You’re claiming you’ve been correctly noticing good investment opportunities over a several month period. What has been your effective return over the last year (real return on all actual investments, not hypothetical)?
I feel like the strongest way to address the “If you are so smart why aren’t you rich?” question is to show that you are in fact rich.
My Vanguard has gotten a 30.4% return over the last year. I have a very simple, everything in the basic large funds strategy (I can share the exact mix if its relevant). Your advice is substantially harder to execute than this, so it would be great to know the actual relative return.
“You’re claiming you’ve been correctly noticing good investment opportunities over a several-month period.” This not what I am arguing. I am arguing that you can check the EMH right now and notice it is false.
The actual answer to your question is unfairly favorable to me given market conditions. I put a relatively large percentage of money into crypto so my overall portfolio is up more than 200% over the last twelve months. This is not replicable going forward. Pretty much everything in crypto is up but Solana started spiking later than other coins because of how it unlocked. I actually did tell people to but it when it was ~2 USD in early January and it has since gone up around 7x. That is less than some altcoins but as I said it starting spiking later which is favorable.
I am arguing that you can check the EMH right now and notice it is false.
The issue is that unknown “counterparty risk” term. As you do not know this risk—you have so far seen it to be zero but you do not have evidence it is actually close to zero—you do not know these bets are better than EMH. Or if they are, that they are going to be available for more than a brief period of time.
Buying securities on the public market via a reputable brokerage, the risk that your profile goes to zero because of any number of technical errors or fraud is very low. There are decades of examples of investors ultimately getting the market value of their shares at the point in their lifespan they choose to sell. This large number examples over a large period of time is evidence that the risk term is very small.
This ‘security’ does not exist for the commodities you are showing. Therefore if you take [observed returned] - [risk term], EMH says that this term is less than or equal to market returns.
You have not disproven it. You may ultimately be right but the evidence in front of you doesn’t show what you are saying. You need to wait enough years to collect enough evidence to get an accurate estimate of the risk term for these markets before you can make this conclusion.
I currently have a roughly 50⁄50 split between VTIAX and VTSAX. I would of course not expect to continue to get 30% returns moving forward (I expect 5% return after inflation), but that is the figure I got when I selected a one year time horizon for showing my return on Vanguard.com.
If I instead compute from 01/2020 to 01/2021, I had a roughly 18% rate of return. I don’t know how your Wealthfront is setup, but I’ll note that I have a relatively aggressive split of 100% stock and nothing in bonds.
That’s a very selective term history; the exact bottom of the SP500 from Covid fear was March 20 2020, vs todays March 18th. Unless you put in everything on March 18th this is highly misleading. The true comparison would be your annualized dollar weighted average return (but for Schwab at least this isn’t easily calculatable, as saving is counted as increasing portfolio weight, and buying increases the base investment, but without a proportional change in ‘Total gain’).
Since 2000 the average annual return of the SP-500 is 5.9%(6.1% for VTI since inception) and a reasonable approximation of what would be earned going forward.
No, it’s lower than the normal “8%” you hear because I’m not averaging across time.
[+10%, + 1%, +9%, +20%, 15%] = 9% if you average the percentages, but this represents putting in $100 at the start of each year and selling any excess gains at year end. The way people invest of putting in $100 once and letting it compound* gives
*Actually people do even worse then this, particularly for hedge funds: individuals put money into hedge funds that recently outperformed but go on to reverse to the mean and underperform. So while the average annual returns are +30% −6% = 12% annualized, pretty good across time, but if you did 30% managing 100M and −6% on 1B then the dollar returns are net negative.
Picking a Schelling point is hard. Since the post focused on very recent results, I thought that a one year time horizon was an obvious line. Vanguard does note that the performance numbers I quoted are time weighted averages.
You are of course correct that over the long run you should expect closer to 5-8% returns from the stock market at large.
You’re claiming you’ve been correctly noticing good investment opportunities over a several month period. What has been your effective return over the last year (real return on all actual investments, not hypothetical)?
I feel like the strongest way to address the “If you are so smart why aren’t you rich?” question is to show that you are in fact rich.
