I read that book this year. The entire book can be summarised as.
Don't attempt to beat the market. The market cannot be beat (many examples in the book). Invest in index funds long term which is the right mix of risk/reward for most people.
It does have a chart in the back which tracks your age and situation. For example as you approach retirement you should start to liquidate your funds and buy government bonds so you aren't hit by a bad year when you have to start drawing on your investments.
It did convince me. I opened accounts with Wealthsimple and Questrade the next day.
I really would like to believe this, but please explain to me how then how firms like Renaissance can exist ... Not sure whether it's relevant but I'll add that I'm an economics PhD student.
The market cannot be beat by 100% of amateurs piddling away on their brokerage account during a few spare hours a week.
The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them.
I'm calling your bluff on you being an econ PhD student or maybe you have been one for a month or two at most...? If you are an econ grad student you know what RenTec is doing more or less. At least in theory if not specifics, people talk and there's plenty of econ papers explaining what's underneath major quant strategies.
People need to chill bringing up RenTec when finance comes up (Buffett too). Just like they need to chill bringing up Facebook when talking about startup valuations. Outliers are outliers.
Academia doesn't pay that much attention to the real world. Most of the papers out there are rubbish and would be considered junior level work, except with way too much detail.
There are pretty much no econ papers that would describe what happens inside the high end systematic firms. (Source: I work in the industry)
Bringing up the outliers is a perfect counterexample when wild sweeping statements are made. These are not even real outliers, they are valid samples.
>The market cannot be beat by 99.9% of professional investors spending all their time day and night trying and with a team of people helping them.
Professional investors pretty consistently beat the market. But not the ones that you see. The louder someone markets their fund, the more likely it is to be a scam. Your sample is of guys who heavily promote their fund and make money from management fees not performance.
The best managers aren't even made visible to you. Why would you attract attention to what you're doing if you have a good thing going?
I agree & the "pro-index" crowd would improve the accuracy, if not the effectiveness, of its message by saying "non-passive strategies can work superbly, but not for outsiders with <$1M in capital" instead of saying "no one beats the market in the long run" / "you can't predict which parties will beat the market in the long run".
Professional investors are not pretty consistently beating the market...secular! Anyone can have a good year or two.
I'm not talking about dudes talking their book on CNBC. Yes there are shops that beat the market, but if you have beaten the market 5 years in a row, you can't keep it a secret even if you want to.
How exactly do you think the performance is made public, if the fund doesn't want it to be? This isn't about illuminati, this is just logic. You can't hide what you're doing from the institutions you have to deal with, but they won't exactly disclose it to general public.
Why would you promote your fund, if you have all the FUM you need? If you are doing well, why would you tell people about it? It is funny that your position is because you haven't seen it, it doesn't exist.
You say you work in the industry. How long have you been doing this and what do you do?
You don't have to answer but your questions are odd for someone with experience in the industry. But let's get into it:
How is performance made public? The same way people know what "stealth" startups are doing. Sometimes a document leaks and sometimes people talk. Usually both. Let's just say a manager is super secretive. Do you know how many people in the chain know performance anyway... Current and former employees. Current and former recruiters of these employees. Current and former clients. Current and former consultants to those clients. etc... And you're saying all these people also don't have that human urge to brag about these rock stars of the investment world? OK.
Even if that were the case, everyone has a cousin at State Street or HSBC, these people take coffee breaks and love to gossip performance and secrets breakdown there.
This is like Fermi's paradox. If all these funds out there are beating the market, then where the hell are they??
All of the funds beating the market are secretive and successfully secretive? For decades?
If it was as common as you imply there should be more of them known to the public by choice or by accident. That is logic.
Don't be the guy who mortgages his house to buy Herbalife products and tells his wife this is your year.
The comment above said 99.9% are not beating the market. There are thousands of funds out there. All funds are filing Form ADV's now...We know who exists. So yes there's a few people who do beat the market. Those 3 Russian guys in Texas and that story about the MIT PhD's working out of a house outside Miami and so yes, there's a few examples out there. Dinky family offices don't count. But no, there's a not a bunch of professional investors with serious weight under management and outside clients beating the market over a secular horizon.
There's a handful, and if you are at one of them congrats to you. But to come on a forum saying there's a bunch of professional investors beating the market, they just all happen to super secretive billionaires and they don't tell anyone about it. That's misleading. That's tech back office got your info from a e-book kinda talk. And it would be at odds with your original thesis that folks that beat the market are secretive and don't talk. So it makes me think you don't work at one, you just want to believe they exist. But again if you do work at one, congrats. Are you hiring? DM me.
