I would not recommend it Colm, there is a reasonable chance that China invades Taiwan in the next 7 years, at which point your Chinese investments go the same way as the Russian ones did. I've recently followed Warren Buffet and invested in a broad Japanese fund.
Performance Update for Colm Fagan's ARF
- Thread starter Colm Fagan
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You are absolutely correct, Corola. I take back my points.
Colm Fagan
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@RainyDayFund Firstly, there was nothing - zilch - on LinkedIn, so it was a waste of time posting there. Not so AAM! Thanks everyone!
Where are we now on our main area of difference? I like @Duke of Marmalade's comparison of my approach to not taking out insurance on my house, but being lucky in that the house didn't burn down. I still have my doubts on the quality of the analogy, though, because I see some of my equity holdings as quasi bonds: they deliver a secure, stable dividend which could survive the severest of downturns. The difference between them and "real" bonds is that they are on about twice bond yields (or more). Anyway, I'm not sure we'll be able to get much further, so I'm inclined to leave it for now.
Anyway, even if I hadn't been nearly as lucky over the last 15 years, say if performance had been 3% or 4% a year worse each year, I would still have done much better than in bonds.
It's also worth noting that there aren't "prolonged downturns" in markets. The market is always trying to discount all future bad (or good) news, so at any time, even at the worst of times, there's approximately a 50:50 chance of the market rising or falling next month. Of course, it may fall a heck of a lot trying to find the "right" level. As I said earlier, considerably less than 0.5% of the fund needs to be liquidated each month to withdraw 6% a year, so it should be possible (but not very pleasant) to ride out a severe downturn.
Must go for now!
Where are we now on our main area of difference? I like @Duke of Marmalade's comparison of my approach to not taking out insurance on my house, but being lucky in that the house didn't burn down. I still have my doubts on the quality of the analogy, though, because I see some of my equity holdings as quasi bonds: they deliver a secure, stable dividend which could survive the severest of downturns. The difference between them and "real" bonds is that they are on about twice bond yields (or more). Anyway, I'm not sure we'll be able to get much further, so I'm inclined to leave it for now.
I agree that I've been lucky since taking out the ARF 15 years ago; however, it's worth pointing out that I was running my own fund for the previous 15 years, including all through the Great Financial Crash of 2007-2009. I didn't keep performance figures from that time (afraid my wife would see them???!) but I survived. (As an aside, what caused me most grief then was bonds! I saw the crash coming and invested in subordinated bonds in AIB and BOI, thinking they were safe: I lost nearly every cent!).
Anyway, even if I hadn't been nearly as lucky over the last 15 years, say if performance had been 3% or 4% a year worse each year, I would still have done much better than in bonds.
It's also worth noting that there aren't "prolonged downturns" in markets. The market is always trying to discount all future bad (or good) news, so at any time, even at the worst of times, there's approximately a 50:50 chance of the market rising or falling next month. Of course, it may fall a heck of a lot trying to find the "right" level. As I said earlier, considerably less than 0.5% of the fund needs to be liquidated each month to withdraw 6% a year, so it should be possible (but not very pleasant) to ride out a severe downturn.
Actually, I don't think that's true. Capital flows to where its owners (maybe under instructions from their regulators) decide to invest it. A personal view is that regulators are pushing institutions (insurance companies and pension funds are the ones I'm most familiar with, but the same is probably true for others) more and more into "safer" instruments. Solvency rules are forcing insurers to back guaranteed liabilities with high quality bonds. Similarly for pension funds with fixed pension liabilities. In my younger days as an actuary, pension funds would back a significant proportion of their liabilities with equities (and that included liabilities for pensions in payment). Not so any more. Therefore, there's more demand for assets with guarantees, which increases their price relative to unguaranteed assets. Thus, I believe that the ERP is actually increasing rather than reducing. I admit that this is a renegade view, but there are good indications that the ERP is increasing.
Must go for now!
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I'm also a big proponent of a 100% equity strategy
However in my opinion china is very different to Russia
I am of similar mind where japanese stockes are concerned and had meant to load up on them earlier this year but my tactical asset allocation decisions didnt work out but i still plan to add in the not too distant future.
On two points made earlier in the thread i really like colm's interpretation of NOT earning the equity risk premium as being a portfolio cost and the idea of keeping 3 years income in bonds and/or cash so you can ride out a big equity market drawdown.
More generally, lots of people are just to conseratively positioned and should have a.higher allocation to equities or other risky assets IMO.
Interesting point of view, prediction particularly about the future is very difficult of course.
However in my opinion china is very different to Russia
I am of similar mind where japanese stockes are concerned and had meant to load up on them earlier this year but my tactical asset allocation decisions didnt work out but i still plan to add in the not too distant future.
On two points made earlier in the thread i really like colm's interpretation of NOT earning the equity risk premium as being a portfolio cost and the idea of keeping 3 years income in bonds and/or cash so you can ride out a big equity market drawdown.
