# Warren Buffett's bet



## Steve64 (Jun 28, 2016)

Does anyone see any holes in Warren Buffetts argument that index funds outperform hedge funds over the 10 yr period during his friendly bet? Turning his $1 mil investment into over $2.2mil is about 8.5% growth.

This being said my managed portfolio isn't performing as well (once fees have been deducted) and i'm thinking of taking 10k out and purchasing the S&P 500 like he did and compare the performance month over month to see for myself.

I know he purchased the US S&P as he's american and we can only purchase the Canadian S&P but i think this would still be worth while? Can someone tell me how to purchase this index fund directly (avoiding middle men and fees) ?

any feedback in my rational is greatly appreciated.


https://l.facebook.com/l.php?u=http...e5rosljVkkLXMStRNcCefgPmwlqJA5sIp_btdPcZLt-uQ


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## lonewolf :) (Sep 13, 2016)

Steve64 said:


> I know he purchased the US S&P as he's american and we can only purchase the Canadian S&P but i think this would still be worth while?
> any feedback in my rational is greatly appreciated.


 You can buy the US market in Canada spy


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## BoringInvestor (Sep 12, 2013)

As previously mentioned - you can buy the an ETF that tracks the US S&P 500, either by buying an ETF that trades in Canadian dollars and is listed in Canada, or an ETF that trades in US dollars and is listed in the US.

The only 'hole' I see in your plan is to track the results monthly.
There will be months where the S&P 500 ETF will perform worse than your managed portfolio, and some where it performs better.

The general expectation is over the long run, the low-cost index-tracking ETF will perform better than a managed portfolio that is similarly constructed (i.e., it holds many large US securities) due in large part to the lower fees.


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## Steve64 (Jun 28, 2016)

thanks for the feedback. Do i just go to a bank and ask to purchase the ETF (CAD or US)? That would incur their fee correct? I am hoping to avoid going to a bank for this and directly to the entity that manages the S&P 500 (CAD or USD) is this possible?


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## Steve64 (Jun 28, 2016)

..


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## Steve64 (Jun 28, 2016)

lonewolf :) said:


> You can buy the US market in Canada spy


sorry for repeating....but what does "SPY" mean?


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## BoringInvestor (Sep 12, 2013)

Steve64 said:


> thanks for the feedback. Do i just go to a bank and ask to purchase the ETF (CAD or US)? That would incur their fee correct? I am hoping to avoid going to a bank for this and directly to the entity that manages the S&P 500 (CAD or USD) is this possible?


In order to purchase any exchange-listed security on your own (whether it's a stock, ETF, mutual fund, etc.), you'll need to open an account with an online discount broker.

SPY refers to one of the largest ETFs that tracks the S&P 500 index: https://ca.finance.yahoo.com/quote/SPY/.

All large banks have their own discount broker, plus there are several non-bank affiliated.


Before getting started I'd highly recommend you do some more reading on the topic, here's a good place to start:
https://www.reddit.com/r/PersonalFinanceCanada/wiki/passive-investing

In addition, there are many fine books out there expanding on the theory, and hands-on approach to invest on your own. Here are some good ones identified by the Reddit community: https://www.reddit.com/r/PersonalFinanceCanada/wiki/reading-list


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## OptsyEagle (Nov 29, 2009)

SPY is the stock symbol for the ETF that trades in New York. XSP is the symbol for the iShares ETF that trades in Toronto with a currency neutral (so no negative or positive result from the movement in the US dollar) position. There are many others.

You cannot avoid using someone to purchase securities. Either a bank or a brokerage account and there will usually be a trading fee, although some brokerages are offering ETF purchases for free, but I have no idea of who and how it might work. Usually a one time trading fee is fairly immaterial to your results unless you have less then $1,000 to invest.


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## Steve64 (Jun 28, 2016)

Great thanks for the feedback....
maybe I'm not sure of how this would work. What i "thought" i could do is buy into the S&P500 (either USD or CAD) and the firm i partnered with would constantly be adjusting my portfolio based on what the S&P 500 was doing? Meaning i thought i would not have to do anything except invest in the ETF. By Trading Fee do you mean that as the S&P drops a company for a better performing company that change will mean the firm managing my portfolio would have to sell my lower performing company for and buy the stock of the replacement company (so they are trading my old shares (company A) for new shares (company B) and collecting a trading fee for doing this? If i'm on the right track should i be concerned about this cost (as i have no control how may times the S&P will be updating it's company list? Or is this such a low overall cost that it shouldn't be given too much attention?


