TomF75

Are Index Funds the Only Rational Choice?

BobHank,

I think the biggest problem w/O'Shaugnessy's Funds were the timing. Fundamentals & Quantatative analysis didn't matter in the late 90's! When I first got into the investing game (1997) I tried to utilize these methods, got P.O.'d that the NASDAQ kept making everybody rich. So wanting my fair share I threw in the towel and joined the madness just in time (Feb 2000) to lose 40% of my portfolio (which thankfully was pretty small, but the loss still stung).

I'd love to see a study or something showing on how a portfolio using his method picked in 1995 would've held up. I'd not be surprised to find that the 1995-2008 returns probably would've been comprable to the S&P, DJIA, QQQQ with a lower Beta over the period.

Remeber when you buy SPY for every DELL, MSFT, and other star performer you also get stuck with overleveraged stinking corpses like AIG, F, GM, Enron, and WorldCom.


On Dec 15 01:11 PM BobHank wrote:

> One of the best sources on backtesting stocks is O'Shaugnessy's "What
> Works on Wall Street". He wrote this in 1995. He analyzed and came
> up with different portfolios, that he then went on to backtest. He
> came up with 5 different portfolios that were built on a risk tolerance.
>
> He started a fund company and offered these funds.
>
> His funds massively underperformed, even before 2000. He closed the
> funds.
>
> His analysis is superb in the book. To this day, i don't have a rational
> explanation for why it failed Others will use their 20/20 hindsight
> to tell me why O'Shaughnessy's analysis and portfolios didn't work.
> But his approach is the same presented by Mr. Considine.
> The book is well worth your time.

The Fall of Index Funds

"So, actively managed funds should produce the high returns of the 90’s? No, but actively managed funds should hold up better in a slower growth environment that requires flexibility...They also typically lose less than index funds during bear markets and thrive during moderate growth periods."....


Would these be the same actively managed funds that are down 40% just like the indexes they mimic? Plus charge a 1.44% (or higher) Plus charge a sales load.

Thanks, but I'll stick to picking my own stocks, and using SPY or similar ETF's when I don't feel comfrotable picking them on my own (e.g. small-caps, Emerging Markets, Commodities)