It was a pretty quiet week in Tradeland and I suspect the same until after January 1st.
BABA trade alert…
Sell it. Price has broken multiple support. Minimize loss to about 5%.
Alibaba Group (BABA) daily
All other open positions are very profitable.
We want to give them a chance to run as far as they can. Get rid of the losers early and let the winners do their thing…run, run, run. Hold all other open positions.
The Dodo bird…
Are actively managed mutual funds destined to be on the same page as the Dodo Bird?
Outflows from money managers who pick stocks to try and beat the market are on the rise. This is happening for multiple reasons but the two that are driving the exodus are fees and under-performance.
Why pay more for under-performance when you can pay less for just matching the “market”?
Hence the rise of passive ETF’s that are much less expensive. A typical actively managed mutual fund will cost you about 1.25% per year while a passively managed ETF index fund will cost about half that amount.
Does this mean that active management will become extinct?
If so, what’s the point of hiring analysts, money managers, sales and marketing peeps, CNBC, the Wall Street Journal, actors doing the commercials and everything else associated with funneling your money into their scheme to beat the “market”?
Is it even possible to beat the “market”?
These are not easy questions to answer but I will try.
I love passive ETF’s because I’m in control. I know exactly what the components are and they don’t change…well, they don’t change very often. Remember, the Dow, the S&P 500 index and all other indexes will change their components over time based on various metrics. However, I’m not relying on someone else to mismanage my money with a passive ETF.
Let’s start off with the hardest question first…Is it even possible to beat the “market”?
I certainly think it is possible to beat the “market” otherwise I wouldn’t be writing now. If I didn’t think I could beat any underlying passive index or equity I would just stop trying to trade smart and just buy a bunch of passive ETF’s.
I think the problem with most active managers is they have a hard time separating their thesis from price action. Too much ego me thinks. Hey dude, your thesis might be wrong if you have lost 60%. Really?
This is why I’m not a fan of fundamental analysis without a good framework around price action. For me, price action is my barometer.
ETF’s have much “smoother” price action than individual equities. This is kind of an obvious point that gets missed. You buy stock in one company and your investment is in the hands of one CEO. You buy stock in SPY – the ETF for the S&P 500 index – and your investment is in the hands of 500 CEO’s. Much smoother price action.
Smoother price action is much easier to beat. Remember that. Smoother price action associated with passive ETF’s allows you to participate in most of the uptrends and avoid most of the downtrends because price action is usually “smooth”.
I know that “smooth” price action can be beat by avoiding the reoccurring consistent times of price destruction. The only way to outperform is during downtrends; avoiding loss. That is the key. Regardless of your time frame.
I don’t think active management will become extinct. It will probably just change. I’m just trying to be part of the change.
Trade smart,
Don