“Understanding only comes – is earned – through training, effort and experience. Despite the ever-increasing onslaught of information, true understanding is at least as valuable as it ever was.” – Robert Seawright
Another edition of Blogger Wisdom is in the books. One of the reasons I like to publish is these posts is that exposes readers to a number of bloggers who have “training, effort and expertise.” I want to thank everyone who participated and those of you who stopped by to read their thoughts. (If I were smart I would have written down my answers ahead of time so as to not get affected by these great answers.) Without any further ado I answer my own questions. (Click on the question to read the original post.)
Question: Let’s say Warren Buffett re-ups his famous decade-long bet. (He’s not.) He takes the S&P 500. What would you take (and why)?
I would take the Guggenheim S&P 500 Equal Weight ETF ($RSP). It reduces the bet to a simple proposition, other than fees, the differential return between the two comes down to the value and size factor. My guess is that over a decade-long period these two factors should provide enough additional return to outweigh any fee differential. The tracking error will be relatively small, especially compared to something like a basket of hedge funds, which will at the very least would minimize reputational risk.
Question: Assume you have discovered an equity return factor that is both previously unknown and uncorrelated with other factors. What would you do to monetize that insight?
That’s easy. Sell and/or license it out to the highest bidder(s). Unless you want to build an ongoing investment management organization it makes sense to let someone else do the hard work while you cash the royalty checks.
Question: What is one thing you do with your money (spending and/or investing) that you would never recommend to a client, family or friend?
I still invest in some actively managed funds in areas like emerging market equities. For the vast majority of people the potential extra return isn’t worth the time and effort.
Question: When, if ever, will ETF AUM exceed open-end mutual fund AUM?
It’s going to take awhile, but it will happen eventually. There are simply too many advantages, as of today, to the ETF structure relative to open-end funds. Any kind of time-certain estimate would require too many assumptions all of which could make you look bad. Suffice it to say there is a reason that nearly every legacy money manager is trying to find a way into ETFs in some form or fashion.
Question: What is one thing you have changed your mind about recently in the investment world and why?
I used to think that many (or most) individual investors could successfully manage their portfolios if they focused on a globally diversified, low cost, index-centric approach. I no longer think that. I think most investors would do well to have someone else manage the bulk of their portfolios. The behavioral aspect of managing one’s own money is significant enough that having someone else do the heavy lifting is not only smart but encouraged
Thanks again to all the thoughtful bloggers who took the time to contribute their insights. Seeing all their answers in one place really helps put things into perspective. Speaking of perspective:
“The fact that we live at the bottom of a deep gravity well, on the surface of a gas covered planet going around a nuclear fireball 90 million miles away and think this to be normal is obviously some indication of how skewed our perspective tends to be.” ― Douglas Adams
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