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Noob needs ISA and funds advice - 20k to invest asap
colin overton
Posted: 21 January 2018 22:55:35(UTC)
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I had to look at what the Vanguard Life offerings are, although I had heard them many times on Citywire threads. So e.g. Vanguard LifeStrategy 100 is a fund of funds, all of them Vanguard funds, all (or most?) are index trackers (less than 100 means some bonds I guess?). This fund of trackers is cheap (although you do pay a small amount twice, once for each tracker and once for the fund of trackers) and not overly large at £750m compared to Fundsmith.
You are sort of "buying the world" of investments or at least the developed world. So a sort of "passive 1st world" approach. If HL's listing is to be believed then there is almost no exposure to India, China or Russia or etc. Vanguard's idea of "Developing Markets" are Korea, Hong Kong and Taiwan - these are the top three countries in one of the trackers (combined 40%). Another Asian Pacific (ex Japan) index tracker is 50% Australia! Both these trackers combined are only ~10% of the overall fund.
I guess this approach has the advantage that you miss very little in the 1st world (UK is over represented ~23%) and are investing in established and relatively safe/fraud-free areas. In bad times this approach should mean the "V100" would not fall more badly than the average of all the major stock markets. 10 or 20 Carillions would hardly dent this approach, but there would be no shelter from a general down turn of markets, in fact it would track it!
However in 30 years time the world will be different. Growth will mean that the BRIC countries etc. will be much more important and for example the EU tiny - with or without the UK. Perhaps even non-Brazil S. America and Africa will contribute to the world economy in a meaningful fashion? Would the V100 change and when?
What does this approach get you? Well Vanguard LifeStrategy 100 has easily beaten the FTSE100/FTSE All Share indices but not the FTSE 250, S&P 500, Nasdaq Developed Markets, Dow Jones Global Titans 50 indices over 5 years (nor the Nikkei 225 and barely the Hang Seng). Although not at all equivalent, the S&P 500 beat the "V100" by 40% over 5 years. Fundsmith has gone up twice as much as V100. I wonder if in bad times the V100 would have done better.
What does "buying the world" teach you. That stock markets go up over time, I suppose.
On the other hand if we look at Anthony Bolton, Neil Woodford and Terry Smith as "The Three Titians" of the last 10-20 years only one of them is still delivering, hence all the recommendations on this thread for Fundsmith. Will Old Terry survive the next 5 to 10 years or will we have to find a new, good dart throwing monkey?
Would I buy Vanguard LifeStrategy 100? No. However perhaps others should and in a long term pension pot it might be good or at least not bad.
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Tim D
Posted: 22 January 2018 00:21:32(UTC)
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colin overton;55737 wrote:
In 30 years time the world will be different. Growth will mean that the BRIC countries etc. will be much more important and for example the EU tiny - with or without the UK. Perhaps even non-Brazil S. America and Africa will contribute to the world economy in a meaningful fashion? Would the V100 change and when?


In an interesting piece at http://www.telegraph.co....way-from-their-uk-bias/ I find this info on how Vanguard manage VLS' weightings:

Quote:
There’s a strategic asset allocation committee that meets periodically to decide on appropriate allocations and weightings between asset classes.

Typically, those weights would be modified very infrequently. It’s really a fund that reflects our best thinking for what a long-term strategic investor should be doing, and broadly speaking it’s a reflection of the whole global market.

There is one nuance to that, which is that our LifeStrategy funds have more of a tilt towards the UK. If you look at the shares portion, the weight of the UK in the global market is something like 6pc - in the LifeStrategy fund it’s 25pc.


I'm a Vanguard fan myself and hold quite a lot of VLS80 and VLS60. For me the benefits of these funds are mainly about the automatic rebalancing with their fixed interest element, so I never quite saw the point of VLS100. Personally I'd sooner buy their (relatively new) Global All Cap Index Fund (or the VWRL ETF before that appeared). You'd have to want the UK home bias to go for VLS100 over those... but I think the response of the UK indices to post-Brexit-referendum currency moves have revealed just how internationally exposed the UK markets are anyway, so it's not obvious "home bias" really gets you anything at all. Personally I do overweight my EM exposure a bit more on top of the ~8-10% you get included with this sort of global index vehicle.