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## Steve64 (Jun 28, 2016)

Also if SPY and XSP are two of many what specifically is everyone talking about when they refer to the S&P500? I keep hearing that fund managers have a hard time out performing the S&P and i want to compare mine with the actual S&P


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## BoringInvestor (Sep 12, 2013)

Steve64 said:


> Great thanks for the feedback....
> maybe I'm not sure of how this would work. What i "thought" i could do is buy into the S&P500 (either USD or CAD) and the firm i partnered with would constantly be adjusting my portfolio based on what the S&P 500 was doing? Meaning i thought i would not have to do anything except invest in the ETF. By Trading Fee do you mean that as the S&P drops a company for a better performing company that change will mean the firm managing my portfolio would have to sell my lower performing company for and buy the stock of the replacement company (so they are trading my old shares (company A) for new shares (company B) and collecting a trading fee for doing this? If i'm on the right track should i be concerned about this cost (as i have no control how may times the S&P will be updating it's company list? Or is this such a low overall cost that it shouldn't be given too much attention?



Here's how it works.

You would open an account at a discount broker and place an order to buy an ETF that tracks the S&P500 (two of which are: SPY which trades in US dollars and is listed on an US exchange, and XSP that trades in Canadian dollars and is listed on a Canadian exchange).

Depending on the broker you choose you may incur a trading commission cost to purchase the ETF (which will likely be <$10).

Once you've bought, and now hold the ETF in your account, you don't have to do anything else. The only ongoing costs you may incur are administrative fees charged by the broker (review their website to see what they charge, and how to avoid it). 

The managers of the ETF will monitor, and as needed, rebalance the holdings of the ETF to closely mirror the holdings and performance of the S&P 500.
This cost of this process is part of the MER (management expense ratio) of the fund, and the fee is automatically taken from the value of the fund by its managers, which in turn affects the value of your holding.

As time goes on the ETF will pay dividends to your account. You can choose to have the dividends automatically reinvested in the ETF (your broker can do this for you), or just let the funds accumulate in your account.


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## BoringInvestor (Sep 12, 2013)

Steve64 said:


> Also if SPY and XSP are two of many what specifically is everyone talking about when they refer to the S&P500? I keep hearing that fund managers have a hard time out performing the S&P and i want to compare mine with the actual S&P


Generally the S&P500 refers to the 500 largest publicly-traded stocks listed in the US.
Out of the thousands of ETFs that exist, some of these attempt to closely mirror the performance of the S&P 500 (such as SPY).


The fund managers you're referring to are likely those that manage mutual funds, or manage a client's portfolio, which broadly we can call actively managed funds.

Often, these managers will promote the idea that by having them actively monitor the market and by using their skill and discretion in deciding what and when to trade, they will provide their clients with a positive return. This return is often measured against the return of the market on a whole (such as the performance of the S&P 500). 

Overwhelming and ongoing evidence has demonstrated most actively managed funds fail this objective - that is over the longrun (typically defined as at least 5-10 years) they do not outperform the index, and once their fees are deducted from the return they perform worse than the index.

As such, most investors would see better returns by seeking only to match the returns of a broad index, and by minimizing their costs by choosing ETFs that have a low management expense ratio.

Typically, ETFs that track the S&P 500 will detail how their fund is performing against the S&P 500, to give investors an idea of their success in mirroring the index's returns. All this information is available online, by searching for the ETF symbol.


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## GreatLaker (Mar 23, 2014)

This article by William Bernstein explains the why Buffett was so confident that a simple investment in the S&P500 would outperform any hedge fund manager that stepped up and took his bet.
https://web.stanford.edu/~wfsharpe/art/active/active.htm

This article explains more about the bet:
https://www.cnbc.com/2017/08/09/buffett-challenge-hedge-funds-vs-index-funds-9-years-on.html

Also rather than just focusing on the S&P500 you may want to hold a more globally diversified portfolio, including Canada, US and Global stocks. That would protect you in the event that the US large cap stocks do not continue to perform well. Here are a couple of resources:
https://www.finiki.org/wiki/Portfolio_design_and_construction
https://canadiancouchpotato.com/model-portfolios/


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## james4beach (Nov 15, 2012)

Steve64 said:


> I know he purchased the US S&P as he's american and we can only purchase the Canadian S&P but i think this would still be worth while? Can someone tell me how to purchase this index fund directly (avoiding middle men and fees) ?


