Comparison of All Star Fund Managers vs. respective indexes (on $10,000 investment)

All Star Funds=$129,872= 29.8% return

Index fund=$120,602=20.6% return

Source Globefund.com

Below is my opinion:

Low cost passive investments provide comparable returns.

It does not matter gaining 7-9% over five years or more as result of investing with All Star fund managers, because on a closer look one can see that some of the top notch funds did exceptionally well where as others sucked.

The real gains from investing do not come from choosing best funds based on manager’s performance, they come as result of one’s personality and your principles of faith, descipline and patience.

Index fund=$120,602=20.6% return

Please note the correction above.

“Past public information” would include any chart.

So faith is important for you as well. I take it discipline is also a big factor with the system designed to remove all emotion – is that right?

I’m curious, from the time that you became confident in your system, have you found that in general it works better now or not as well now compared to a few years ago?

I’m interested in your insight into the debate:

Those that believe the market is efficient believe that any strategy with charts won’t work because too many people look at charts and all advantages will have already been done. On the other hand, the market seems more manic and trendy, so it seems like charting strategies that follow trends would work more now. On the 3rd hand, more people seem to be using charts, so perhaps it does not work as well now as a few years ago. On the 4th hand, it is argued that the trend-following chartists are causing the trends and making the market more manic, which may make it work less consistently.

What have you been finding, Gerry?

Ed

As I mentioned in 16 above, faith is not just about buy and hold. It’s about having faith in your strategy (which it sounds like you do) and using a strategy for the right reasons.

If you believe what you say, that sounds like faith to me.

How long have you been trading? I find people that choose heavy trading strategies often choose those strategies because of a fear of losing money if they hold an investment – although most won’t admit it. Your last comment seems to imply that that you see the advantage of your strategy as avoiding bear markets.

Do you expect to have superior risk/return in the long run, including in bull markets, Gerry?

I have to admit I am not much of a believer in chart strategies. If you believe the market is efficient at all, even the Weak version of the Efficient Market Theory holds that nobody can systematically beat the market by looking only at past, public information. If that is true, then any strategies that relies on charts should not work in the long run.

Having said that, I have a few investors using charts as part of their strategy that have been able to get superior risk/returns. It is not always clear whether or not using the charts is the reason for it.

Ed

Your comment made me think about whether the qualities that create success in life are the same for investing.

Interesting comments and you have an interesting web site.

Believing that you control your own destiny is a lot like having faith. You will also see some parallels between my 2nd and 3rd qualities and yours.

I think the difference is that in life, you are doing it yourself, while in investing you are choosing an investment to do it for you.

I think this is why the most common errors are different in life vs. investing. In life, the most common error for most people is the tendency to do nothing, but hope that somehow success will come to us. In investing, the most common error is to changing things far too often.

Changes in investments are often done out of fear – that we are missing an opportunity or that we could lose money. In life, fear tends to prevent us from making changes.

In life, we need to be able to overcome the fear of change, while with investing we need to overcome the fear of NOT doing anything and maintaining faith.

Ed

I agree with you. Having faith in the markets is not only about “buy and hold”. It’s about your attitude and inner confidence in whatever your investment strategy is.

There are many different investment strategies – a lot that don’t work, some that do, and many that work sometimes. “Buy and hold” does beat the vast majority of strategies and as a general rule, strategies with lower turnover usually do better over time, even with professional investors.

An important part of the “solid, data-driven decisions” is to take the emotion out of the decisions. Most top fund managers follow specific disciplines for exactly that reason – to make sure they are not making the decision for emotional reasons.

The human “gut” is usually wrong when it comes to investing. Having faith in the markets and your investments, though, does tend to make your “gut” right far more often.

Ed

The three main characteristics of those who are able to achieve financial success are that they believe they control their own destiny, they are able to overcome their fear of change and make changes that improve their financial situation, and they are open to new ideas and constantly keep learning.

Faith will only get you so far. It’s these other things combined with actual initiative and perseverance that foster success in life.

Where I disagree with you Ed, is on your generalization about “performance maniacs.” There are plenty of nervous investors who do themselves more harm than good trying to time everything. But there are also a lot of smart, thoughtful investors who make solid, data-driven decisions to move in and out of investments for good reasons. If you have the expertise, and the time/resources to do it right, you can achieve greater returns. Professionals do it every day.

I see what you were striving for – the word faith can mean so many things to different people, and it also has a very strong emotional response – it’s a tricky word to use. I actually like “conviction” better – and it didn’t immediately bring up the image of orange jumpsuits for me ;-).

Looking forward to parts two and three….

Alexandra.

I had the same issues with the word “faith”. It has other connotations and can imply blind faith. However, it is the best word I could come up with (and the one Nick Murray uses).

I thought of using “conviction”, which may be more accurate in describing conviction in your investment philosophy, but it does not really include general faith in the markets (and it sounds like a prison word :) ).

However, we have seen this faith to be extremely important. It’s not that 100% of investors with faith are successful or that 100% of those without faith are not, but we have found it to be the single biggest difference between successful and unsuccessful investors.

Ed

Till then,

Jean

For the average investor – buying an holding is the way to go. I read some a while back about how a man invested on a bond and years later cashed out with a bunch of money.

Depending on faith is an dmission that you hae no idea wht you are doing and have been lucy so far.

What garbage.