I suspect any current EM countries which went on to "contribute to the world economy in a meaningful fashion" will be reclassified into the developed world indices at some point. This certainly has happened with some previously "frontier" countries being promoted to EMs (Saudi Arabia, Pakistan). I think Israel was promoted from EM some years ago, and South Korea is likely to be next. (And Greece was famously demoted TO an EM!) MSCI's info here but other index providers may have their own ideas. Of course there are also plenty of developed world companies in a good position to benefit from EM/BRIC growth too; e.g a lot of the FTSE100's miners' future prospects depend far more on what's going on in China than on anything that happens in the UK.
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King Lodos
Posted: 22 January 2018 00:30:12(UTC)
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colin overton;55737 wrote:
I had to look at what the Vanguard Life offerings are, although I had heard them many times on Citywire threads. So e.g. Vanguard LifeStrategy 100 is a fund of funds, all of them Vanguard funds, all (or most?) are index trackers (less than 100 means some bonds I guess?). This fund of trackers is cheap (although you do pay a small amount twice, once for each tracker and once for the fund of trackers) and not overly large at £750m compared to Fundsmith.
You are sort of "buying the world" of investments or at least the developed world. So a sort of "passive 1st world" approach. If HL's listing is to be believed then there is almost no exposure to India, China or Russia or etc. Vanguard's idea of "Developing Markets" are Korea, Hong Kong and Taiwan - these are the top three countries in one of the trackers (combined 40%). Another Asian Pacific (ex Japan) index tracker is 50% Australia! Both these trackers combined are only ~10% of the overall fund.
I guess this approach has the advantage that you miss very little in the 1st world (UK is over represented ~23%) and are investing in established and relatively safe/fraud-free areas. In bad times this approach should mean the "V100" would not fall more badly than the average of all the major stock markets. 10 or 20 Carillions would hardly dent this approach, but there would be no shelter from a general down turn of markets, in fact it would track it!
However in 30 years time the world will be different. Growth will mean that the BRIC countries etc. will be much more important and for example the EU tiny - with or without the UK. Perhaps even non-Brazil S. America and Africa will contribute to the world economy in a meaningful fashion? Would the V100 change and when?
What does this approach get you? Well Vanguard LifeStrategy 100 has easily beaten the FTSE100/FTSE All Share indices but not the FTSE 250, S&P 500, Nasdaq Developed Markets, Dow Jones Global Titans 50 indices over 5 years (nor the Nikkei 225 and barely the Hang Seng). Although not at all equivalent, the S&P 500 beat the "V100" by 40% over 5 years. Fundsmith has gone up twice as much as V100. I wonder if in bad times the V100 would have done better.
What does "buying the world" teach you. That stock markets go up over time, I suppose.
On the other hand if we look at Anthony Bolton, Neil Woodford and Terry Smith as "The Three Titians" of the last 10-20 years only one of them is still delivering, hence all the recommendations on this thread for Fundsmith. Will Old Terry survive the next 5 to 10 years or will we have to find a new, good dart throwing monkey?
Would I buy Vanguard LifeStrategy 100? No. However perhaps others should and in a long term pension pot it might be good or at least not bad.


The thing with a global tracker (which LS100 is very close to), is it'll always underperform as many countries as it outperforms – roughly.

That's just the nature of being diversified: you'll hold roughly as much of the outperformers as the underperformers.

The question is: as the US has outperformed over 10 years, do you hold more US now? .. Or as EM has outperformed over 20 years, do you hold more EM? .. The advantage of a global tracker is it doesn't have to make a bet, it just maintains the neutral position and adapts.