I hold ZSP which is an ETF that trades in CAD$ currency and tracks the S&P 500 index. There will always be a middle man and some fees, that's unavoidable. You would pay a commission to buy ZSP (usually $10 at online brokerages) and then, internally without any action on your part, the fund company takes 0.09% fee per year... which is imperceptibly small. If you want to add more money to your investment, you'd pay another $10 commission to buy more shares of the ETF.

I think ZSP is better than XSP. Although both trade in CAD, the second one(XSP) includes "currency hedges" to try to eliminate USD currency exposure. Over time it has been shown that the cost of hedging is quite high, and produces a substantial drag on the long term performance. Therefore I believe that ZSP will show better performance long term.

The BMO managers who run this fund have done a good job tracking the S&P 500 index. As others have mentioned, the more proper way to do this is to invest in a variety of countries.


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## Rusty O'Toole (Feb 1, 2012)

I wouldn't want to try and prove Buffet wrong about anything to do with the stock market. In this case he was proven right although it didn't look that way at first.

I have one suggestion if you want to follow this plan, but reduce your risk and increase your returns 40% to 50%.

Get a weekly chart of the S&P. Add 10 period and 50 period moving averages. When the 10 crosses above the 50, buy. When it crosses below the 50, sell. If you did this you would be out of the market during the worst drops. A couple of years ago I went over a chart going back 20 years, and if you did this you improved your returns from 8% a year average, to 12% a year and reduced your drawdowns.


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## Fain87 (Jan 20, 2018)

Buying S&P 500 index is good for retail investors. It avoids the heavy fees of hedge funds and gets you an so so return. Self directed clients generally underperform the S&P by a huge amount.
That being said, as far as self directed clients go. I've seen a lot of Portfolio Managers outperform their own funds(in their self directed account) just because they aren't tied down with all the rules/restrictions that come with managing the fund.


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## gardner (Feb 13, 2014)

Besides the recommended ETFs, there are low cost options for buying a SP500 mutual fund. The TD E-series offerings in either $CAN or $US with expense ratios below 0.5%. This approach is likely more beginner-friendly than going into a full discount brokerage feet first.

On a side note, I would recommend avoiding funds that are currency hedged. You want to just use the $US or $CAN versions, not the "Currency Neutral" or hedged version. If you search around on this site you will find discussions of the drawbacks to currency hedged funds.


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## GreatLaker (Mar 23, 2014)

Rusty O'Toole said:


> I have one suggestion if you want to follow this plan, but reduce your risk and increase your returns 40% to 50%.
> 
> Get a weekly chart of the S&P. Add 10 period and 50 period moving averages. When the 10 crosses above the 50, buy. When it crosses below the 50, sell. If you did this you would be out of the market during the worst drops. A couple of years ago I went over a chart going back 20 years, and if you did this you improved your returns from 8% a year average, to 12% a year and reduced your drawdowns.


[SARCASM]Didn't Warren Buffet recommend exactly that strategy in his 2018 letter to Berkshire Hathaway shareholders? :rolleyes2:[/SARCASM]


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## Steve64 (Jun 28, 2016)

This helps a lot - thanks!


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## fatcat (Nov 11, 2009)

GreatLaker said:


> Didn't Warren Buffet recommend exactly that strategy in his 2018 letter to Berkshire Hathaway shareholders? :rolleyes2:


would you mind sharing a link to buffet's advice to do this please ?


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## lonewolf :) (Sep 13, 2016)

Steve64 said:


> Does anyone see any holes in Warren Buffetts argument that index funds outperform hedge funds over the 10 yr period during his friendly bet? .


 When the math is done more money will be lost playing the S&P then will be lost by any one hedge fund. If you can not figure this one out you do not understand the markets


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## GreatLaker (Mar 23, 2014)

fatcat said:


> would you mind sharing a link to buffet's advice to do this please ?


I can't because he did not say it. It was supposed to be funny. I edited my post to be more clear.