My Vanguard has gotten a 30.4% return over the last year. I have a very simple, everything in the basic large funds strategy (I can share the exact mix if its relevant). Your advice is substantially harder to execute than this, so it would be great to know the actual relative return.
“You’re claiming you’ve been correctly noticing good investment opportunities over a several-month period.” This not what I am arguing. I am arguing that you can check the EMH right now and notice it is false.
The actual answer to your question is unfairly favorable to me given market conditions. I put a relatively large percentage of money into crypto so my overall portfolio is up more than 200% over the last twelve months. This is not replicable going forward. Pretty much everything in crypto is up but Solana started spiking later than other coins because of how it unlocked. I actually did tell people to but it when it was ~2 USD in early January and it has since gone up around 7x. That is less than some altcoins but as I said it starting spiking later which is favorable.
I am arguing that you can check the EMH right now and notice it is false.
The issue is that unknown “counterparty risk” term. As you do not know this risk—you have so far seen it to be zero but you do not have evidence it is actually close to zero—you do not know these bets are better than EMH. Or if they are, that they are going to be available for more than a brief period of time.
Buying securities on the public market via a reputable brokerage, the risk that your profile goes to zero because of any number of technical errors or fraud is very low. There are decades of examples of investors ultimately getting the market value of their shares at the point in their lifespan they choose to sell. This large number examples over a large period of time is evidence that the risk term is very small.
This ‘security’ does not exist for the commodities you are showing. Therefore if you take [observed returned] - [risk term], EMH says that this term is less than or equal to market returns.
You have not disproven it. You may ultimately be right but the evidence in front of you doesn’t show what you are saying. You need to wait enough years to collect enough evidence to get an accurate estimate of the risk term for these markets before you can make this conclusion.
Thanks for the reply! I find those numbers more persuasive than anything else. Well done!
How did you achieve 30.4? My time-weighted Wealthfront return for 2020 was 7.9%.
I currently have a roughly 50⁄50 split between VTIAX and VTSAX. I would of course not expect to continue to get 30% returns moving forward (I expect 5% return after inflation), but that is the figure I got when I selected a one year time horizon for showing my return on Vanguard.com.
If I instead compute from 01/2020 to 01/2021, I had a roughly 18% rate of return. I don’t know how your Wealthfront is setup, but I’ll note that I have a relatively aggressive split of 100% stock and nothing in bonds.
That’s a very selective term history; the exact bottom of the SP500 from Covid fear was March 20 2020, vs todays March 18th. Unless you put in everything on March 18th this is highly misleading. The true comparison would be your annualized dollar weighted average return (but for Schwab at least this isn’t easily calculatable, as saving is counted as increasing portfolio weight, and buying increases the base investment, but without a proportional change in ‘Total gain’).
Since 2000 the average annual return of the SP-500 is 5.9%(6.1% for VTI since inception) and a reasonable approximation of what would be earned going forward.
Is that 5.9% after subtracting inflation?
No, it’s lower than the normal “8%” you hear because I’m not averaging across time.
[+10%, + 1%, +9%, +20%, 15%] = 9% if you average the percentages, but this represents putting in $100 at the start of each year and selling any excess gains at year end. The way people invest of putting in $100 once and letting it compound* gives
1.1*1.01*1.09*1.2*1.15 = 1.6711662 total gain or
1.6711662^(1/5) = 10.8% annualized.
The technical terms for this is non-ergodic see https://jasoncollins.blog/ergodicity-economics-a-primer/ for a description.
*Actually people do even worse then this, particularly for hedge funds: individuals put money into hedge funds that recently outperformed but go on to reverse to the mean and underperform. So while the average annual returns are +30% −6% = 12% annualized, pretty good across time, but if you did 30% managing 100M and −6% on 1B then the dollar returns are net negative.
Picking a Schelling point is hard. Since the post focused on very recent results, I thought that a one year time horizon was an obvious line. Vanguard does note that the performance numbers I quoted are time weighted averages.
You are of course correct that over the long run you should expect closer to 5-8% returns from the stock market at large.