Interesting analysis from Jeremy J. Siegel in "The Future for Investors": "Those who bought the original 500 firms and never sold any of them outperformed not only the world's most famous benchmark stock index but also the performance of most money managers and actively managed equity funds," Siegel writes. The normal S&P 500 returned 10.3% a year from its 1957 founding through Dec. 2003. But if you stuck with the original 500 components, letting dying companies die and reinvesting proceeds from companies that were bought out into the surviving companies (there were 125 of them left by 2003), you earned 11.3% a year. That might not sound like a big difference, but it is. One dollar invested in the normal S&P 500 in 1957 grew to $93 by 2003. In the "survivor only" portfolio, it grew to $124.
Thanks Ramin, I’m a beginner investor, I started in December, and I’m changing my tack having learned from your and another couple of TH-cam channels Firstly, I’m sorting my pensions, moving from SJP and Fidelity to Invest Engine. Secondly, I’m selling many of my stocks and putting them into an ETF. anything (Barclays, BT) that has grown massively is getting sold, anything where my holding is small is going. I’m holding onto a few that I think will grow over the next couple of years (NG., VODA, STJ), but eventually they will be sold as well, and I’m keeping my moonshot (TMC) I’m self employed, and I’ve found I spend far too much time looking at T212 instead of earning the money to invest. Hopefully this helps and I can be more productive as a result
I recall Terry Smith saying something along the lines of preferring to own a large portion of fewer good companies, compared to owning a little bit of a lot of bad companies. Lately I see the T-class has underperformed the S&P, not sure if that's happened to him before. I know they have Microsoft, but is the underperformance strictly down to not having Nvidia?
Need to ensure when showing returns they are adjusted after inflation. Distribution should be similar to what you showed but the drift isn't as significant as you may think.
Useful breakdown. A question - if one has a lump sum to invest (in ETFs), it better to put it all in one go, or to stagger the payments/investments (a la dollar cost averaging)?
Those rare stocks you describe aren’t hard to find if they have the huge market cap needed to prop up the index. Surely better to by a bag of the big 5 tech companies than a Nasdaq index?
OFF TOPIC - Just requesting that you produce a short video explaining what will happen with small retail holders of Royal Mail (IDS) shares if the recommended takeover goes through. As I understand it, there will be a shareholder vote but I'm very unclear about what happens after that (as an example, do you pay dealing costs if the shares are cancelled). Thanks in advance.
@8:55 You state that long-term investors earn the "drift" that's due to rising corporate profits. That's only half the story. Long-term earnings growth is only about 3% real, whereas long-term stock returns are in the region of 6-8%. The extra boost comes from dividends, which have averaged about 3-4% real. Or if you really want to be fancy, the total return is actually a risk premium that's compensation for the uncertainty of future cashflows. Two ways of looking at the same thing. But to state the long-run returns are driven by rising profits (and nothing else) is not telling the whole story, and I think it leads people to some incorrect conclusions ("oh gee, I should just invest in the companies with the highest growth !")
Isn't stock value theoretically just the present value of all expected future dividends? Because they're the only way you as a stock holder actually extracts any profit from the company?
@@PhillipHomer That's right, but the key question is : what discount rate do you use when discounting those future cashflows ? The discount rate is what determines your future return, and it's set entirely by market forces. Eg imagine a company that pays a steady dividend of $10 (no earnings growth) for the next 20 years. How much is it worth ? If you assume a 5% discount rate, the answer is $124. Anyone buying at this price would earn a 5% return, even though the earnings of the company never increase. If you're able to buy at $85, you'd earn a 10% return. If you buy at $49, that's a 20% annual return ! Who decides the "right" price ? It's supply and demand : the market decides the discount rate, based on the perceived riskiness of the company - and this discount rate becomes your expected return.
@@VTh-f5x Nope. Nominal returns are something like 10% pa for US stocks. After adjusting for inflation the returns falls to 6-7%. Historically, about half that return comes from dividends (ie profits generated from ongoing operations), and half from price gains due to improving productivity, technical advances etc
When a stock price is quoted, is that normally the price someone selling will get (offer price?)? If so, how can I see what I'll actually pay (bid price?) Thank you for the geat videos and podcast.
Hi. Out of interest Do markets stay open all weekend. Iv noticed with IE not much Happens in stock prices on Saturday. Maybe a little change but on a Sunday nothing. Wasn’t sure if this is just IE not updating on a Sunday or if most markets close and nothing much happens in way of prices.