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## fatcat (Nov 11, 2009)

GreatLaker said:


> I can't because he did not say it. It was supposed to be funny. I edited my post to be more clear.


right, thanks ... sarcasm is tough to do on the web


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## Steve64 (Jun 28, 2016)

BoringInvestor said:


> Here's how it works.
> 
> You would open an account at a discount broker and place an order to buy an ETF that tracks the S&P500 (two of which are: SPY which trades in US dollars and is listed on an US exchange, and XSP that trades in Canadian dollars and is listed on a Canadian exchange).
> 
> ...


Hi BoringInvestor - I think i will go ahead with this idea and set up a Questrade account . From what i understand the only fee i will pay is when i sell the ETF and that fee is less than $10.00 so it's not worth worrying about. I Confirmed with them onlye there was no set up fee nor monthly fee nor management fee of any kind. So if i understand this correctly i can buy $10,000 worth of share in the XSP and hold it indefinitely at no charge then only pay $10.00 once i decide to pull my money out. Does this sound correct ? I want to make sure i understand the 'cost' of this completely.

Another question i have is as the S&P500 is adding better performing companies and dropping poor performing companies - i will have to sell the bad stocks and purchase the new (replacing) stocks correct? I assume the XSP will be doing this for me automatically but does this mean that if each month the XSP drops a bad company and adds a new company Questrade considers this "sell" and bills me $10.00 each "sell", or do i only pay the $10.00 fee after i cash out (say in 5-10 years)? Sorry if my questions appear basic but i'm really new to all of this.


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## BoringInvestor (Sep 12, 2013)

> So if i understand this correctly i can buy $10,000 worth of share in the XSP and hold it indefinitely at no charge then only pay $10.00 once i decide to pull my money out. Does this sound correct ?


Yes.

As far as holding indefinitely, you won't be charged as long as Questrade doesn't change their fee structure at some point in the future. Since 2015 Questrade doesn't charge an inactivity fee if you account balance is above $5,000. As with any company, all fees and exemptions are subject to change.



> Another question i have is as the S&P500 is adding better performing companies and dropping poor performing companies - i will have to sell the bad stocks and purchase the new (replacing) stocks correct? I assume the XSP will be doing this for me automatically but does this mean that if each month the XSP drops a bad company and adds a new company Questrade considers this "sell" and bills me $10.00 each "sell", or do i only pay the $10.00 fee after i cash out (say in 5-10 years)? Sorry if my questions appear basic but i'm really new to all of this.


From your question I see you're not quite clear on this concept, so I'll explain further.

From Questrade's perspective, all they care about is what you do.
You, Steve64, will open an account with Questrade and buy shares of an ETF, hold the ETF, and take no further action.
Questrade will only charge you commissions for actions you, Steve64, take.



The ETF that you hold is managed by a company that is tasked with ensuring the performance of the ETF closely mirrors the performance of the S&P500.
To do this, they will periodically shift assets in the fund to remove companies falling out of the index, add companies that are new to the index, and shift assets between companies as their share of the index changes over time.

To do this, the ETF company goes out into the market to buy & sell shares as needed. They pay some cost for this.
The cost of these trades is then passed onto the holders of the ETF, as are all other costs incurred by the ETF company to manage the fund (i.e., salaries, rent, marketing, their profit margin) via the MER, or Management Expense Ratio of the fund.

Everyday the fund tallies up the value of all its holdings, and deducts the MER. The remaining balance is the NAV, or Net Asset Value, of the fund.

To give a rough example, if at the end of today a fund holds a number of stocks with a total value of $10,000,000.
The annual MER for the fund is 0.10%, so each day the fund managers will take this cost out of the value of the fund; meaning today they take out $2,739.73 (0.10% / 365 * 10,000,000).
The fund is now worth $9,997,260.27.
If there are 100,000 shares in the market, each share now has a NAV of $99.97.
The price at which you buy or sell an ETF, at any point during a trading day, will likely be very close to the real-time NAV price.

So all you, Steve64, have to concern yourself with is buying the ETF, and reading about the ETF on occasion to judge if the managers of the fund are doing a good job closely mirroring the fund's objective.
Everything else re: monitoring what securities compose the S&P500, trades within the ETF, figuring out the end-of-day value of the ETF, ensuring the fund managers are receiving compensation for their work, etc. is all taken care of by the fund managers.


