Ummmm. Your numbers are incorrect, but even if they were, what job would you take for less than $200 per year assuming that you have a starting $500k bankroll?

Umm how are my numbers wrong? I didn't account for appreciation, if that's what you mean, so I guess it should save me even more in the long run. And what are you talking about a job? It was a few hours of upfront work for a few hundred a year in savings. Plus the tax advantages are the big benefit; saving on expenses is just the icing on the cake.

This is a noob question, not meant to be critical: Would you end up losing more to the spreads buying that many individual stocks as opposed to just VTI (isn't the spread for this ~a penny per share)?

I really don't understand how spread size is determined and how market orders can mitigate (or not) the loss to spreads. Isn't a lot of it determined by a bunch of market makers competing for who gets paid the liquidity premium?

Yeah I was worried the spreads could be an issue, but paying half of the 1 cent spread on every stock would add <$20 to the total cost. Plus as far as I understand it, with the market-on-close orders I used you avoid the paying the spread (at least for small retail investors whose orders don't move the market) since you get the exact closing price for that day.

Is it possible that's sort of an illusion though?

If a stock is trading at $100 and you want to buy at $95, so you set a buy order at that price, and then the price plummets to $90, your broker will execute at $95, but it's possible a market maker was able to buy at $94.50 on the way down and snap sell to you at $95, in which case your buy order of $95 was still inefficient and exploitable. So even though you bought at the exact price you wanted, if you were as sharp and quick as the market maker you would have saved $0.50 per share.

For this reason I feel like setting a market order really has no different EV (at least in terms of spread) than just telling your broker "ehh... just buy at whatever the market price is at 2:38 PM three Wednesdays from now"

But I'm a huge noob and I'm sure some much sharper guy than me is chuckling at this post

Yeah that's not what I did. Read up on market-on-close orders.

But as to your question, yeah for highly liquid stocks with one cent spreads I don't think a limit order at a specific price is any better than a market order. For illiquid stocks with wider spreads, limit orders become more important.

You're forgetting the 1-2 hours per year in the future you may spend rebalancing n00b.

Tho I suppose that may be offset by the possibility of ever making more money and adding to taxable accounts.

do you guys think the french/fama factors will continue to outperform or is it just backtested crap like the rest of technical analysis (seeing patterns where there are none)

what makes you think those are the only two possibilities

Bid/ask spreads aren't a penny on average for the mega-caps and a MOC order is just a regular market order that has a time stamp broadcast to other market participants that they should take advantage of in the last minute of trading or (if you haven't been filled) as soon as possible once after-hours trading begins*. MOCs have no magic to that allows you to avoid spreads. In short, you paid the spread and risked getting a bunch of really bad fills if you were filled AH.

You weren't able to buy each of the mega-caps in the proper proportion to emulate the mega-cap index unless you are sitting on millions of dollars and are completely done contributing to your brokerage account.**

Hopefully, you are really old and done contributing to your brokerage account, else you will be paying the bid/ask plus commissions every time you want to add a few bucks to your investments.

*those fills can really bite you. Market makers love that people make MOC orders.

**it can be ok to go with not emulating the index by going equal weight (or a weighting that is different than the index weightings, but not emulating the index is not emulating the index. You are doing something different.***

***if you were sitting on that much money your commissions would have been higher.

BtM,

If you are going to be pedantic, at least try to be right. Your constant posturing is getting a little old at this point. A little learning is a dangerous thing, etc..

1) "The average spread on S&P 500 stocks now is slightly more than a penny, according to Morgan Stanley." See: https://www.blackrock.com/investing/...al-version.pdf

2) A MOC order is not just a regular market order with a special time stamp. There is a separate closing auction that runs at 4 pm each day for MOC and LOC orders. See:
https://www.nyse.com/markets/nyse-ar...g-info#closing and
https://www.nasdaqtrader.com/content...quickguide.pdf

3) I said I was emulating Wealthfront's direct indexing program, not "emulating the index". Wealthfront offers that program to all accounts with 100k+ in assets, so they certainly have the same issue of inexact proportions. But it's a moot point anyway because the average discrepancy between my allocation and the actual index weighting is a negligible 3.1%.