He's wrong because he's assuming the average result of the zero-sum game is the only result you can have.
It's a simple fallacy most people with a statistics background understand, but the average journalist doesn't.
Saying you can't beat the market, is like saying you can't win at boxing, because on average nobody wins (there's always a winner for every loser).. but I would put my money on Mike Tyson in his prime.
Your expected value for investing across the market, will roughly converge to the market because of diversification. ~20 funds will start to approximate the underlying universe of stocks, because the range of views of the fund will be across all of them. All of the alpha will be evened out into beta.
So after fees - you would be better just investing in an index than a basket of funds. But there is dependence, a good fund is consistently a good fund. So if you get a chance, it's much better to invest in a good fund.
But the best funds aren't accessible to the public, so the public doesn't get to understand the market for what it really is. And there's a lot of shit ones that market heavily to the public.
There is also a populist idea to the notion that indexes beat hedge funds etc, it makes the average person feel good to think the top investors are no better than they are. So why would journalists peddle the true narrative?
Renaissance is part of the market, and it's the sort of thing that we individual investors can't beat. "The market can't be beat" doesn't mean no one can see better returns - it means a random yahoo like me simply can't compete with the information, processing power, and access funds like Renaissance have.
Thus, an average investor is a lot better off with an index fund instead of trying to pick individual stocks. (Funds like Renaissance's Medallion simply aren't available to people without tens of millions of dollars to throw around, too.)
Funds like Renaissance's have minimum investments in the millions, are often invite-only, etc. We average investors simply can't play in those leagues.
People have been saying that about rentech for the last 20 years. People have also been saying that about berkshire hathaway for the past half century. At some point, past performance IS indicative of future returns.
I'm not sure about any Rentec mutual fund, I don't think such a thing exists, but aren't the funds they have open to institutional investors not doing particularly well?
When most people say Rentec they think Medallion, which while being spectacularly profitable over 20+ years, is now a closed fund only open to current employees last I heard.
Renaissance has hundreds of smart people trying to beat the market. Same with the HFT shops.
You can start one of those firms; in all likelihood, not all the potential profit has been extracted yet. You can hire a bunch of smart mathematicians and/or smart technologists, and spend time working on the problem. And then you'll be in good shape to beat the market. If you're an econ Ph.D. student hanging out on Hacker News, you're already well on your way to doing this with your life, if that's what you want to focus your life on!
But "you", the person with an unrelated day job fiddling with some investing app on your phone in your spare time, starting with a relatively small amount of capital compared to Renaissance's first year, and relatively small risk tolerance compared to Renaissance's first year, and definitely not enough money to hire a bunch of scientists full-time - "you" who's asking on a thread about passive income instead of lifelong career options - you are statistically unlikely to beat the market. That's what people mean by "You can't beat the market."
Rentech, in particular, data mines weak signals out of gigabytes of historical data, and has a team of PhD mathematicians working to find these signals. Each strategy has some small positive expected value, so in aggregate they can be profitable.
Two reasons you can't replicate this - 'you' aren't a team of super top notch mathematicians with decades of data, and even if you had an exact copy of their trading strategies, you don't have the capital to make the transaction costs, etc, worth it.
This is good advice, attempting to beat the market is something that everyone tries at least once, and repeats until they learn that it is futile. There are bigger interests than the "richest investor you know", and those interests will always win. Every single damn time. Instead, just follow them, and ride the wave.
I think you misunderstood the parent. All three examples are ETFs with Canadian assets, available on the Canadian stock exchange.
OP's point is (most likely) that you can't buy them directly from Vanguard (i.e. using an account on www.vanguardcanada.ca) but will have to buy them using a broker (e.g. Questrade.)
On average, and when bench-marked against itself taking into account fees. There are funds that consistently beat the market, that you should put money into over the index if given the chance.
But your general notion that the average person shouldn't try is a good one. At the end of the day you have to earn money because you took it from someone else. To think that there is a dollar for everyone is to ignore this simple truth.
It depends on your definition of reliability. Is driving a car reliable? There's no way of knowing it will crash but that doesn't stop you from getting in one.
You see it as a problem, if you are used to the idea of earning money instead of taking money I get that angle. But to investors it's not a problem but a fact of life.
Ramit Sethi's I Will Teach You to be Rich is the personal finance book that introduced me to all the basics (e.g., paying off debts, how credit scores work, why not investing in index funds across diverse asset classes is moronic, etc.).
Dead practical advice despite the somewhat sleazy writing style (see title of book).