I buy individual stocks. I am not an expert. I only do it because I enjoy it. Some people look at racing trends and gamble on horses. I look at stock markets and trade but not gamble. Gambling (in my opinion) is the difference between crossing the road with your eyes closed and following the "green cross code". Chalk and cheese. I try to do due diligence when buying stocks. I always ask my self "am I gambling when I buy this stock or am I happy it's an investment?". As I said I'm not an expert and I've been investigating for 20 years and I treat it like a hobby and yes I've made mistakes (usually when I get excited about something) and I then stop and learn from that mistake. Put simply I think you can learn how to invest but it's not easy and it takes time to learn (mainly about yourself and your own error making habits and inability to learn from mistakes).
Thanks Ramin, always like to hear your view on these matters. Makes me realise that there is always a lot more to consider than price when assessing stocks.
Thanks! That seems like some very solid advice indeed. My strategy is to complement a global index fund with an emerging markets index fund and a couple of sector funds, because the MSCI World and S&P 500 are so skewed towards the American tech giants. My hope is that this will insulate me to some degree from a possible tech bubble burst.
If you invested in the Vanguard global small cap index fund wouldn't that avoid the bid offer spread. It appears to have a Lower fund charge than ishares etf that tracks the same msci global small cap index. Personally I don't think it's worth it as you are just taking on volatility risk for most likely no extra returns
You avoid it to the extent that Vanguard's trading avoids it by intelligently placing passive orders that don't pay the spread. They also will match buys and sells internally which reduces trading and transaction costs.
@@rezwhap There is no trading costs for open ended index funds, oeics etc on most platforms, Vanguard, HL, Fidelity UK etc. And no bid offer spreads on most open ended funds, passive or active. The bid, offer spreads are on etfs which are traded just like individual shares. And you can buy etfs on Vanguard platform without incurring any dealing costs if you want, but still have the bid, offer spread
Is there any point in having a large index to track having a top 10 from each developed country maybe just as good and less trading fees trading in the index ?
Hi @simonunion4657 the returns don't always come from the top 10 stocks so that would miss out on the stocks that generate huge returns as they pass up the market cap ranking. But there is a global large cap index e.g. the S&P Global 100 index of large-caps www.spglobal.com/spdji/en/indices/equity/sp-global-100/#overview Thanks, Ramin.
Thanks @johnristheanswer in fact the L&G fund tracks the S&P Global 100 Index fundcentres.lgim.com/en/uk/private-investors/fund-centre/Unit-Trust/Global-100-Index-Trust/ Thanks, Ramin
Hi @Pensioncraft is there an index that follows momentum, buying best performing stocks over a period and selling the worst performing stocks over that same period?
Hi @Nik-B0 yes there are momentum indices which are tracked by some funds. Here are some I found on JustETF www.justetf.com/uk/search.html?search=ETFS&assetClass=class-equity®ion=World&equityStrategy=Momentum%2BStrategy&sortOrder=asc&sortField=ter Thanks, Ramin
Recently, I've been pondering retirement. I've also invested $800K on S&P 500 so i could secure my financial future. i need an approach to invest in Stocks like Nvidia stocks and of course AI stocks that will align with my risk tolerance and financial goals but it seem to be bearish right now.
I was ready to buy apple at $165 in April (fun buy), Jim Cramer/ mad money that day said it’s was a sell sell sell and played his bear noise! I just continued with the Developed world fund instead. Only individual stock I would ever own.
@@extramild1 ha, I’m definitely not ! I know he’s famous for being useless at stock selection, I was like 50/50 so any negative hint from anyone I wouldn’t do it. Just fluke timing that he was negative on apple He’s a Nvidia fanboy I should have knows he’s taking down competition.
500 top companies in US is definitely better than the top 1000 as you get rid of the 500 lagging ones. I guess top 200 or S&P 200 would be even better than 500 but polishing that diamond list is also increasing the risk of lower diversification. It would be interesting to see at what number of companies an intersecting point in a graph would be, where two lines (one for returns and one for diversification) crossing each other. And what would be the most effective lowest number of companies in a US S&P index for the best performance? Whether it's S&P50, S&P150 or S&P200?