4) When I add to my investments later, there's no reason I have to continue using this same strategy. If it's a small enough amount that it's not worth the trading costs, I can simply buy the total market index instead.

ok, the environment could be changing such that they outperformed in the past but they will no longer. right?

Averages don't matter. The spread of the particular stock at the particular time in percentage terms is what matters.

There is no (zero, zip, null, nada) advantage to using MOC orders unless you think there will be a price change in your favor between the time you select "MOC" from the dropdown box and the Closing Auction. Also, if you were trying to publish a white paper and wanted to ensure that no one thinks that you are cooking the books in your results, then using MOC orders is useful, but other than that there is no advantage.

There are specialists who take advantage of the Closing Auctions by both moving the price around in the minutes prior to close and putting in LOC orders when there is an imbalance. You aren't pushing around enough money to make any real difference in the balance, but you are at the whim of the specialists and imbalances nonetheless since you aren't the only one trading. The market makers get their pound of flesh just the same as if you put on a regular market order. When I started playing, they took quite a bit more flesh, so there is that.

You actually put in a MOC order for 12 shares of Sprint? You think that 3.1% is "negligible" but also that 0.04% is meaningful?

If you incurred $1000 in capital gains tax this year by selling stuff to use this strategy, you will still be behind in 30 years. That is assuming that you have absolutely no costs in putting on the strategy. I cannot imagine a smaller capital gains tax on $500k in taxable accounts.

You can more easily put on a tax-loss harvesting scheme by using Vanguard and Ishares ETFs. No worries about wash sale periods! That 12 share position in Sprint isn't going to be useful for that part of your strategy.

If you add less than $500k a pop, your strategy will have no meaningfully positive impact on your retirement over buying MGK. Saving it up until you have another $500k is, I hope obviously, lower ev than investing as you get paychecks.

That happens a lot. FF factors don't work every year (or even every decade). Nothing works every year (or decade).

I'm utterly baffled why you think 3.1 and .04 should be remotely comparable. It seems like a fundamental lack of understanding of math and context.

They aren't the same thing, but 3.4% average position size deviation from an index is huge. A 0.04% annualized return difference is vanishingly small and meaningless.

Really?

Show your work.

He's already openly stated he's culling several mega caps that he feels are poor investments relative to the market.

Also, lol @ .04 being meaningless. That is Vanguard's entire upsell model via offering lower fee mutual funds so that they eventually reach parity with the ETF.

of course. the fact that "smart alpha" strategies, or whatever you want to call them, are so well known now makes it very unlikely that they'll perform as well as they did in past decades. it doesn't necessarily mean they won't provide excess returns, but it's also possible that their returns will be worse than s&p500/vti/whatever going forward.

you're entirely wrong on both of these points.

3.1% average position size deviation holding a broad index is definitely not huge. it may not be entirely meaningless for all purposes, but it's meaningless to the average individual investor. if you selected 50 stocks in the S&P500 by throwing darts and invested in them rather than the index, rerandomizing annually, your expected return distribution wouldn't be meaningfully different from the index. and that's with a >100% average position size deviation. so that should tell you how significant a 3.1% average deviation is.

0.04% return difference is small, but certainly not "vanishingly small". it's literally the opposite since it grows exponentially. if my $500k today grows at 8% over the next 40 years, i doubt i'll feel like the extra $175k i made with the extra 0.04% is meaningless

Hi there, i am quite new to the idea of investing and starting up - founding etc so i just allow myself to jump in with an idea i am actually working on

I just moved to malta and i think about building up a luxury resort but not in the common sense with a big junk of buildings like hotels etc.
I am thinking of luxury tents which are up to 110 square meters of space, the range of value will be between 10.000 and 15.000 euro for one tent (incl plumbing, toilet, permits). I Thinking about renting it out per day and week. My supplier would be http://www.tentickle-luxurytents.com

