the Fama three factor model , it's a seriously complicated way of explaining the obvious it's basically increased risk = increased expected returns , decrease risk = decrease expected returns and basing this on small cap or large cap , I don't value any stocks I believe in an efficient market let the weight of money sort it out , if it's overvalued it will be shorted and undervalued it will be bought until we get a par value . 

I didn't get into mention cash or bonds there are a few simple suggestions like keeping your bond allocation in line with your age as you get older you have less time for your shares to recover from a crash etc. 

But I mean there is know perfect allocation in my mind , it's fairly obvious that emerging markets will be higher variance than an msci world index so buy less of one than the other depending on your risk profile. 

I agree with you the tax is a nightmare but we got to the bottom of that thanks to revenue finally clarifying some things on ETF's . 

You know your stuff but past studies are useless in my opinion , nobody can beat the market as it's a zero sum game so let's say that the only thing that can be changed is risk / return , then it's common sense from there putting all your money into a handful of stocks is a lot riskier than all your money into total stock market .


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## Gerry Canning (31 Aug 2015)

From just watching.

In 1970,s it was fashionable to buy into Irish Oil shares .( yes well!)
Mid 70,s a lot of (educated) people planted potatoes as a sure bet. (they weren,t)
In 2000,s people (invested) in property as a sure fire bet ( they got burned)
Chinese shares seem to have finally had their bubble pricked.

It appears even  the (experts) don,t beat msci over the longer term.

Common threads seems to be short -term thinking and the lure of a quick buck, plus a herd mentality, with minimal examination of what is happening at a fixed point in time ,ie not future thinking.

Am inclined to takes Fellas comment{common sense to have your money in total stock market}.
Am inclined to take Fellas advice on linking risk with age.


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## Boyd (31 Aug 2015)

Kinda reminds me of pizza! There's probably 500K topping combinations but most people only ever get two or three different combinations and they do just fine with those


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## Marc (31 Aug 2015)

Dalbar in the US recently released their 21st annual  study which continues to show just how poorly investors perform on average relative to market benchmarks over time and seeks to provide explanations for that underperformance. When in theory index investing is such as simple concept.

Before costs investing is a zero sum game, after costs it is a negative sum game. Investors are subject to the impact of taxes, trading costs and investment fees. Furthermore, there are complex technical issues to do with index reconstitution that affect the long term performance of an index tracking fund over time.

However, these factors do not fully account for the relative underperformance of investors over time. The key findings of the Dalbar study show that:


_In 2014, the *average equity mutual fund investor underperformed the S&P 500 by a wide margin of 8.19%.* The broader market return was more than double the average equity mutual fund investor’s return. (13.69% vs. 5.50%)._
_In 2014, the *average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by a margin of 4.81%.* The *broader bond market returned over five times that of the average fixed income mutual fund investor.*(5.97% vs. 1.16%)._

_In 2014, the* 20-year annualized S&P return was 9.85% while the 20-year annualized return for the average equity mutual fund investor was only 5.19%, a gap of 4.66%*_
The explanation presented for such wide discrepancies tends to be based on investor behaviour. As a group, investors tend to buy high and sell low and fail to achieve the returns that the capital markets provide to those investors who manage to stay invested through the market gyrations.

All investors need to be aware that overconfidence is an exceedingly common behavioural trait; most commentators tend to systematically overestimate their ability to accurately determine when markets are “high” or “low” compared to the evidence of their success. Levels of confidence are exacerbated during periods of persistently trending markets - upwards or downwards. Investors should watch out for making decisions when assets appear to be “obviously” over or under-valued – recent history tends to be a poor guide.

The conclusion reached by academics studying the subject is that those investors who have the benefit of working with an adviser are more objective and more disciplined than those investors who try to go it alone. In some studies investors achieve more than 100% of the returns of the funds in which they are invested by applying disciplined and objective portfolio rebalancing.

[broken link removed]


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## Marc (2 Sep 2015)

_`iam tandem', inquit, `intellegis me esse philosophum?' tum ille nimium mordaciter: `Intellexeram', inquit, `si tacuisses'._


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## Brendan Burgess (2 Sep 2015)

Marc said:


> In 2014, the* 20-year annualized S&P return was 9.85% while the 20-year annualized return for the average equity mutual fund investor was only 5.19%, a gap of 4.66%*



Hi Marc 

_Hoc non facit sensu ad me_

If a large group of people are under-performing the market by 4.66%, then some big group must be outperforming the market by this amount. Index funds under-perform slightly because of costs.  I assume that Pension Funds are under-performing as well. There are very few Warren Buffets around. 

