long term using index etfs or learn fundamental analysis

I have read books and articles that suggest being a passive investor and
using market etfs. At least that's my understanding of what they are
trying to say. There was a recent suggestion in this group of some book
by Swedroe which I think goes for similar strategy.
I was wondering if this is applicable anymore at all.
Looking at
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you click on 10 years link, it essentially goes from about 1400 to 1100 (showing -26%)
I don't know if/how ETFs differ from this graph in terms of actual
performance in any substantial way.
To me 10 years is long and I wonder if this approach is useless in
practice. The graph says passive investing by market etf may be a
loosing game.
The reason for the post is basically I want to know that I am not
completely off in my understanding.
I've been sitting on cash for more than a year (that happened to be good
market timing in terms of the exit) and trying to figure out what my
strategy should be (I am not a professional investor).
If I were to try to learn 'fundamental analysis', any good book suggestions?
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A good compromise between fundamental analysis and index funds is to rely on newsletters. You can choose bond or equities, individual stocks or mutual funds, what ever you like. Typically they hold two or three portfolios and make trades based estimated performance.
Go to the library and find Hulberts newsletter. This one ranks all the other newsletters. You can pick a newsletter that you like.
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Absolutely, "Security Analysis" by Graham and Dodd. Warren Buffet studied under Ben Graham, and look where he is now.
In your question, you offer the ten year S&P index return. I'm compelled to make two comments. First, the index ignores dividends which would increase the calculated return. Second, in down markets I "always" beat the index. Bragging? Hardly. My cash, even at
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Or, instead of manually putting a newsletter into practice, you can directly invest in etf's or funds that implement a newsletter's picks
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. Maybe there are otherexamples of this.
That particular family has stumbled the last few years because their momentum approach is bad in a choppy market. But the newsletter did spectacularly well in past decades and funds did pretty good until recently. I like their systematic approach which was easily automatable into mutual funds, without having to wonder if some whimsical manager was wasting money window dressing etc.
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Ibid, Joe Taxpayer, with a specific to get the 6th edition "Security Analysis." It's more thorough than "The Intelligent Investor."
In addition, I suggest that if you were good at stacking blocks in kindergarten, then reading annual reports will be a piece of cake for you. Scan the report for the charts on earnings, and look for bigger stacks as the years go by. This is not a guarantee, but it is a better place to start than a company with erratic earnings. (I'm not actually being 'too funny' here - selecting a portfolio of really solid companies, serious about their business, is not rocket science.) About a year and a half ago I pulled some stocks out of the top of my hat. I am a lazy man, and a real genius at avoiding hard work, so you can be assured I do not know a single one of these ten companies backwards and forwards. But I do know they all have good earnings (until BP, that is), and I know a little about their products and their markets. Joe Taxpayer probably would come much closer to understanding all the accounting than myself.
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I messed up a little with the targetted amounts and with the website, so it's not perfect balance, but it's pretty close, and there's an index Tad Borek suggested to compare to.
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Use your head, do some work, and do not be greedy - be practical.
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Antony writes:
Which ones? And what kinds of strategies and asset allocations are you talking about?
There's a difference between "dump all my money into an S&P500 (or similar large-cap equity) fund" and "build a diversified portfolio covering different asset classes to match my risk tolerance and time horizon, reblance as necessary". Both are strategies which could be implemented via low-cost index funds. Or they could similarly both be done in inefficient ways with high-cost funds.
As someone else mentioned, you're ignoring dividends.
It says no such thing. Passive investing may, in fact, be a losing game, but that graph doesn't say so. The graph just tells you about the price performance (not the total return) of a single particular index.
The granddady of them all is Security Analysis by Graham and Dodd, but before you dive into that, I think you might benefit from understanding more about investing in general, styles, history and results. Perhaps your first stop should be A Random Walk down Wall Street. It's got a nice survey over index, fundamental, technical analysis, historical performance of various styles, etc.
You might also enjoy reading this article:
It's got some great illustrations of the effects of asset allocation and the benefits of diversification. And it's very concise.
This one does, in rather Swedroe-like manner, an exercise in starting with a very simple 60/40 Sp500/GovCredBond portfolio and a little bit at a time adding in other asset classes and vastly improving diversification -- and showing how those changes affect historical volatility and returns.
Most of the time periods covered are roughly 1970-2009. History will most certainly not repeat itself just like that time frame, but it did cover a period including a massive bear market, the huge inflation, vast rise in bond rates, then - and this is important - over the course of 20 or so years, interest rates going from those huge highs to their present low rates. Don't for a second think that interest rates are about to drop *again* the way they did. Nevertheless, it's fascinating.
As to whether it's worth your time to try to beat the markets on your own via fundamental analysis, well, it's possible you can. But not especially likely, not on a risk adjusted basis and accounting for how much time and effort you'd need to put in. You might just do a lot better for a lot less effort with a few well chosen ETFs and the right asset allocation -- and the discipline to stick to the plan. It's that last bit which might just be the hardest part.
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