The FTSE250's done great over 10-15 years, but underperforms the FTSE100 over longer periods .. So which would you hold more of now?


As for Fundsmith, one thing he's not doing is throwing darts or making predictions .. It makes much more sense to think of Quality investing as buying the market, then stripping out all the Junk, than it does to think of it as identifying 'winners' .. because it's perfectly happy to avoid winners (or just hold companies that have been winning for decades/centuries), and let the outperformance come from also avoiding the all the losers (75% of stocks in the US market will lose you money – so you can go a long way just avoiding them).


EDIT: In fact from backtests, I find holding 6-8 brand name companies that have been around a long time tends to produce average annual returns around 16-20% .. You don't need to find the next Amazon or Apple; good companies do tend to generate these kinds of returns – you've just got to watch for the moment they might stop being good companies
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Jim Thompson
Posted: 22 January 2018 06:37:34(UTC)
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A little thank you to the thread contributor esp KL. An interesting read.
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King Lodos on 22/01/2018(UTC)
TJL
Posted: 22 January 2018 07:37:30(UTC)
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Hello Theo,
Lots of quite sophisticated analysis for you to think about, on top of your own thoughts about cash, gold, precious metals, currencies etc.
I think the danger now is that you might not be able to see the wood for the trees and overthink the issue.
You seem to quite like the idea of a Vanguard fund or Fundsmith.
Clearly very sensible options and supported by many.
You could do a lot worse, and as I think you yourself have said, none of us can predict the future.
My opinion (based upon your comments so far), start to drip feed this year's allowance into an Isa straight away, and commit to either Vanguard or Fundsmith.
You can diversify later to your hearts content, and even change your mind if necessary, but either would make a good start.
At this point I do not think the decision is going to get any easier the more it is discussed or the more you think about it, and no-one can make the decision for you.
So if you are sure you do want to invest your money, get stuck in.
You might actually feel better once the plunge has been taken.
Best of luck.
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Theo Shackleton
Posted: 22 January 2018 18:39:49(UTC)
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Hi TJL,

I think what you've said hits the nail on the head and nicely tops off what have been absolutely superb responses. The last 15 or so have blown me away - so well written and interesting, and undoubtedly better than most, if not all, paid advice I could've got on the high street. Thanks to King, Alan, Colin, Tim, mickey, money spider, and John (and everyone else who has contributed) for patiently indulging my numpty questions and for such quality responses. Thoroughly enjoyed reading and learning from them. I definitely get it all better now than when I started the thread and think I can now take the plunge in a more informed and confident way. Great forum - hopefully I can put back into it as I learn more.

Thanks everyone! :)
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Alan Selwood
Posted: 22 January 2018 18:52:00(UTC)
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The best questions usually elicit the best answers!
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Theo Shackleton on 22/01/2018(UTC), Tim D on 22/01/2018(UTC)
Theo Shackleton
Posted: 22 January 2018 19:14:34(UTC)
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Very kind, Alan :) I'm so excited about doing this. A new challenge, and taking some more control over my destiny! Being a saver has been pretty dull and depressing for so long now.
colin overton
Posted: 22 January 2018 21:14:12(UTC)
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http://citywire.co.uk/mo...-money-latest-news-list

http://citywire.co.uk/mo...-money-latest-news-list

Different views on the same day, it is the best of times, it is the .........
Note both V100 and Fundsmith have a US "bias", Fundsmith more so. Presumably V100's US expose is carefully worked out on the basis of .............................
So who do you trust The Man from the Pru or Old Terry? It's not really a contest is it, unless you want insurance. I do like the logic of Old Terry's assessment of Woodford's "Decline and Fall". I paraphrase; it takes a rare ability to make no money in good times; relying on doing less badly when things turn south is unlikely to be an overall winning strategy. The monkeys have fallen out.