Brendan


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## Fella (2 Sep 2015)

But Marc there's so many studies that prove everything here's a comprehensive one from Harvard Business School that's shows -

In aggregate, advised portfolios lag passive benchmarks by 2% to 3% per year, depending on the choice of benchmark. These estimates represent economically substantial underperformance: an investor who expects to retire in 30 years gives up a quarter of potential savings in present value terms by lagging the passive benchmarks by 3% per year. It is the performance drag from fees and not negative stock-picking or market-timing abilities that accounts for most of this underperformance.

The value-weighted expense ratio of the average advisor in the sample is 2.4% per year; among the top-1% of the most expensive advisors, the expense ratios reach 3.5% per year. Across advisors, we find substantial variation in investment performance, but little evidence of value added, even among the best performing advisors. The alphas in the 5th percentile of the distribution are associated with t-values below −2.5 no matter the choice of passive benchmarks. At the same time, the alphas even in the 99th percentile of the distribution are statistically insignificant. We use the Fama and French’s (2010) luck-versus-skill methodology—which they introduce to measure the proportion of skilled mutual fund managers— and find no evidence of skill (net of fees) even in the extreme right tail of the distribution.


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## joe sod (2 Sep 2015)

Marc I read an article recently about that study, alot of food for thought. Basically the average independent investor is the worst performing of all market participants. You make a good point about needing some separation from your money, if you are in control of it there is always the pressure to do something when market turmoil happens. Whereas with a fund manager there is some seperation, also that manager invariably knows more than the average investor and is better able to hold their nerve. Even the worst funds during the financial crisis have probably done much better than the average investor who invested in bank shares then.


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## Marc (3 Sep 2015)

Fella

Before you continue  your tirade against advisors, may I remind you that in January of this year you were posting questions on this site for example,

http://www.askaboutmoney.com/thread...or-irish-residents.188821/page-2#post-1416221

You received comprehensive responses, sometimes from qualified practitioners such as myself at no cost to you, which has enabled you to make your own investments free from some of the previous mistakes you were making.


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## Marc (3 Sep 2015)

Brendan Burgess said:


> Hi Marc
> 
> 
> If a large group of people are under-performing the market by 4.66%, then some big group must be outperforming the market by this amount. Index funds under-perform slightly because of costs.  I assume that Pension Funds are under-performing as well. There are very few Warren Buffets around.
> ...



Brendan

The explanation is to do with the difference between time weighted and money weighted returns.

Take an example say a Technology fund launched in the 1980s.

The brochure from the company might say that the fund has averaged a respectable 10%pa since the 1980s. And let's say that this is the true number.

Now you are an investor and you look at this performance record and decide to invest.

Now, when did most of the actual money flow into this fund? The 1990s right?

So let's say you invest in 1999 what's your return? Let's say it's -10%pa

So the fund has a performance track record of 10% pa but the average investor in the fund (when most of the money went in) achieved a negative return.

Where did it go?

Well for every stock purchase one had to be sold.

The same is true of the property market in Ireland.

The cash from overpriced property deals in 2006 went to the sellers.


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## Fella (3 Sep 2015)

Marc said:


> Fella
> 
> Before you continue  your tirade against advisors, may I remind you that in January of this year you were posting questions on this site for example,
> 
> ...



Hi Marc

I began investing last year , like many others I was unhappy with the return on deposits in the banks so had to look elsewhere. Like a lot of Irish people my initial reaction was become a landlord buy a couple of properties and rent them out , it seemed the easiest thing to do , the stock market scared me I wanted something more tangible like a house to rent , every time I ran the numbers for property investment I was getting very low yield and it didn't seem worth it.

 I then began to then look at other options , the stock market is very daunting for a new investor , a lot of information online was aimed at American or UK investors. I had some good knowledge of market efficiency but found the most complicated part of investing the tax treatment of ETF's (my chosen investment type) the tax treatment for Irish investors is/was very hard to understand , revenue have since clarified this and there has been a great deal of discussion in the threads here about it , a lot of people have contributed and its with these discussions and by debate that I feel it is much clearer now to understand and you can see a steady flow of people asking the initial questions about investing and making the move to investing from using the information available on this forum.

I have nothing against Financial Advisor's I think a lot of people will just use a Financial Advisor as they admit they are bad with money and have no interest in learning about finance , the reason I posted in this thread was because a question was put out could someone show a sample portfolio with say 100k invested and see how it gets on , I very much understand this posters question as I have been there and still am , I haven't a huge knowledge of the stock market it is very very daunting investing your hard earned money even for someone like myself who is well used to large losses. I feel your reply to his question will just put him off investing altogether , I know if I had read that before starting I probably would have just said to myself - this is too complicated lets leave it and buy a property instead.