@@chrisf1600 Because if they don’t produce a good return over 10 years something bad has happened and nothing will have produced a good return. Play the odds and the odds are they’ll see you right over the longer term. Just my opinion
@@mikew5274 Presumably all those investors who piled into the "Nifty Fifty" in the 70s thought the same. They soon learned their lesson. If it were as simple as "buy the top 100 stocks" or "buy whatever's gone up the most", we'd all be very wealthy.
@@chrisf1600 It’s a different time to the 70s now… anyway, it’s only my opinion and judgement calls are what it’s all about, you crack on and do your own thing for the next 10 years, I’ll stick with this
U.K. shares don’t offer “ good attractive long term returns “ 🤡😂 They are the pits and have barely moved in 20 years, take into account inflation and it’s even more dire.
Hi @Pensioncraft, really love your videos and think they are super useful!! Would be amazing for you to do a podcast/youtube video with @DamientalksMoney & @TobyNewbatt, you all provide amazing insights to the average retail investor. Technically you are probably competitors but three brains is probably better than 1 lol.
Hi @micheallavelle1580 Damien has done a couple of live streams with me. Here is the link to the one we did at Christmas th-cam.com/users/livekSlcEC-KaYQ
Interesting analysis from Jeremy J. Siegel in "The Future for Investors":
"Those who bought the original 500 firms and never sold any of them outperformed not only the world's most famous benchmark stock index but also the performance of most money managers and actively managed equity funds," Siegel writes.
The normal S&P 500 returned 10.3% a year from its 1957 founding through Dec. 2003.
But if you stuck with the original 500 components, letting dying companies die and reinvesting proceeds from companies that were bought out into the surviving companies (there were 125 of them left by 2003), you earned 11.3% a year.
That might not sound like a big difference, but it is.
One dollar invested in the normal S&P 500 in 1957 grew to $93 by 2003. In the "survivor only" portfolio, it grew to $124.
How do i find an ETF with the survivor only portfolio?
Thanks Ramin, I’m a beginner investor, I started in December, and I’m changing my tack having learned from your and another couple of TH-cam channels
Firstly, I’m sorting my pensions, moving from SJP and Fidelity to Invest Engine. Secondly, I’m selling many of my stocks and putting them into an ETF. anything (Barclays, BT) that has grown massively is getting sold, anything where my holding is small is going. I’m holding onto a few that I think will grow over the next couple of years (NG., VODA, STJ), but eventually they will be sold as well, and I’m keeping my moonshot (TMC)
I’m self employed, and I’ve found I spend far too much time looking at T212 instead of earning the money to invest. Hopefully this helps and I can be more productive as a result
I watch you a lot and always like to hear what you have to say. This video in particular is just fantastic. Thanks!
Glad you enjoyed it @EricBlair2084
I recall Terry Smith saying something along the lines of preferring to own a large portion of fewer good companies, compared to owning a little bit of a lot of bad companies.
Lately I see the T-class has underperformed the S&P, not sure if that's happened to him before.
I know they have Microsoft, but is the underperformance strictly down to not having Nvidia?
Need to ensure when showing returns they are adjusted after inflation. Distribution should be similar to what you showed but the drift isn't as significant as you may think.
Great video. Very informative. Thank you for sharing your knowledge.
Hi @MA-pu6dc thank you! Ramin.
@@Pensioncraft Excellent information and video Ramin, the best I've seen in a long time.
Useful breakdown. A question - if one has a lump sum to invest (in ETFs), it better to put it all in one go, or to stagger the payments/investments (a la dollar cost averaging)?
Great video🤘
Glad you enjoyed it @Christian-eh8iu
Those rare stocks you describe aren’t hard to find if they have the huge market cap needed to prop up the index. Surely better to by a bag of the big 5 tech companies than a Nasdaq index?
OFF TOPIC - Just requesting that you produce a short video explaining what will happen with small retail holders of Royal Mail (IDS) shares if the recommended takeover goes through. As I understand it, there will be a shareholder vote but I'm very unclear about what happens after that (as an example, do you pay dealing costs if the shares are cancelled).
Thanks in advance.
@8:55 You state that long-term investors earn the "drift" that's due to rising corporate profits. That's only half the story. Long-term earnings growth is only about 3% real, whereas long-term stock returns are in the region of 6-8%. The extra boost comes from dividends, which have averaged about 3-4% real. Or if you really want to be fancy, the total return is actually a risk premium that's compensation for the uncertainty of future cashflows. Two ways of looking at the same thing. But to state the long-run returns are driven by rising profits (and nothing else) is not telling the whole story, and I think it leads people to some incorrect conclusions ("oh gee, I should just invest in the companies with the highest growth !")