http://www.telegraph.co....ly-lifestyle-fund-good/

The Vanguard Lifestyle products are not unique, neither I suspect is the quarterly "rebalancing". This of cause will involve selling some of the best performing investments and buying the least well performing trackers - at a cost and repeatedly. So it comes down to whether you think Vanguard's "investment team" is particularly good at deciding which part of the world or size of company (and in what proportion) will be best for the future, or would Blackrock, AJ Bell, L&G, Standard Life, Henderson, Invesco, etc. etc. teams be better? Vanguard's costs are low and their product range complete, but there are other cheaper Trackers if you want to pick your own. You should check that a tracker really does track, some don't.
In 2018 for V100 to have no expose to the world's 2nd, 7th, 9th or 12th largest economies is a surprise, especially as these are growing at many/several times the 1st world's average/the 1st world's best. You will have to decide on the level of risk you are happy with.

Costs are important but I ask, which do you prefer, a cost of 0.22% p.a and a return over 5 years of ~+84%, or costs of 0.97% p.a. and a return of ~+164%? The monkey done well, the monkey done very well! The future is foggy, the future in unclear.

I guess in the end it comes down to time/interest and whether you believe passive/trackers (plus perhaps some level of bond exposure) beat the monkeys over time. If you chose your monkey well and accept risk, it is likely to be more rewarding, at least in the medium term. Certainly V100 looks better than a Woodford UT, I'll not discuss the black hole that is WPCT. Bad monkey.

I always think that there is nothing like owning an investment to help you decide on your personal reaction to risk/interest/variation/reaction to loss, why not pick V100 and Fundsmith? Balance is important, so I would add a UK based income fund/trust and something in the developing countries, that is from some of the world's 2nd, 7th, 9th or 12th economies, rather than pseudo developing countries such as Korea, Taiwan, HK or Australia . These last two suggestions in lower %s perhaps. Good luck!


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Theo Shackleton
Posted: 22 January 2018 21:44:19(UTC)
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I'll check those links out, thanks Colin.

Good points about the way vanguard 100 is distributed. It looks as though even the tracking type funds are still managed to some extent then. Unless it's more of a 'pure' tracker, like a ftse100 type? I'd definitely prefer more exposure to the whole world than the LS100 fund seems to involve.

I've just been looking at the link Tim posted earlier to Vanguard's Global All Cap Index Fund. It involves more exposure to those countries you mention - China, India, Russia, Brazil - albeit in small proportions, and there is heavy weighting towards the US. That must be inevitable to some extent though given the US share of very successful, global companies. I also prefer, compared to life strategy, the lower exposure to the UK.

Personally, I see the US as a safe bet going forward. It continues to be a very innovative nation and the economy seems to be doing well under trump. The UK though - I'm optimistic about the idea of brexit - but this government is a shambles, and the alternative is even worse.

So global all cap index def interesting me.
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Tim D
Posted: 22 January 2018 22:07:06(UTC)
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colin overton;55787 wrote:
In 2018 for V100 to have no expose to the world's 2nd, 7th, 9th or 12th largest economies is a surprise, especially as these are growing at many/several times the 1st world's average/the 1st world's best. You will have to decide on the level of risk you are happy with.


China, India, Brazil and... Russia? (Using Wikipedia's GDP data anyway). Don't think it's fair to say VLS100 gives you *no* exposure. Morningstar gives this for VLS100:

VLS100 geographic

India and China would be in Asia-Emerging, Brazil in Latin America and Russia presumably in Emerging Europe. OK it's not much. But more than none. Slightly.

Was interested to look at this for another family of multi-asset passive funds I like: L&G's multi-index. The most equity-heavy '7' one (there's a range of risk levels; '7' seems to be currently ~90% equities but I think it can change, unlike VLS' fixed proportions) has this geographic allocation:

L&G multi-index 7 geographic

which is quite a bit more in emerging parts of the world (it also has less in the USA, which maybe attractive if you think the best of the bull market there is behind us. The last lot of cash I might have sunk into VLS60 actually went into a L&G multi-index 5&6 split instead).

