a thoughtful web.
Good ideas and conversation. No ads, no tracking.   Login or Take a Tour!
comment by user-inactivated
user-inactivated  ·  2486 days ago  ·  link  ·    ·  parent  ·  post: On average, foregoing college in favor of entering the workforce + investing tuition costs nets higher returns

it's not a methodology problem, it's a people are idiots problem. anyone who uses vanguard can cheerfully invest in something that correlates at like 96 percent with the s&p. it is almost entirely free to do this.





ThurberMingus  ·  2486 days ago  ·  link  ·  

    anyone who uses vanguard can cheerfully invest in something that correlates at like 96 percent with the s&p. it is almost entirely free to do this.

If they forget they have an account they could cheerfully sit through a 50% loss.

For everyone else in the market, it really sucks. And anyone preaching index investing should at least acknowledge peoples' doubt and frustration about drawdowns, and that most don't actually follow through.

"Everyone says indexing is best, so I should try it" isn't a mentality that will get anyone through a recession.

user-inactivated  ·  2486 days ago  ·  link  ·  

you don't know what you're talking about, bleh

ThurberMingus  ·  2486 days ago  ·  link  ·  

Explain to me then.

    it's not a methodology problem, it's a people are idiots problem

I want to make the point that ignoring the idiots is a methodology problem. If you ignore idiotic tendencies and unfounded 'gut feelings' in your methodology, your methodology can't be applied to people.

If someone reads "7% from indexing" enough places and jumps on board without the right mental prep, he won't be able to keep holding through a recession. Between fall '07 and Spring '09 the S&P dropped ~50% -- you don't just read some blog articles and maybe a book and have the mental groundwork in March '09 to say "I have half the retirement savings I did a year ago, but this is all part of my investment plan."

It takes serious willpower to index through a recession when it looks like the whole finance world is collapsing. Don't say anyone but an idiot could.

user-inactivated  ·  2485 days ago  ·  link  ·  

if someone invests serious money in the stock market and doesn't understand the strategy behind it, they deserve the bad things that happen to them

you are basically saying that if someone reads half the rules of a club then gets kicked out for not following the other half, they have grounds to complain -- and that the club should then change its rules based on how those people think

you are right about people. most are too stupid to invest in the stock market/trade, but do anyway. you are not right about what that means for the rest of us, or for people building models based on rational behavior. if we build our models based on irrational behavior, we may as well stop building models.

i take back my previous comment. you do know what you are talking about. i misunderstood one of the sentences you wrote earlier.

ThurberMingus  ·  2485 days ago  ·  link  ·  

I don't proofread for clarity enough, sorry for that.

My issue with the article boils down to his comparison of a spectrum of college results (including stupid decisions) with indexing returns (excluding stupid decisions).

- I agree that people are responsible for their own decisions, informed or not.

- Some people do stupid things. Many do thinks without proper background research.

- A knowledgeable rational index investor will know not to sell after the market drops steeply.

- Even with that knowledge, following through is hard. Doubt is a part of human nature, especially when news says "it really is different and worse this time."

I think a partially informed investor is more likely to get 2% than 7% if every mention of indexing ignores that the hard part is mental.

user-inactivated  ·  2485 days ago  ·  link  ·  

    My issue with the article boils down to his comparison of a spectrum of college results (including stupid decisions) with indexing returns (excluding stupid decisions).

makes sense, i think the 'on average' bit is extremely misleading. but i do think it is right to exclude people who screw up on the market; the study is trying to contrast bad and good scenarios.

i think the whole thing could boil down to the sentence: "skipping college and investing your pseudo-tuition sometimes will be a better idea than going to college" and the only rebuttal needed is: "if you're going into debt for college, you'll get a loan. if you're going into debt to put money in an index fund, you will not"

    I think a partially informed investor is more likely to get 2% than 7%

i mean, i suppose. but there is really only one piece of information in the equation. "do not remove your money." you're implying a second piece of information which gets lost, "sometimes this process will suck." it seems like a rule 2 -- see rule 1 situation to me.