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thinking you're smarter than the next guy doesn't make you money that's what's called noise that's disguised this information every month people mail in questions feel free to do so unless they're about how ugly I look I probably have something I might be able to say about him one question this time is if information is already priced in then how do active investment strategies work I.E how can you beat the market so let me step back from that and give you just a simpler answer of how do you beat the market in market theory and reality commonly known information things we read about in the newspapers talk to our friends about at a cocktail party the guy that you're getting uh that's waiting waiting on you at the diner can talk to you about are all priced into Securities and thinking you're smarter than the next guy about those things doesn't make you money that's what's called noise that's disguised as information real information is that which we don't know about and talk about but you find real information is something important somehow someway that you know that other people don't know it might be running FR right in in front of everyone but maybe they're looking the other direction but it's not your opinion about how the debt level or the FED is going to impact because everybody's looking at the debt level at the FED everybody's looking at at at at and those things are priced the issue very simply is what do you know other people don't know that's important that's hard to do it's not easy that's what active management is supposed to be about finding something other people don't know that's betable whether it's of this type or that type as long as it's legal as long as it's eth IAL finding something other people don't know that's important to the future of business or interest rates or currencies or or or or it's non-trivial hard to do but that's what it's supposed to be about and with that there's one down another one is thoughts on creating a 50/50 portfolio of a high dividend yield ETF and a growth oriented ETF instead of just the S&P 500 so I don't really have a problem with that but it's bet uh let me tell you about what the bet is the bet is that it's not going to be as growthy as the S&P 500 it's going to be more dividend yiy you know that what does that do well it's more of a move to Value less of a move to growth it will also inherently since value stocks on average have lower total size in market value than grow stocks do it'll have a lower total market capitalization so it'll tend to do better when small stocks beat big stocks than the S&P does it'll tend to do worse than um the market when big stocks are better than small stocks it'll tend to do worse when tech stocks do better than non-tech stocks because tech stocks are all going to be on the growth side not on the value side it's going to do better when companies that are very low growth and very cyclically oriented paying big Dividends are backed by an economy that's picking up and roaring not not little a lot it it's just a different bet is there anything wrong with that bet no but you have to be right about what's going on behind it like you do with anything else but blending that to get away from let me just give you a different example you may not like this but if you had done that for the last one five 10 years because growth has done better than value over that period overall in particularly Tech and big has done better than small overall you would have lagged might that lead in the 10 years ahead yeah it might but that's the decision you have to embrace uh there's another one that came in that's very close to this one uh and this one's I've seen some YouTube videos on these equally weighted index funds what are your thoughts on equally weighted index funds are they worth the time should I investigate this does it matter well it kind of dep depends let me just tell you what happens when you equal weight when you equal weight you bring the what is equal weighting first equal weighting is where you treat every stock the same in proportion to every other stock in its size inside the fund like an equal weighted portfolio not based on how big the stocks are relative to each other like in a cap weighted portfolio the S&P 500 is a cap weighted portfolio an equal weighted portfolio therefore since it's not based on the importance relative to the totality based on the size but instead is equal weighted puts just as much emphasis on the smaller stocks as it does on the bigger ones and therefore brings down the market capitalization of the fund or the index what does that do it means that in a period like this year where big stocks do better than small stocks you would lag in a period where small stocks do better than big stocks you would lead in the long term it's going to like what's the long term well maybe for you it's 3 years maybe for you it's 5 years maybe for you it's 10 years that's not for me to decide but in the long term it's going to come down to what does better big stocks or small stocks now if you can answer that question very correctly you could just go and buy an index fund of big stocks or small stocks you could do that directly yourself if you can't equal waiting is just a decision to bring the cap down significantly and there's nothing wrong with that but it's a bet these things are always a bet and with that I bet you hadn't thought about the fact that equal weighting is just a way to bring down the market cap of the fund of the same stocks that you would have in a cap weighted display of those stocks which would have a higher weighting but it does bear on how your investment in it whether it's the cap weighted or the equal weighted will perform which is in this casee all about size and then the final one for today is the velocity of money is growing for the first time in 25 years that's not true it's theu been growing for a sustained period it Wiggles around but it the question is the veloc of money is growing for the first time in 25 years is this because investors are turning to bonds can this be an inflationary risk that investors don't see well uh last question can it be the answer to can it be which is about is it possible that any question that comes at you as is it possible that is very hard to answer no it can't be possible I mean yes it can't be possible that I catch the flu from somebody that's never been you know close to me at all physically or any other person that they gave it to but could it be that the velocity of money is falling U from uh people that are turning to bond funds yeah it could be that they're turning to real estate yeah it could be that they're turning to but the world's not that simple it's not a versus B it that acts as if everything comes off of a you know everything's a tradeoff of two things in one pile of money the world is much more complex than that where are people putting money at a point in time in the short term that's not easy to measure there's not an easy way to measure that there's all kinds of attempts to do it they're all per imperfect secondarily the velocity of money is a calculation and I should have answered this beforehand I apologize that I did not the veloc of money if you don't understand what that is is just simply the money that exists how many times in a year does it turned if it's turning faster the velocity is going up if it's turning over and being used less fast slower the velocity is falling now the fact is one of the problems with this is and I've done videos on this before and I've written about this when I was young in the 1950s and 60s money was a simpler thing to understand than it is today money was checking accounts and savings accounts and shorttime deposits like a savings account at a bank the fact is in those days you went into the department store to buy whatever and you wrote a check not very many people do you there's still people can write a check not very many people do that anymore you know and and and in the early days of credit cards then they became more and more popular in the 60s and then into the 70s they became very common and lots of different ones and then you moved to digitization and then you mve to what is today an incredible array of near monies that may or may not be categorized in M4 in America the broadest definition of what money is but all money really is is whatever we think of as something we can trade for goods or services used to buy get when we sell and the fact of the matter is that used buy thing which Once Upon a Time was green bills and checking accounts and then take money out of a checking account that pulled it out of a savings account and then we got the money market funds and credit cards and and and and and today if you got money I mean when I'm young pretty much not very many people kept money at a brokerage account they had certificates you bought the stock they mailed you certificates when you went to sell the stock you took the certificates into the broker by the in the 60s people more and more started keeping them in the brokerage accounts in the 70s that became more today almost no one ever gets the stock certificate but you can actually take your stocks go to sell have an account that's set for leverage borrow against it and get the money like that but it wasn't money but you got money and you think of it as I could get money so is that money or isn't that money because it's whatever you think money really is whatever you think you can use to trade goods and services today it's so complicated to figure out what the size of that is that the basic question is are they just doing bonds they're probably doing lots of different stuff and they probably think about lots of stuff they're not actually doing at a moment in time where could you pull money from where couldn't you pull money from if I want to if I want if I want to buy something tomorrow what do I do it's actually in everybody's brain pretty simple but in aggre to figure it out it isn't even very clear that the real velocity of money is falling because it's very hard to figure out what the real quantity of money is and that's one of my complaints about the world today it used to be simple to figure out what the velocity of money was and what the quantity of money was and now the quantity of money is an abstract index of stuff that may not actually reflect what people use when they go to buy stuff or what they get when they go to sell stuff and therefore I don't actually think there's a good answer to your question I think it's too complex to answer with any real accuracy thank you for listening to me I hope these mailbag questions of this month were useful to some of you somehow I appreciate you wanting to put up with me as I go through these Raves and rs thank you much subscribe to the Fish videos
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