More generally, lots of people are just to conseratively positioned and should have a.higher allocation to equities or other risky assets IMO.
I would think that the amount of liquidity and increased 'financialisation' of everything would have more than offset the lower allocations to equities from pension and insurance companies.
There's also an enormous retail interest in equity markets now, and the buy the dip mentality is truly ingrained too, IMO, which tends to lead to an inexorable increase in equities values
RainyDayFund
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I think this may come down to differences in interpretation and perspective
Of course the market is always adjusting. If one had stepped into the market just after the downturn, its likely you could do quite well during what I terms a "prolonged downturn". However, I'm viewing it from the perspective of someone who has finished their general accumulation phase, and instead is no longer dollar-cost-averaging in, thus more sensitive to a significant period where the market is down substantially from its peak. For someone in the withdrawal phase, prolonged downturns feel very different because you’re no longer adding new capital. That changes the risk dynamics compared to someone still accumulating.
There is a saying that the market takes the stairs up, and the elevator down. A 20%, 30%, or 40% drop could be pretty quick - and price discovery could bubble around up slightly/down slightly for quite some time until the market eventually returns to its previous peak. While the average recovery is less than a year, in worst cases it can take several years.
As I said previously, sequence-of-returns risk should probably be more correctly termed sequence-of-withdrawals risk. I do concede that liquidating 0.5% per month is a bit like dollar-cost-averaging in reverse, and is probably a reasonable strategy (one I hadn't actually considered before).
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RainyDayFund
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With all due credit and deference to @Duke of Marmalade and yourself, who are undoubtedly more eminent financial scholars than I am, have you heard of Stigler's Law of Eponymy?
Similarly, the Matthew effect describes how eminent scholars get more credit than an unknown scholar, even if their work is similar, such that credit will usually be assigned to those who are already famous
Duke of Marmalade
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Relative to when?
We often see figures going over the last 100 years and if we stick to the markets of the winners of World II we get high single digit ERPs (ex post). But in the first half of that century investing in equities was a pursuit very much limited to a wealthy, even insider, class. For example, it was taken as self evident that overall dividend equity yields should be higher than bond yields, so much so that when this reversed in the '50s it was remarked upon as the Reverse Yield Gap.
These days investing in equities is de rigueur even for the masses. Take My Future Fund, a pension for the masses, it has a very high commitment to equities. In another thread there is reference to a Vanguard $trillion passive index fund. MFF is also passive. Now blindly following an index simply out of an almost religious faith that there should be an ERP would suggest to me question marks as to whether today we do have a high (ex ante) ERP.
Colm Fagan
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@Duke of Marmalade
I don't have anything definite - which would be impossible anyway, given that the ERP is a random variable - but I have noticed, over the years, that "experts" seem to be coming up with higher estimates for the ERP. For example, in an article for "The Actuary Magazine" summarising my AE proposal, I quoted a survey of 1,756 US economists - https://www.colmfagan.ie/documents/54_Document.pdf?d=April 21 2025 15:28:35. - which arrived at an average ERP estimate of 5.5%. That was much higher than estimates I've seen in the past. Not hard evidence but a reasonable "indicator".
I don't have anything definite - which would be impossible anyway, given that the ERP is a random variable - but I have noticed, over the years, that "experts" seem to be coming up with higher estimates for the ERP. For example, in an article for "The Actuary Magazine" summarising my AE proposal, I quoted a survey of 1,756 US economists - https://www.colmfagan.ie/documents/54_Document.pdf?d=April 21 2025 15:28:35. - which arrived at an average ERP estimate of 5.5%. That was much higher than estimates I've seen in the past. Not hard evidence but a reasonable "indicator".
Colm Fagan
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You could be right. My view on the regulators indirectly causing an increase in the ERP is very personal. It could be completely off the wall; however, it hasn't been disproved - I think. Don't know if it is capable of being proved or disproved! The same for the opposite.
In relation to your point about increased retail interest in equities, buy the dip, etc., while it may be true, it doesn't matter much if retail investors account for just a small percentage of total market activity. I don't know.
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your response got me thinking I don’t have any evidence so I had a quick scan around, graph in my post above suggests more retail exposure, at least in the US, I have seen stats suggesting retail can account for 20% to 30% of equity trade volumes at any time but I don’t know how reliable the data is.
There’s some enormous sovereign wealth funds too which own equities for example the Norwegian one which are supersized in terms of the value of equities they own. I wonder if these make up for some of the reduced allocations as a result of penal capital treatment to insurance companies and banks when they invest in equities
Being able to trade shares on Revolut and the like certainly makes investing more accessible for a lot of people.
presidenttttt
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The % of retail investors with more than 5k in their eToro (a good proxy for all retail platforms) accounts is horribly low. I found some stats last year. I believe eToro has 40 million users, only 3.6M are funded. The number of people with over 100K in their retail accounts was well under 5% of those funded from memory. Whilke retail numbers might be high by household I expect they are pitifully low by $ value.
