Today we say that ordinary people can learn to invest artifact – fixed fund.
In 2005, Buffett offered active equity fund managers a 10-year bet of $500,000 that no active fund could beat an S&P 500 index fund.
Until 2008, when Ted Sidders, a portfolio manager at Protige &Co., selected five funds to compete with Buffett’s S&P 500 index fund over the next decade, Wall Street fell silent.
By 2018, when the bet was over, Buffett’s S&P 500 index fund was up 125.8%; Over the same period, Ted Sidds’ five funds have returned between 2.8% and 87.7%.
S&P 500 Index Funds Winning!
Do you want to know why Buffett dared to take this gamble? Next, we will uncover the mystery of index funds.
Part 1 What is an index fund?
1. What is a stock fund
Stock fund, according to the literal understanding is the fund that invests the stock specially.
A shares 3600 many stocks altogether now, major person is discernment does not come out stand or fall, also did not have that energy. So the fund manager comes in, the money is handed over to him, and he screens and buys the stocks for us.
So stock fund bought the stock of a package namely, we buy a fund, be buying the holding position stock of this fund namely.
What does that mean? It is we buy stock model fund to be equivalent to buy a stock.
Relatively speaking, the stock fund is less risky than we buy stocks directly, because we buy a lot of stocks, even if one of them has a very serious problem, it is not too bad.
As mentioned earlier, Barton’s bet was that no active fund could beat the S&P 500 index fund.
That what is active fund, what is index fund?
Fund is divided into active model fund and passive model fund, the stock fund that we say normally is to point to active model fund, and passive fund is index fund.
2. Active Funds vs. Passive Funds (Index Funds)
What is an active fund? Active fund is the fund that chooses stocks by the fund manager himself, the fund’s performance depends on the fund manager’s ability. And passive fund, is not the fund manager to pick the stock, then by who to pick the stock? The answer is the exponent.
What is an exponential? The index is actually very simple, for example, Baidu has a “Baidu Music Chart”, which lists the most popular music at the moment.
If I was a company specializing in the hot music record, I can be specialized in the “Baidu hot music list” record: every year to choose the most popular 10 music, made into a record can be.
An index is a list of stocks. To be more complicated, an index is a weighted average that reflects the market average.
We often come into contact with indexes in our daily life, such as the average grade of a class, the average age of a city and so on. This average can reflect the average level of a certain aspect, just as the average score of a class can reflect the average level of a class’s performance, which is the function of the index.
Similarly, in order to reflect the level of the stock market, the stock index was born.
Take the CSI 300 as an example.
The CSI 300 Index selects 300 stocks with the largest scale and best liquidity from the Shanghai and Shenzhen Stock Exchanges, which are grouped into the constituent stocks of the CSI 300 Index.
The 300 stocks included in the CSI 300 are re-selected twice a year to remove companies that are no longer eligible and add others that are.
The stock prices of these 300 stocks, according to their respective weight ratio, weighted average to calculate the CSI 300 index we say
What is an index fund?
Also taking the CSI 300 as an example, a fund company sets up a financial product. They buy the corresponding stocks in proportion according to the CSI 300 index and form the fund product, which is the index fund.
3. Advantages of index funds
Why does Buffett believe in index funds over active funds? The first is the weakness of active funds, which cannot escape human frailties.
In principle, investment should buy in a bear market and sell in a bull market. Fund managers know this, but they say: you can’t do it. Because clients can’t do it.
Those base civilian is to be in bull market explain buy, bear market redemption, fund manager also must sell in bear market, bull market buys. So it is not surprising that 80% of funds fail to beat the index.
The second is the merits of index funds.
1. Dehumanize. The index adjusts its constituents annually according to the rules, and index funds automatically adjust their holdings accordingly, so they are free from fear and greed and do not chase up or kill down.
2. Immortality. Companies die and disappear, but not the index, which regularly reshuffles its constituents and achieves true immortality by bringing in new companies and eliminating old ones.
The most famous example is the Dow Jones Industrial Average. On June 26th General Electric, an industrial giant of 134 years, was kicked out of the Dow Jones Industrial Average, which has all 30 stocks in it. By 2018, the initial constituent stocks have now all been replaced.
Dow Jones Index from the beginning of birth to now, experienced a lot of twists and turns and suffering. We’ve had two world wars, we’ve had the Great Depression of the 1920s, we’ve had the Great Crash of 1987, we’ve had all kinds of crises.
