I am off to Breckeridge this morning from New York. As usual, I planned late and the hotel for the conference my pal JC is organizing is sold out. I texted JC to see if he could help and got a friendly reminder that I am still a nobody:
I talk to young people about investing all the time and the question in the title of the post comes up a lot!
What if the market crashes right after you invest? Wouldn’t it be better to average-in over time (i.e. dollar-cost averaging/DCA) to smooth out any unlucky timing on your part?
Statistically, the answer is no. In a paper from 2012, Vanguard found that 66% of the time it is better to invest your money right away (“Lump Sum”) rather than buying in over 12 months (“DCA”). I don’t disagree with Vanguard’s results (my results were strikingly similar), but I don’t think they went deep enough in explaining why this is true.
The rest of Nick’s article has a lot more good data and reasoning. Take a read.
I wrote about Alpha a few days back and it has been a continued topic of discussion for me in my meetings and calls this week.
Ben Carlson wrote this excellent pice titled ‘First Mover Alpha‘ that has a great explanation of how alpha changes over time – at least in the public markets. Read it all. This one stat really stood out.
In 1963, there were 284 people who took the CFA exam. Last year there were more than 256,000 CFA candidates.
In the 1950s, retail investors controlled 95% of all trades. Today 95% of trades are executed by professional investors.
Make sure to read Ed Thorp’s books that Ben highlights if this subject interests you. They make a great gift for any friend or family member that likes to trade and invest.
As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.
Weekends are a very important time for me to catch up on markets. I like seeing weekly charts and not having the distractions of the work week to digest the prices.
Ivanhoff and I have started to make our Momentum Monday shows on Sunday in the spirit of being ready for the week and I like the subtle change.
I will get right to this weeks episode, which is a great one if I do say so myself. There are a lot of interesting setups (outside of just software) from healthcare to old economy stocks and biotech.
Ben Hunt started a good conversation today about stock market returns and alpha. It started with this:
Alpha = private information. Period. Full stop.
I understand that we’d like to think that smarts + process + time = alpha. It’s one of the little lies that we tell ourselves to get through the day. Here’s the 10-year chart of Berkshire vs. S&P total return. Without private information (and often with it) THERE IS NO ALPHA.
And if you’re hoping for an active management renaissance … as passive, price-insensitive investing grows as a % of flows, alpha becomes *harder* to achieve, not easier. Alpha creation is not a mean-reverting phenomenon.
When did fundamental active management begin to die? In August 2000, when Reg FD made it illegal to get private information from public companies. If Reg FD dated back to 1980, you would have never heard of Peter Lynch and Warren Buffett.
People have been arguing the thread and the definition of the words ‘private information’ all day long and will argue this until the end of time, but I am in agreement with Ben as to alpha.
I was crazy/silly enough to start a hedge fund in 1998, especially without an edge in private information. I am glad that I don’t have to compete against the S&P anymore.
Picking stocks is a really fun hobby, and if you can afford it…lifestyle, but it was a terrible career decision.
I love my life as a founder and angel.
The alpha seems endless and indexing is still years away (though it is coming).
Building private information…with your own eyes, ears and feet…through your global social networks and passionate pursuit of domain experience is how you ‘out’ Warren Buffett all the wannabe Warren Buffett’s.
I am really struggling with my writing. The rest of my life is fantastic… so only the daily readers are suffering with my struggle. I do feel your pain.
I have always assumed that by writing something every day on this blog, my writing habit would just get stronger and writing would just be easy.
When I started Wallstrip back in 2006 I would be crazy about every aspect of the daily show, not just the company. Each episode had to be great because if even one show was weak, the next show would have to be even better so why relent for even a minute.
While many episodes were of course bad, it was the attitude that most mattered.
That pace was ridiculous on the budget we had so it was great that CBS came along and acquired us.
Things are a little different today in blogtown USA. Nobody is coming to buy my blog, though a few ex CBS’ers do read this…so I just have to grind it out and take my daily swings.
Thanks for stopping in while I ride out the slump.
PS – Someone not in a slump is Dave Chapelle. Dave had his slump, but lately Google/Youtube serve nothing but Dave to me because I recently went down a Chapelle rabbit hole. Those damn AI robots have me in a perpetual Chapelle rabbit hole for the time being.