If you like this sort of multi-asset global thing, Blackrock's Concensus range may also be of interest. It (or at least the equity-heavy "85" one) has even more home bias than the two mentioned above though.. ~40% UK).
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Theo Shackleton on 22/01/2018(UTC)
King Lodos
Posted: 22 January 2018 23:17:30(UTC)
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It's mostly meaningless – especially with larger companies.

The FTSE100's got more revenue exposure to Emerging economies than it does the UK – so what does VLS100's 24% UK exposure mean?

Unilever's a great British company, but 60% of its revenues come from Emerging Mkts.

So you don't have to own companies on Indian or Chinese stock exchanges to get lots of EM exposure, and play big themes, like the EM consumer, or Chinese industrial growth.


Colin's insistence that the UK's top fund managers are 'monkeys', however, is coming from a place of deep ignorance .. There's no suggestion they're picking stocks at random – their approaches are well outlined, and the process of valuing businesses is what makes markets function .. Smith's identified accounting errors in major companies like IBM .. And until you've made market-beating returns over multiple decades, it's silly to write off a few years of underperformance as proof of someone's incompetence
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Theo Shackleton
Posted: 22 January 2018 23:40:00(UTC)
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It did occur to me after my last post that really, government policy or economic performance in any particular country is only really of significance to the extent that companies one has invested in are exposed to that market. So very big companies, regardless of where they're registered, offer diversity in that sense. So further useful information about a fund would include information about where its component parts are involved and invested in, rather than just where they are head quartered and which exchanges they're listed on. I imagine that's a very difficult thing to collate and summarise though.
Tim D
Posted: 23 January 2018 00:19:47(UTC)
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Theo Shackleton;55796 wrote:
It did occur to me after my last post that really, government policy or economic performance in any particular country is only really of significance to the extent that companies one has invested in are exposed to that market. So very big companies, regardless of where they're registered, offer diversity in that sense. So further useful information about a fund would include information about where its component parts are involved and invested in, rather than just where they are head quartered and which exchanges they're listed on. I imagine that's a very difficult thing to collate and summarise though.


If you google things like "geographic revenue exposure" or "economic exposure indexes" you can find quite a lot of information on this sort of thing. Not sure how useful it is in practice other than for convincing yourself the world really is quite an interconnected place. Particularly like this chart in an MSCI document:

Revenue exposure

As an example of this sort of thinking: one of my favourite ETF holdings is some "iShares MSCI EM Consumer Growth" which is a (so far successful) play on EM consumer growth by investing *not* simply geographically *in* EM countries with a growing consumer population, but globally with companies weighted by their EM consumer exposure. This gives you a curious basket of both EM and developed world companies with Apple and Philip Morris sitting alongside Tencent and Alibaba.
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King Lodos
Posted: 23 January 2018 01:15:34(UTC)
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That's a good chart – and by revenue exposure, the MSCI World looks like the perfect portfolio.

About a third in EM, solid chunk in the US, 10% Japan.

I like being able to buy a Russian ETF, but the reality is, because the Russian exchange has a few really big energy companies in it, it's going to behave a lot like a Natural Resources fund .. And you find sector exposure explains most of a region's apparent performance, active or passive, and often valuations – whatever combination of sectors happen to form that market .. The US looks particularly expensive today because it's dominated by tech firms

https://i.imgur.com/I6zvkB0.png
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colin overton
Posted: 23 January 2018 09:51:10(UTC)
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Even when you pick a passive, tracker based investment, there has to be an element of choice or there is usually. I suppose that you could construct a "fund of funds" (remember those?) that sought to track the 10 largest world's economies, that would be 2/3 of the world's economy (2016). However the more you choose the more averaging down of good performance you get, as well as averaging up of poor performance.