After the ninety-eight difficult index is still thriving. But the Dow went from 100 to more than 26,000 (260 times) today.
Is the real iron camp running water of the soldiers, we buy the index, equivalent to buy a camp, buy a specific stock, is equivalent to buy a soldier, the soldier may die in battle, but the camp will be there forever.
3. Always rising. This is the U.S. stock market from 1801 to 2001. Over the course of 200 years, the rise of all asset classes. The stock went from $1 to $755,163, which is an increase of 755,163 times.
Let’s take a look at China. Let’s start with the Hang Seng Index, an important index of the Hong Kong market. It was born in 1964, at the first 100 points, and in 2018 it was around 30,000 points.
Speaking of this I have to for A shares to correct the name, who said A shares do not make money? Although it has only been born for more than 20 years and experienced ups and downs in the middle, it has risen from 100 points in early 1991 to about 2800 points now, with an annual return rate of 13%, a 28-fold increase in 27 years! Why does the index go up forever? Because the backside of the index is the company, the index can move storehouse regularly, the company with strong earning ability is selected into the index, eliminate the company with weak earning ability, so, the index rises for a long time necessarily.
Warren Buffett has said that buying index funds is buying national luck. As long as we believe that the national economy will continue to grow, the index funds will rise in the long term, and we will be able to share in the benefits of national economic growth.
The second part is set
Now that we have index funds, let’s talk about the multimillionaire program.
For example, if we invest 2000 yuan every month and get 15% annual rate of return, how much will we get after 30 years? The final payoff is $13 million.
This is the multimillionaire plan that uses fund to be fixed cast, exact is that index fund is fixed cast.
Some partners said, I now know to choose index funds, then I will choose an index fund investment is good, some people said: fixed investment every month, fixed investment on time, regardless of the market. We call this set shot a fool set shot, referred to as the “no-brainer set shot.”
Who says index fund can make money with respect to casting surely? Kui! Kui! Kui! Did not run to win inflation calculate, still lose! So why lose money? Because I went through a crying path. The following figure
The cry curve goes from 1 to 2, to 3, to 4 again!
The best way for index funds to make money is to follow a smile-curve path.
Smile curve, start at 1, go through 2, go up to 3 and 4. Here is the result of a smiley path
So say is not at any time fixed cast can make money!
So how do we know if we’re going to follow the smile curve or the sad curve? In other words: how do we know if we’re at point A or at point B? How do we know? Up or down according to the index? Or by exponent points? Come in at 3000 and leave at 6000?
Among them, some of the index performance to force, far stronger than the market; Some of them were extremely uninspiring. Therefore, only look at the rise and fall, only look at the point are not necessarily reliable.
The correct answer is valuation
The valuation
What we have to do is to learn the valuation, according to the valuation to decide whether to enter the market! If the current valuation is low, that is, the price is below the intrinsic value of the fund, then this is the time to buy.
For example, a basket of packaged food, fresh and beautiful, worth 100 yuan, one day the market is cold, the food can not be sold, price treatment for 80 yuan, this time, the price of 80 is less than the value of 100. This can be a decisive buy!
Specific methods will be taught in the fund training camp, how to estimate the buying point and selling point of the fund, in the case of low risk to expand profit.
Of course, in addition to the valuation of the fund, there is also a set of investment fund strategy, and this strategy than no brain fixed investment, can obtain higher and more stable income!
According to the data, the long-term return rate of A shares is about 10%, that is to say, in the long run, even if A little bit of strategy, it is more likely to get an average return of about 10%.
So good, that oneself fixed cast good, why want to study?
That brings us to the three elements of compound interest: principal, time, and return. Our principal is different from person to person, so we can only work on the latter two.
Let’s start with the effect of yields.
So let’s say you subscribe and you get an annualized return of 10%. How much money will we have in 30 years? 4.52 million
What if it’s 15% annualized? 13.84 million
The yield difference is 5%, and the final return difference is 9.32 million after 30 years.
And finally, the effect of time.
Even at the same rate of return, there is a big difference between early and late investments.
About the fund and fixed investment is introduced here, and then bring you to review the key content of tonight:
- Fund is divided into active fund and passive fund (index fund), index fund was set by the god Buffett bet, and obtain great victory;
- The characteristic of index fund is: exterminate human nature, immortality, rise forever, buy index is to buy national luck;
- Fixed index funds to choose the smile curve;
- In the case of the same principal and fixed bid, the rate of return and fixed investment time is different, under the action of compound interest will be greatly different.