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Fantastic post, Iain -- thanks for sharing that.

I have been reading investing books for a while now and they all unanimously agree that indexes are the way to go -- hold most of the market and don't try to guess the winners.  This advice seems to have been given by the best investors for almost a century.
Most of the argument has rested on the difficulty of picking winners, and as mentioned above, the difficulty of active fund managers performing sufficiently better to offset their higher fees.

It's nice to see an additional explanation for why it's so hard for active fund managers to beat indices -- the fact that most of the gains are due to a very small number of (hard to predict) stocks that do well in any given year.  This argument is similar to the arguments about why timing the market is so hard -- that most of the big gains happen in VERY VERY short windows of stock price jumps, so that if you try to get out when prices are falling and get in as they are rising, it's already too late and you've missed the significant rises...

...most of the big gains happen in VERY VERY short windows of stock price jumps, so that if you try to get out when prices are falling and get in as they are rising, it's already too late and you've missed the significant rises...
-mouser (April 10, 2017, 05:18 PM)
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Yes, timing is all. Sadlement, in my experience it seems to me that, when I make a buy of a stock at what I reckon is a cheap price, then the whole market takes that as an indication to drop the price of that particular stock, and when I make a sell of a stock at what I reckon is a high price, then the whole market takes that as an indication to raise the price of that particular stock.    :(

But yes, joking aside, it is a potentially very useful article and for the investor it provides a much-needed and pretty definitive explanation as to why active fund management performance is typically so bad and such a gamble.
It also cuts through all the BS that fund managers are fond of spouting.

Talking of BS in the financial market, if you listened to the audio, and kept listening after it finished, there's another audio - I think, immediately following - where some idiot with a South African accent talks about the market having a "headwind". The only "wind" about it is the blowhard who is uttering that phrase. If you listen to how he speaks, he has the annoying habit of raising the tone upwards at the end of a sentence, as though he's asking a question rather than making a statement. This can often be a dead giveaway that the person speaking variously lacks certainty/self-confidence, or lacks competence, and/or lacks knowledge of what they are talking about and is thus unconsciously appealing to the listener to accept what they say. It can be like a professional stigma - the sort of thing that will get one rejected when being interviewed for a job (but nobody will tell the applicant that is why they were rejected).

The TV cartoon series of Family Guy made a somewhat unkind joke about this particular characteristic/habit:
Family Guy - Season: 5 Episode: 5 - Whistle While Your Wife Works (first aired November 2006)
(The "Jillian syndrome".)
In this episode, Peter badly injures his hand while Brian gets a new girlfriend.
When Peter gets hurt and cannot work, his boss tells him that he needs to speed things up.
Brian brings his "idiot" (per Stewie) blonde girlfriend, Jillian (a photographer) home to meet the family. Stewie is not impressed.
Stewie: All right, Brian, you can do this. You can dump her, because once it's done, never again will you have to listen to her talk like [this?] You know, where everything has a [question mark at the end of it?] With an upward [inflection?] At the end of [every sentence?]

Brian: Yeah, I don't know what I was [thinking?] Oh, dammit, now I'm doing it too!

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I had meant to post about this brilliant service here, earlier. I think it is potentially the most useful service for bank account holders that I have come across in years. I once drew up a design for a similar service in NZ, as I saw that it was sadly lacking and was something that the NZ banks could have offered, but weren't about to offer anything like it to their customers, as it would reduce the free marginal profits they made of customers' credit account balances on the overnight money markets. In fact, if someone tried to introduce such a service in NZ, it would probably be blocked at every single turn, as the trading banks effectively have an oligopoly and probably aren't about to relinquish their grip on that anytime soon and certainly not without a fight. The Royal Bank of Scotland introduced something similar when they bought out the NZ Countrywide Bank, but the Countrywide Bank was bought out by The National Bank (a wholly-owned Lloyd's Bank subsidiary), who unsurprisingly expunged the service.

These are not statements of opinion but pragmatic observations drawn from experience of working at the heart of things in the finance/insurance/banking sector in NZ/Oz for some years, where they generally have excellent banking systems that serve the banks very well indeed. ;)

Digit: ( - an algorithmic savings manager.
A potentially seriously useful service.    :Thmbsup: :Thmbsup: :Thmbsup: :Thmbsup: :Thmbsup:

(FAQ copied below sans embedded hyperlinks/images.)
Frequently Asked Questions

--- ---
How does Digit work?
Every day, Digit checks your spending habits and moves money from your checking account to your Digit account, if you can afford it. Easily withdraw your money any time.

What makes Digit different than a recurring bank savings transfer?
Digit automatically figures out when and how much is safe to save based on your lifestyle. Digit doesn't require you to figure out an arbitrary amount to transfer every month.

Is Digit safe?
Yes. Digit uses state-of-the-art security measures. Your personal information is anonymized, encrypted and securely stored. All funds held within Digit are FDIC insured up to a balance of $250,000.

Does Digit cost anything?
Digit is completely free. You will see "Hello Digit Inc" transactions in your checking account but these transactions are just transfers to and from Digit.

What are Savings Bonuses?
Make money for saving money! Every 3 months Digit will automatically pay you a Savings Bonus (currently 0.20% annually). No fine print, no account minimums. Just sit back and collect your bonuses.

What is the Digit no-overdraft guarantee?
We believe so strongly in our math and our ability to safely identify money you can afford to save that if we overdraft your account, we'll cover the fee, up to two times per customer.

Where is Digit currently available?
At this time, Digit supports over 2,500 banks and credit unions within the United States.

Does Digit have an app?
Yes, we have an iPhone app and an Android app.

Does Digit work with banks located outside the United States?
Unfortunately, Digit is U.S.-only right now. We have hopes to expand internationally in the future.

Do I need a savings account?
No. When you signup for Digit you get your own Digit account which will hold any Digit savings until withdrawn. Any funds held in your Digit account are FDIC insured up to a balance of $250,000.

How do I access my Digit savings?
You can withdraw your savings 24/7/365 and as many times as you want per month. You can access your Digit savings by messaging Digit 'Withdraw' whenever you'd like to move money to your checking account.

What should I do with my Digit savings?
Some of our users have started a fund for emergencies, splurged on a trip, or paid down debt. You can also move your savings to other accounts (for investments or retirement) as often as you wish.

Have other questions?
We are always here to answer them. Please visit the Help

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See also: The startup had helped users save $75 million around this time last year.
-IainB (April 01, 2017, 01:06 AM)
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This may not be the appropriate place for this, but I've recently discovered Betterment, which seems like a good resource for investing for the future.

At least in the U.S.A. I'm not sure if their services are different or restricted in other areas of the world.

For more details on why you may want to use Betterment, read more info here:


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