A fallacy of our times which will not last.

PaulRen's picture
Category: 
Industry

 

Ah those ETF funds..

At the risk of repeating here, yet one more time,  something all contributing members must be familiar with regarding the explosive growth of ETF funds. These by some measures now make up over 50% of total trading on many exchanges.

ETF funds, abbreviation for "Exchange Traded Funds",  just mirror a stock exchange's benchmark index.  Its more or less a promises to do as well as the index they state they follow at the outset.   Its grown hugely over the years, now the numbers show these dominate over 57% of all major stock exchanges. (See link below).  In Thailand we have some similar, called "trigger funds", these automatically sell/buy whenever the computer triggers "something".   It is why there often is such mkt. volatility and why too often stop- losses don't work anymore, as the trigger funds trigger it lower by indiscriminate selling (or buying)  not good old fashion analysis, checking, or perception.   

This is also why a Thai (or any) stock can suddenly drop with no good reason or change in the company's fundamentals.  It so also gives individual investors which pay attention and have information an advantage.  And why its silly that not more sign up at thaistocks.com :).  Of course individual stock picking and managing one's portfolio of that is not for everybody. Some don't have the temperament, some don't have the time -nor interest.  Too often to their peril as over the years it adds up in lost returns. 

ETF's, nothing more or less is barely a guarantee to average performance.  If the index drops, so will the price of the unit in an ETF.  These have become hugely popular as it allows more and more analyst to just skip company visits/analysis and just advocate to join the index following;  claiming of course few if any can beat the index of the longer term.  

They got some ammunition of late as in the US most mutual funds and hedge funds have lagged the continued rising US market indexes;  it has surprised so many on the upside for years.  Since 2009 the US market has risen I recall some 23% per year on average. So if you were in anyway cautious, you got left behind.  When the US market turns south, I bet these active managers will beat the ETF's because these often err on the conservative side and have some cash on hand, of course I am generalizing.  Hence the claim that recently ETF's have beaten most all others is a one side statement of the current abnormal times.What is the next black Swan?

Of course many members here know its not so...as over time I have shown again and again how we can beat the SET index!   But don't expect the ETF's junkies to tell you that -as these are advancing their own "reality" and pocket book through fees on telling you which ones' to get in on.  There are many derivations to ETF, this also called quant investing, that is many do so not to be called ETF.   It sort of uses a witch-mix secret formula which it claims may beat the index in time? Sometimes it does.  But it still "quacks like a duck"  and so is a duck.  It sort of implies: don't go visit companies, nor analyse any individual stocks as they wont tell you the truth anyway, a true cynic which sells,...and anyway, "our way is better" .  "Dont bother your pretty little head analyzing companies."  The got the power as its very difficult to prove them wrong;  as I here have for years.

Many such pro's are good macro analyzers but bad micro stock pickers (as I think Marc Faber is for example)  and so that is the natural way to be and go, for these.  What is a bit galling is that they never also states to be fair the other side, which many of these same people have witnessed for many years.  They also never explain an obvious reality: individual investors have certain advantages by not being big bloated institutions.

In 18 years of running Thaistocks.com never once one such pro send me a new member. You so got to wonder what they all preach in these many/various individual investment seminars? Which have become popular in recent years. Surely advocating gold funds is not one of them anymore.  The halls or often loaded with younger and aspiring smart people/couples with education which want to know;  but few if any of these pro's tell them the full story.  One such guru recently wrote me  "anybody which does individual stock picking is in for a recipee to disaster".   Ha, I wonder what you the many seasoned  long time members would answer, or be today,  if we believed in that.  More sharp individual investors should sign up at thaistocks.com :) And so then empower themselves.

Best Regards,
Paul A. Renaud.

www.thaistocks.com

To learn more and as supporting article take a look at this recent Forbes Article: 

http://www.forbes.com/sites/baldwin/2015/01/21/is-vanguard-too-successful/