Its very hard to disagree with the fact that most people will be better off putting a large percentage of there money into a low cost index tracker and keeping a bond allocation in equal % to the age of the client . I find your constant quoting of studies unhelpful to the average investor and off-putting to people starting out,  your posting style  - _Do you overweight small and value stocks based on the Fama French three factor model.? _ You know full well from reading my posts that I wouldn't of heard of this , so why post it ? To boost your own ego? 

It wasn't a tirade against financial advisors on my part , there are many studies that say a monkey and a pin would do better than a financial advisor at picking funds , I woudn't be so rude as to post them , my point was there are studies that show everything , your pointing to studies showing a financial advisor can add up to 100% return , I have merely said from my readings online the general consensus is Financial Advisors do not add value. Most of your postings and studies you post show that the investors flaws are from selling when the stocks fall, as I point out if you buy a low cost index tracker and forget it or add to it as you have the cash once you keep fees low ( which includes Advisors fees) then investing can be much simpler than people think.

Marc any post I made here people are free to reply or not , the fact I received a reply from yourself doesn't mean I owe you anything , anyone that replied to me I thanked them at the time , I received great help here and that is one of the reasons I want to help others starting off , its clear enough why someone like myself is posting on a website like askaboutmoney looking for advice whats not so clear is why someone like yourself is.


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## postman pat (3 Sep 2015)

..but dont leave it in the oven to long..that was referring to the pizza thing


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## RobFer (3 Sep 2015)

Fella said:


> Marc any post I made here people are free to reply or not , the fact I received a reply from yourself doesn't mean I owe you anything , anyone that replied to me I thanked them at the time , I received great help here and that is one of the reasons I want to help others starting off , its clear enough why someone like myself is posting on a website like askaboutmoney looking for advice whats not so clear is why someone like yourself is.


Thats a contradictory statement and purely for the sake of having a dig. The debate on the role of advisers is so simple as passive trackers vs advisers.


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## Slim (3 Sep 2015)

Y'all should just get Michael Fingleton to invest your funds for you. Pure genius!!


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## Brendan Burgess (4 Sep 2015)

noproblem said:


> Just a thought but wouldn't it be a great idea if Brendan or a few financial people on this forum invest an imaginary €100k every now and again so we ordinary folk can get ideas and a grasp of what's involved in money investment and gains/losses. Next Tueday is the 1st Sept, might be as good a time as any? A lot of people would appreciate it and we could pick one another's brains and tut tut about people's performances. Might help to keep some lads and girls on their toes.



Hi noproblem 

Colm Fagan is an active private investor and former President of the Society of Actuaries. He will be doing a monthly column in the Irish edition of the Sunday Times starting this Sunday "The Diary of a Private Investor".  Although I am not a stock picker, I have discussed investment issues with Colm in the past and his approach is far more systematic, independent and critical than the stuff published by stockbrokers

Brendan


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## elacsaplau (4 Sep 2015)

Hi Brendan

That’s good news – Colm has formidable pedigree so it will be interesting to see what he has to say.

My sense is that Noproblem’s idea is to understand where people think it’s a good idea to invest their money. I think it’s an idea worth developing.

So, let’s say, you had a scenario where someone has a 30 year investment horizon and has decided to invest a portion of his/her pension fund assets in equities. Let’s say, also, that this notional fund is made up of an existing sum to which regular contributions will be added. I am using this scenario as it is likely to be of interest to many who visit this site. To keep the debate on track, let’s say finally that:

the objective is to maximise returns for the level of risk taken;


ethical considerations can be parked (I struggle to understand what is and isn’t an ethical company - where the line is drawn, etc. - perhaps someone else can start another thread on this one!!); and


the investor is somewhat rationale – i.e. is not going to sabotage progress by engaging in all sorts of behavioural errors.
I shall now propose an investment strategy! I am not precious about this in the sense that it may well not be the optimum strategy and would love for contributors’ to explain (and ideally demonstrate) how a better outcome is *likely *to be achieved.

My investment is one presented by the Trustees of my pension plan – which is a passive global equity fund (partially hedged) and I am very happy with this choice.

Some quotes from Charles Ellis which may explain why I am comfortable with this investment:

Advice doesn't have to be complicated to be good;


The evidence of investment managers' success with market timing is impressive - and overwhelmingly negative; and


Statisticians debate amongst themselves whether it takes 40, 60 or 80 years to determine definitively where the incremental return obtained by a particular portfolio is attributable to luck or to skill.
My hope in writing this is that the folks on AAM will provide comfort for such an approach and/or suggest (and ideally demonstrate) ways where/how enhanced outcomes are likely.


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## mtk (11 Sep 2015)

Article for me had just couple points worth noting
Fads and fashion drive prices
Beware Heroic assumptions 
Lottery approach


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## Dan Murray (12 Sep 2015)

elacsaplau said:


> My investment is one presented by the Trustees of my pension plan – which is a passive global equity fund (partially hedged) and I am very happy with this choice.



