Have a look at the tables above showing the performance of various investments during the five years leading up to the financial crisis lows, and the five years after. It leads us to a rather fascinating exercise, looking at complexity, cost and performance.

Let’s start with the worst performers pre-crash: US Real Estate and Equities. Prior to the collapse, stocks had nearly doubled (March 2003 to October 2007). Note that doubling began just 3 years after the tech/dot com implosion. The peak to trough collapse of the S&P500 is even worse than that five-year track record suggests, falling 57% in about a year and a half ending March 2009. Ouch.

The Real Estate collapse was even worse: Off 58% in that five-year period. Perhaps a  little context might help. Residential real estate was fairly flat (in real terms) from 1986-1996, before moving upwards until the end of the century, then exploding from 2001-06. Vacancy rates for office space in the 1990s was near zero; Shopping malls were getting built and sold off to REITs soon as they opened. Commercial real estate boomed in the 1980s, 1990s and early 2000s as real returns on fixed income was falling. The ROI for commercial real estate – and the low cost of capital – attracted lots of buyers looking for alternative to low bonds yields.

Continues here

Category: Apprenticed Investor, Commodities, Hedge Funds, Investing

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Cheap & Simple Beats Costly & Complex”

  1. slotmouth says:

    Great post, but a minor correction: Instead of: ‘Let’s start with the worst performers pre-crash’ you mean ‘immediately post-crash’

  2. rd says:

    The other takeaway from the past 10 years is how effective dollar-cost averaging payroll contributions into a tax-sheltered account with well-diversified options with low expenses has been. Rebalancing and re-investment of dividends and capital gains has been a key part of that process. Even a simple 2 to 4 investment option portfolio has been very effective as long as the investing options are not well correlated.

    I know our overall portfolio has grown signficantly over the past decade and I am optimistic about the future as the options have been getting better and less expensive. BTW, my optimism is about the overall portfolio outcomes over the long-run (decade or more), not the US stock market over the next five years.

  3. Marko U says:

    Interesting data.. Since it takes twice the GAIN to make up for the loss.. For example with real estate, It took 100% gain, to make up for the 50% loss….. than besides Bonds and Hedge Funds that haven’t had a down period… . I would say U.S stocks are looking like the biggest winners in this list…. down 40% and than up 175% .. followed closely by World Stocks.

    Of Course yeah the 200%+ on Real Estate if you timed the bottom right is the most impressive.

  4. Livermore Shimervore says:

    Do those RE figures from Attain reflect cost of ownership during that 10 year period for U.S. RE?
    I’m not sure that these costs persuade me to view RE as a cheap investment class.

    There also the taxes in holding a long term RE investment in a surging zip code which seem to always carry the highest tax burdens particularly in the north east vs. pretty modest (in comparison) LTCG for the other investments. Seems to me if we are looking at the net, RE would be at the bottom of both lists.

  5. [...] Cheap & simple beats costly & complex (Big Picture) [...]