Isn't stock value theoretically just the present value of all expected future dividends? Because they're the only way you as a stock holder actually extracts any profit from the company?
@@PhillipHomer That's right, but the key question is : what discount rate do you use when discounting those future cashflows ? The discount rate is what determines your future return, and it's set entirely by market forces. Eg imagine a company that pays a steady dividend of $10 (no earnings growth) for the next 20 years. How much is it worth ? If you assume a 5% discount rate, the answer is $124. Anyone buying at this price would earn a 5% return, even though the earnings of the company never increase. If you're able to buy at $85, you'd earn a 10% return. If you buy at $49, that's a 20% annual return ! Who decides the "right" price ? It's supply and demand : the market decides the discount rate, based on the perceived riskiness of the company - and this discount rate becomes your expected return.
The extra return is due to inflation and currency devaluation.
@@VTh-f5x Nope. Nominal returns are something like 10% pa for US stocks. After adjusting for inflation the returns falls to 6-7%. Historically, about half that return comes from dividends (ie profits generated from ongoing operations), and half from price gains due to improving productivity, technical advances etc
Excellent video Ramin...i can verify some of these failure percentages unfortunately 😂
When a stock price is quoted, is that normally the price someone selling will get (offer price?)? If so, how can I see what I'll actually pay (bid price?) Thank you for the geat videos and podcast.
Any trading screen will show both prices.
Hi. Out of interest Do markets stay open all weekend. Iv noticed with IE not much Happens in stock prices on Saturday. Maybe a little change but on a Sunday nothing. Wasn’t sure if this is just IE not updating on a Sunday or if most markets close and nothing much happens in way of prices.
Most if not all close for weekends
I buy individual stocks. I am not an expert. I only do it because I enjoy it. Some people look at racing trends and gamble on horses. I look at stock markets and trade but not gamble. Gambling (in my opinion) is the difference between crossing the road with your eyes closed and following the "green cross code". Chalk and cheese. I try to do due diligence when buying stocks. I always ask my self "am I gambling when I buy this stock or am I happy it's an investment?". As I said I'm not an expert and I've been investigating for 20 years and I treat it like a hobby and yes I've made mistakes (usually when I get excited about something) and I then stop and learn from that mistake. Put simply I think you can learn how to invest but it's not easy and it takes time to learn (mainly about yourself and your own error making habits and inability to learn from mistakes).
Yip, scratches an itch.
Thanks Ramin, always like to hear your view on these matters. Makes me realise that there is always a lot more to consider than price when assessing stocks.
My pleasure @joeegg90
Thanks! That seems like some very solid advice indeed. My strategy is to complement a global index fund with an emerging markets index fund and a couple of sector funds, because the MSCI World and S&P 500 are so skewed towards the American tech giants. My hope is that this will insulate me to some degree from a possible tech bubble burst.
Glad it was helpful @christerdehlin8866
If you invested in the Vanguard global small cap index fund wouldn't that avoid the bid offer spread. It appears to have a Lower fund charge than ishares etf that tracks the same msci global small cap index. Personally I don't think it's worth it as you are just taking on volatility risk for most likely no extra returns
You avoid it to the extent that Vanguard's trading avoids it by intelligently placing passive orders that don't pay the spread. They also will match buys and sells internally which reduces trading and transaction costs.
@@rezwhap There is no trading costs for open ended index funds, oeics etc on most platforms, Vanguard, HL, Fidelity UK etc. And no bid offer spreads on most open ended funds, passive or active. The bid, offer spreads are on etfs which are traded just like individual shares. And you can buy etfs on Vanguard platform without incurring any dealing costs if you want, but still have the bid, offer spread
Point is just 'buy global index,😊
Is there any point in having a large index to track having a top 10 from each developed country maybe just as good and less trading fees trading in the index ?
Hi @simonunion4657 the returns don't always come from the top 10 stocks so that would miss out on the stocks that generate huge returns as they pass up the market cap ranking. But there is a global large cap index e.g. the S&P Global 100 index of large-caps www.spglobal.com/spdji/en/indices/equity/sp-global-100/#overview Thanks, Ramin.