I would like to create a cashflow, i did of course some calculations about ocupacy. In Malta the season can go over the full year, so especially in winter times there will be still a lot european travellers and tourists in Malta. My thoughts here about my goals are more steps than actual goals. So starting off with the season and knowing it will not be 100% occupied over the year, I took instead 80% over 250 calender days which would be 200 days.
I am not sure about the running costs, as i am just thinking to provide a shuttle service for the whole duration of the trip, as public transport in Malta is definetly nothing i would want my customers to experience. I already did some research about pricing in hotels, hostels, pensions, rooms, flats, villas, and i even offer something "cheap" compared to what they offer. Besides the actual luxus camping experience customers would have an exclusive view and as said, a private driver showing them any location they want in Malta and neighboor islands.

So the pricing for two people one night would be around €150 euro, for one person max of €200, so the actual investment ..would pay off.. in a couple of months already and generate cashflow with more and more tents coming. I think especially about an investment like this, as i do not see the value of buying real estate like an apartment, and then rent it out for 1k per month more or less. So instead of a bigger investment to buy apartments and rent them i see a way higher potential of an immense cashflow in the tent idea.

Any thoughts? Any critics, i take everything quite serious as it is the "first idea" that can actually become reality as it seems not far away. At the moment i am not even pitching, i am at the thought and brainstorming process, so comments appreciated. Anything i missed please add it, Probably i will even open up a thread depending on the idea and your input.

King Regards,
KingOkris

80% might be too high, I don't know. Sounds like a hotel. What are hotel occupancy rates?

How will these exclusive views work? Insurance, taxes?

15,000 Euro sounds really cheap for the tents if that includes power, plumbing, septic, permits and furnishings? I'm an American though so maybe it's much much cheaper there.

200 days occupancy sounds very optimistic.

I didn't see anything budgeted for housekeeping, consumables, maintenance, grounds, guest services, utilities, etc..

The monkeys-throwing-darts thing is a myth. It does work extremely well when the monkeys throw new darts yearly because of some size/value and equal-weight contribution, but most of the long-term stock market gains come from an extremely small number of stocks. It is a winner takes all world. Most of the S&P500 returns over the last 20-50 years have come from a small handful of stocks.

He just added some dispersion to his possible endpoint, by deviating. This dispersion of future returns is going to be quite a bit larger than the 0.04% ev he is expecting to gain.

$500000*(1.08^30) isn't $175k larger than $500000*(1.0796^30) by $175k... He didn't mention a 40-year time-frame. I can assure you that "about $5 million in taxable assets" leads to the same quality of life as "about $5 million in taxable assets."

Also, assuming the 40-year time-frame "just under $11m" leads to the same quality of life as "just under $11m." That is mean though. We should probably let him spend something before he is really old, even if he is our hypothetical plaything. The gains over not doing anything, assuming all his assumptions are true, are encompassed entirely by his failure to miss out on a taking a vacation from San Diego to see the wonders of East Cleveland every other year if he doesn't put the strategy on.

You also left out (initial tax bill, trading) costs of putting on this strategy, costs of maintaining the strategy (more trading costs and tax bills to maintain some resemblance to the index). That these add up to less than 0.009% annually (geometric) seems a tad unrealistic, and that he isn't taking into account that he cannot reasonably reinvest dividends into the strategy makes it impossible to beat the 0.009% bar of over-performance over even excessively long investment horizons.

(as an aside, if you are expecting 8% returns over the next 40 years, you are going to be sadly mistaken or sad because inflation)

The strategy will yield significant tax savings, not increase them. You are clearly in over your head here; please just stop.

Oh and +1 to Mihkel, please show some math to support your random assertions about dispersion.

Brian,

You are literally just making things up. You have provided zero evidence of your claims. Whether you're just actively **** posting, a determined troll, or just utterly clueless, I'd advise you to take a step back and wonder why literally no one else thinks you're correct, and why you can't provide any evidence for your claim.