Using HL's listings for the "developing world" there would appear to be very little of the 2nd largest economy, 7th ............. etc. etc in the "emerging markets/developing world" of V100. The 2 such constituent trackers of V100 are dominated by the "pseudo-developing" countries -by the way my view would be that Korea, Australia, HK, etc. for example, are developed countries. China is 10% of 9% so 0.9% and India 9% of 9% so 0.8% of the total V100 breakdown. (I actually slightly over state these proportions to make the maths easier). Brazil and Russia are less that these percentages, "almost none".
Why does this matter? Well the last year accepted, developing countries have produced some of the best returns over the last 15 years I can recall. As they grow and become more developed I believe their "heightened risk" diminishes. I've lost count of the number of predictions of a Chinese collapse has been trumpeted. It is true that the ride is likely to be bumpy but for 100-300% growth I'm prepared for some nausea on the way. At least some of the "BRIC" funds (remember the fanfare for those?) didn't do that well and I prefer to pick China and India than BRIC.

It is true that multinational "British" companies (or at least London listed) do offer exposure to the world e.g. Shell, HSBC, Unilever and BAT (the four largest cos on the FT100). I could only find figures for 5 years, but none of these fine companies have out performed good Chinese or Indian UTs and Shell/HSBC look like "the Bad Monkey" picks. Note I currently own both of these companies and by buying during "panics" have made 20-30% in ~3 years.

I restate that on balance I tend to "go with the monkeys", although I agree the S&P500 is hard for the monkeys to beat over the medium term. However when one of the most famous monkeys has produced losses or very little gain of the last few years, when everyone else is doing well and all (?) indices are up, he should be released back into the jungle where he can do less harm.
TJL
Posted: 23 January 2018 13:10:04(UTC)
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I wish old Old Colin would drop this 'monkeys' thing.
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Carl Johnston
Posted: 23 January 2018 13:46:39(UTC)
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If you're looking to achieve a gross return of 3% I've come across a private equity firm Universal Private Equity who are offering secure investments which yield more than this and with apparently little risk. Has any one here invested in these kinds of Corporate Investment Bonds? and what are your thoughts regarding them?
Tim D
Posted: 23 January 2018 14:46:15(UTC)
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colin overton;55806 wrote:
Why does this matter? Well the last year accepted, developing countries have produced some of the best returns over the last 15 years I can recall.


Just for a contrary point of view.... a recent article on this very site -
http://citywire.co.uk/in...erging-markets/a1067284 - claims on average you'd have been better off with UK trusts than EM ones (OK, over 25 years).
King Lodos
Posted: 23 January 2018 15:23:12(UTC)
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colin overton;55806 wrote:
It is true that multinational "British" companies (or at least London listed) do offer exposure to the world e.g. Shell, HSBC, Unilever and BAT (the four largest cos on the FT100). I could only find figures for 5 years, but none of these fine companies have out performed good Chinese or Indian UTs and Shell/HSBC look like "the Bad Monkey" picks. Note I currently own both of these companies and by buying during "panics" have made 20-30% in ~3 years.

I restate that on balance I tend to "go with the monkeys", although I agree the S&P500 is hard for the monkeys to beat over the medium term. However when one of the most famous monkeys has produced losses or very little gain of the last few years, when everyone else is doing well and all (?) indices are up, he should be released back into the jungle where he can do less harm.


Unilever's total returns over 20 years would've turned £1,000 in £10,000, with minimal downside .. Revenue exposure is economic exposure, and what you're mainly seeing with regional stock markets is just arbitrary sector composition.

There are also hundreds of times more companies when you expand your search to include 2/3rds of the planet, so statistically you'd get a few big winners.

Actually monkeys find it easy to beat the S&P500 – this is why you have to use 'monkey' carefully .. They beat it by nearly an extra 2% a year .. In such an over-researched market, it takes a monkey to be a true contrarian .. If you average 1,000 monkey portfolios, you get an equal-weight portfolio .. So monkeys have their place in this debate – but to most real investors: beating an index isn't what matters.

The Surprising Alpha of Malkiel's Monkey



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