@Pensioncraft Legal and General do a very good " Top 100 companies in the world " too.
Thanks @johnristheanswer in fact the L&G fund tracks the S&P Global 100 Index fundcentres.lgim.com/en/uk/private-investors/fund-centre/Unit-Trust/Global-100-Index-Trust/ Thanks, Ramin
Also the top10 now might not always be the top10 1,2,5 or 10 years from now, not to mention their future performance.
Hi @Pensioncraft is there an index that follows momentum, buying best performing stocks over a period and selling the worst performing stocks over that same period?
Hi @Nik-B0 yes there are momentum indices which are tracked by some funds. Here are some I found on JustETF www.justetf.com/uk/search.html?search=ETFS&assetClass=class-equity®ion=World&equityStrategy=Momentum%2BStrategy&sortOrder=asc&sortField=ter Thanks, Ramin
Recently, I've been pondering retirement. I've also invested $800K on S&P 500 so i could secure my financial future. i need an approach to invest in Stocks like Nvidia stocks and of course AI stocks that will align with my risk tolerance and financial goals but it seem to be bearish right now.
I was ready to buy apple at $165 in April (fun buy), Jim Cramer/ mad money that day said it’s was a sell sell sell and played his bear noise! I just continued with the Developed world fund instead. Only individual stock I would ever own.
With the greatest of respect Rider, if you are taking your advice from Jim Cramer you should not be buying individual stocks.
@@extramild1 ha, I’m definitely not ! I know he’s famous for being useless at stock selection, I was like 50/50 so any negative hint from anyone I wouldn’t do it. Just fluke timing that he was negative on apple He’s a Nvidia fanboy I should have knows he’s taking down competition.
First fact of stock picking… do the opposite of what the big JC tells you.
There's a 3rd price signal that's forgotten: Taleb black swan. Non-system risk can't be guesstimated from variance.
I picked a single stock rolls royce, and i am up 100k 300% 👍
Went crazy with Ukraine war. Same with BAE systems and most others in that sector.
I picked red on roulette and won $30k in Vegas. 🤷♂️
@livingart2576 your's was a guess 😅 mine was a no-brainer
Easy to say in hindsight.
Bet you couldn’t name another ‘no brainer’ that will rise as much as Rolls Royce did, could you?
@joshr920 iitu etf done me 33% so far since January. So if we hit 50% by year end, be happy 🙂 with that. It's better than the old alworld 👍
500 top companies in US is definitely better than the top 1000 as you get rid of the 500 lagging ones. I guess top 200 or S&P 200 would be even better than 500 but polishing that diamond list is also increasing the risk of lower diversification. It would be interesting to see at what number of companies an intersecting point in a graph would be, where two lines (one for returns and one for diversification) crossing each other. And what would be the most effective lowest number of companies in a US S&P index for the best performance? Whether it's S&P50, S&P150 or S&P200?
L&G Global 100 fund… the biggest 100 companies in the world. That would be one of my recommendations
But why should buying the largest companies "definitely" be better ?
@@chrisf1600 Because if they don’t produce a good return over 10 years something bad has happened and nothing will have produced a good return. Play the odds and the odds are they’ll see you right over the longer term. Just my opinion
@@mikew5274 Presumably all those investors who piled into the "Nifty Fifty" in the 70s thought the same. They soon learned their lesson. If it were as simple as "buy the top 100 stocks" or "buy whatever's gone up the most", we'd all be very wealthy.
@@chrisf1600 It’s a different time to the 70s now… anyway, it’s only my opinion and judgement calls are what it’s all about, you crack on and do your own thing for the next 10 years, I’ll stick with this
U.K. shares don’t offer “ good attractive long term returns “ 🤡😂 They are the pits and have barely moved in 20 years, take into account inflation and it’s even more dire.
Hi @Pensioncraft, really love your videos and think they are super useful!! Would be amazing for you to do a podcast/youtube video with @DamientalksMoney & @TobyNewbatt, you all provide amazing insights to the average retail investor. Technically you are probably competitors but three brains is probably better than 1 lol.
He appeared on Damien’s Making Money podcast video. Defo worth a watch.
Hi @micheallavelle1580 Damien has done a couple of live streams with me. Here is the link to the one we did at Christmas th-cam.com/users/livekSlcEC-KaYQ