Seems like an excellent strategy. It would be interesting to see whether the financial advisers concur or would suggest other options.


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## galway_blow_in (16 Sep 2015)

joe sod said:


> Many people have been talking about the uninterrupted bull market in stock markets since 2009, and they were due a big correction. However stock markets have only been recovering from the financial crisis of 2008. If you look at the performance since 2007 they are less than stellar, only the US stock market has improved on 2007, the UK is about even and the european indexes have not recovered to 2007 levels. Also 2007 was a recovery only from the 2001 dot com, 9/11 crisis. We have not had a 1980s or 90s stock market boom. Many people are not invested in the stock market now especially after 2008. Even in the US the value of the DOW is comprised of the mega cap techs like Apple and Google and that has caused the outperformance in the US, the rest of the US market is not so stellar.
> The last year has not been good for me due to ill timed investments in oil and mining companies which have been in the eye of the storm recently. Even though mining stocks had already fallen alot when I bought they again fell heavily in the last 6 months.



by any historic objective measure , stock are priced on the high side right now , both in the usa and europe , while not all countries in europe have regained their historic highs , germany has more than exceeded it this year , the uk would not be expected to regain its all time highs due to the collapse in oil prices , its main index two largest components are shell and bp


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## cremeegg (16 Sep 2015)

joe sod said:


> Many people have been talking about the uninterrupted bull market in stock markets since 2009, and they were due a big correction. However stock markets have only been recovering from the financial crisis of 2008. If you look at the performance since 2007 they are less than stellar.



Sorry Joe while your facts are correct you are missing something even more significant.

The FTSE100 traded over 6000 for 2 years between Feb 1999 and Feb 2001. Today it is 6,187.



galway_blow_in said:


> the uk would not be expected to regain its all time highs due to the collapse in oil prices , its main index two largest components are shell and bp



This is a very misleading thing to say. Investors in 1999 buying the FTSE didn't know they were gambling on oil prices, they thought they were buying the market. It also does not explain why over 16 years no new companies replaced oil stocks to lift the market.

The simple fact is that the second largest equity market in the world (is that still correct?) has been at a stand still for nearly 20 years.


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## joe sod (16 Sep 2015)

thats a very good point, the main stock markets have not taken out the year 2000 highs, even the dow is not that much higher than in 2000 when it reached 14000. It could be argued that there has not been a stock market boom since the 90s as then there were many people investing in shares . However with the crash of 2001 and 2008 many people have stayed away from the stock market which meant that it has been see sawing for the last 15 years. The dow is now at 16000 even though it reached 14000 in 1999. When you compare this with the period 1990 to 2000, it rose from 2500 to 14000 in just 10 years. The mini boom from 2002 to 2007 was really a real estate boom rather than a stock market boom


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## Slim (17 Sep 2015)

In the US, many prospective retirees are basing their future retirement on the 4% SWR(safe withdrawal rate). The 4% is estimated to preserve the capital value and account for inflation. These calculations assume a 7-8% growth in pension index funds over time.

How does fit in with the assertions that the US stock market has been basically stagnant over 20 years past?


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## Sarenco (17 Sep 2015)

Dividends.  The average yield on stocks comprising the S&P500 is currently around 2% but has been considerably higher in the past.

The safe withdrawal rate is the maximum amount, adjusted for inflation, that can be withdrawn annually from an investment portfolio over a prescribed time period before the portfolio is completely exhausted.  Historically, a withdrawl rate of 4%, adjusted annually for inflation, from a balanced portfolio of stocks and bonds, has survived around 95% of rolling 30-year periods and has therefore been considered a "safe" withdrawal rate.  There are many commentators that are now predicting that a balanced portfolio will not survive a withdrawal rate of 4% in the coming decades (given the current high valuations of both stocks and bonds).


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## Slim (17 Sep 2015)

Sarenco said:


> Dividends.  The average yield on stocks comprising the S&P500 is currently around 2% but has been considerably higher in the past.
> 
> The safe withdrawal rate is the maximum amount, adjusted for inflation, that historically could be withdrawn annually from an investment portfolio over a prescribed time period before the portfolio is completely exhausted.  Historically, a withdrawl rate of 4%, adjusted annually for inflation, from a balanced portfolio of stock and bonds has survived around 95% of rolling 30-year periods and has therefore been considered a "safe" withdrawal rate.  There are many commentators that are now predicting that a portfolio would not survive a withdrawal rate of 4% in the coming decades (given the current high valuations of both stocks and bonds).


 
Interesting, thanks. Apologies as I misrepresented the SWR concept.


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