Re:Scott Adams startup idea: find unique diversified stock b...
by joshu on Wednesday November 05, 2008 @04:02PM
(#354955)
Eh. Flimsy logical reasoning. "X would nearly mimic Y" in paragraph 1 becomes "X is the same as Y" in paragraph 2.
You want a very broad basket of stocks. The broader, the better to minimize risk. The SPX already is a subset replacement for "the market" in general (500 vs 9000 stocks.)
Sure, you can approximate with a smaller set, because everything is inter-correlated. Except when it's not (earnings data in an individual stock, etc.) The other issues here are: market cap (some stocks are MUCH bigger than others); trading impact (just because a stock trades some way doesn't mean you won't move it by investing in it, etc) and so on. And at the end of the day, you're just mimicing the SPX. You can get SPX performance for a lot less effort. Even SPDRs are only 18 bps of management fee.
Finally, the point of the fancy finance that he rails against is that people aren't looking to duplicate the SPX, they are looking to beat it. It can be done.
Re:Scott Adams startup idea: find unique diversified stock b...
by nradov on Wednesday November 05, 2008 @04:39PM
(#355013)
It wouldn't work very well for small investors. Even with a discount broker, trading costs for periodic purchases and rebalancing will end up being about as much as fees for a low-cost index fund like VFINX.
Re:Scott Adams startup idea: find unique diversified stock b...
by alecco on Wednesday November 05, 2008 @07:10PM
(#355193)
After loosing recently a good chunk of hard earned money following Scott Adam's financial advise I'm staying clear of his new ideas.
Sure I didn't pay much in commission but index tracker funds were a very stupid bet and just having an inflation plus simple savings account was many times better. Luckily I didn't go bold on this.
Re:Scott Adams startup idea: find unique diversified stock b...
by p0ltergeist on Wednesday November 05, 2008 @05:07PM
(#355047)
the etf management fee is much less than you would pay on trading charges to individually transact even a small number of positions aggregated in any etf
the only other route is vanguard which tends to have low fees for index funds
You want a very broad basket of stocks. The broader, the better to minimize risk. The SPX already is a subset replacement for "the market" in general (500 vs 9000 stocks.)
Sure, you can approximate with a smaller set, because everything is inter-correlated. Except when it's not (earnings data in an individual stock, etc.) The other issues here are: market cap (some stocks are MUCH bigger than others); trading impact (just because a stock trades some way doesn't mean you won't move it by investing in it, etc) and so on. And at the end of the day, you're just mimicing the SPX. You can get SPX performance for a lot less effort. Even SPDRs are only 18 bps of management fee.
Finally, the point of the fancy finance that he rails against is that people aren't looking to duplicate the SPX, they are looking to beat it. It can be done.
Sure I didn't pay much in commission but index tracker funds were a very stupid bet and just having an inflation plus simple savings account was many times better. Luckily I didn't go bold on this.
there are ETFs for every risk tolerance of every global stock market, commodity, bond, etc etc etc. there are even ETFs of ETFs
the only other route is vanguard which tends to have low fees for index funds