Colm Fagan
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I'm checking the sums before publishing returns for my ARF for 2025. In the meantime, readers may be interested in what I posted on LinkedIn last week. I was hoping to provoke a reaction but the LinkedIn lot are useless: there was very little disagreement. I hope to get a better response from this forum!
Here goes.
Recent posts explored how belief in the equity risk premium (ERP) and "what counts is time in the market, not timing the market" influenced investment strategy for my ARF (post-retirement drawdown product), which celebrates its 15th birthday this 31 December.
This post explores the implications of a third core belief, that the market is (nearly) always right.
Why sell share A to buy share B when I know that thousands of analysts who know far more about both A and B than I do think the exact opposite, i.e., that buying A and selling B is the right thing to do at current prices? That’s what defines a market. This humbling realisation leads to low turnover and a reluctance to act on “tips”.
It also makes me leery of “experts” who opine with practised gravitas that current market prices are unsustainably high (or low) and that a sharp correction (or rebound) is just around the corner. If that really is the expert consensus, then the correction (or rebound) should have happened already.
For the same reason, I don’t believe that active management adds much if any value.
So, why don’t I just buy a passive index? That’s where the “nearly always” qualification enters stage left. Rightly or wrongly, I believe that some shares, most notably Tesla (see my recent post https://lnkd.in/dt-XnDwz), are massively overvalued. It would be very difficult to avoid such shares by buying an index.
There is another reason for owning shares in "real" businesses. Applying the same logic as above, my portfolio (currently just 16 shares) has around a 50:50 chance of beating the most carefully constructed index. Furthermore, I know those 16 companies reasonably well, having bought into some even before I went into drawdown 15 years ago. I think I know as well as anyone when they’re overvalued, so I can take whatever action I consider necessary.
I don’t know how well my ARF has performed in relative terms over the last 15 years, but I sleep well knowing the companies in which it's invested.
Here goes.
Recent posts explored how belief in the equity risk premium (ERP) and "what counts is time in the market, not timing the market" influenced investment strategy for my ARF (post-retirement drawdown product), which celebrates its 15th birthday this 31 December.
This post explores the implications of a third core belief, that the market is (nearly) always right.
Why sell share A to buy share B when I know that thousands of analysts who know far more about both A and B than I do think the exact opposite, i.e., that buying A and selling B is the right thing to do at current prices? That’s what defines a market. This humbling realisation leads to low turnover and a reluctance to act on “tips”.
It also makes me leery of “experts” who opine with practised gravitas that current market prices are unsustainably high (or low) and that a sharp correction (or rebound) is just around the corner. If that really is the expert consensus, then the correction (or rebound) should have happened already.
For the same reason, I don’t believe that active management adds much if any value.
So, why don’t I just buy a passive index? That’s where the “nearly always” qualification enters stage left. Rightly or wrongly, I believe that some shares, most notably Tesla (see my recent post https://lnkd.in/dt-XnDwz), are massively overvalued. It would be very difficult to avoid such shares by buying an index.
There is another reason for owning shares in "real" businesses. Applying the same logic as above, my portfolio (currently just 16 shares) has around a 50:50 chance of beating the most carefully constructed index. Furthermore, I know those 16 companies reasonably well, having bought into some even before I went into drawdown 15 years ago. I think I know as well as anyone when they’re overvalued, so I can take whatever action I consider necessary.
I don’t know how well my ARF has performed in relative terms over the last 15 years, but I sleep well knowing the companies in which it's invested.
@Colm Fagan
I don’t agree that your concentrated portfolio has a 50:50 chance of beating the overall market.
A relatively small % of stocks have been responsible for a disproportionate degree of the market’s overall return.
It’s not a coin toss - holding a concentrated portfolio is a bet that you can identify the outperforming outliers.
I don’t agree that your concentrated portfolio has a 50:50 chance of beating the overall market.
A relatively small % of stocks have been responsible for a disproportionate degree of the market’s overall return.
It’s not a coin toss - holding a concentrated portfolio is a bet that you can identify the outperforming outliers.
I don't understand where the 50:50 chance comes from.
Don't many or most indexes weight individual shares/geographic regions/sectors so that they don't simply buy them in direct proportion to their presence in the market? E.g. MCSI World Index...
Brendan Burgess
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Askaboutmoney is much better - we disagree on everything.
Brendan Burgess
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Have you not got a great chance of beating the index because your costs are lower? Before costs, you should, on average, do the same as the market.
Sarenco makes a good point about the handful of shares that account for all the market performance. If you pick one of these, you will outperform the market by a lot. If you don't pick one of these, you will underperform the market by a lot.