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## OnlyMyOpinion (Sep 1, 2013)

Rusty O'Toole said:


> ...Get a weekly chart of the S&P. Add 10 period and 50 period moving averages. When the 10 crosses above the 50, buy. When it crosses below the 50, sell. If you did this you would be out of the market during the worst drops. A couple of years ago I went over a chart going back 20 years, and if you did this you improved your returns from 8% a year average, to 12% a year and reduced your drawdowns.


Rusty, What is your preferred stock chart source?
When I look at stockcharts it appears reasonable, when I look at TSX charting it's not the same. Either I'm doing something wrong and/or misinterpreting the lines they plot. (I don't personally enter-exit the market on momentum)


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## Eclectic12 (Oct 20, 2010)

Steve64 said:


> ... I think i will go ahead with this idea and set up a Questrade account.


As you say you are new ... what type of account(s) are you opening?

Should the account be a taxable one - there will be tax reporting each year as well as cost base adjustments that have to happen.
https://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm

US taxes paid will be recoverable when filing your Canadian tax return.

For Canadian tax, the T3 form the broker will provide will cover most of the types (ex. CG, dividends, etc.). "Return of Capital" is listed but is usually not taxable and needs to be subtracted from the cost base. Re-invested distributions aka "phantom distributions" are harder to find and will increase the cost base. It looks like the Oct estimate, subject to the final numbers is that XSP has a re-invested distribution in 2018 (https://www.nasdaq.com/press-releas...al-gains-distributions-for-the-20181119-01093).

Some will use a service like https://www.adjustedcostbase.ca/ to assist with the tracking, others use spreadsheets, others pay an accountant and others make sure to hold ETFs in a registered account.



The advantage of the registered account is the tracking/bookkeeping is not required. However, likely the foreign tax paid will be lost in both types. These are typically small amounts compared to what an advisor or high fee MF would charge.


https://www.pwlcapital.com/wp-conte...tti_Foreign_Withholding_Taxes_Hyperlinked.pdf



Cheers


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## Steve64 (Jun 28, 2016)

BoringInvestor said:


> Yes.
> 
> As far as holding indefinitely, you won't be charged as long as Questrade doesn't change their fee structure at some point in the future. Since 2015 Questrade doesn't charge an inactivity fee if you account balance is above $5,000. As with any company, all fees and exemptions are subject to change.
> 
> ...


This clears things up a lot - thanks. I"m going to go back to quest trade now and ask for their MER. Very much appreciated! thanks to all!


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## BoringInvestor (Sep 12, 2013)

Steve64 said:


> This clears things up a lot - thanks. I"m going to go back to quest trade now and ask for their MER. Very much appreciated! thanks to all!


Questrade doesn't have any MERs if you're trading on your own, they do if you're invested in Questrade Portfolios and allow them to invest for you on your behalf.


What MER were you thinking you'd be charged?


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## Eclectic12 (Oct 20, 2010)

BoringInvestor said:


> Steve64 said:
> 
> 
> > This clears things up a lot - thanks. I"m going to go back to quest trade now and ask for their MER. Very much appreciated! thanks to all!
> ...


My guess is the ETF's MER ... which like the "drop stock from index, add stock to index" transactions, would be the ETF company's MER.

Since XSP was mentioned up thread, here is the iShares link that has at the bottom a MER of 0.11%.
https://www.blackrock.com/ca/individual/en/products/239727/ishares-sp-500-index-etf-cadhedged-fund


Most ETF companies will have this type of info on an info page.

Cheers


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## BoringInvestor (Sep 12, 2013)

Indeed.

Any ETF information can most likely be obtained on your own, by looking at the fund company's website.


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## Rusty O'Toole (Feb 1, 2012)

OnlyMyOpinion said:


> Rusty, What is your preferred stock chart source?
> When I look at stockcharts it appears reasonable, when I look at TSX charting it's not the same. Either I'm doing something wrong and/or misinterpreting the lines they plot. (I don't personally enter-exit the market on momentum)
> 
> View attachment 19270
> ...


It should be the same no matter what the source of the chart, if they both present the same information. You need to use a weekly chart and 10 week and 50 week MA. A daily or monthly chart will give a different result. It appears you have one weekly, and one daily chart.

I use Think or Swim, weekly candlestick chart. You can download it free if you like. It allows you to make a weekly chart going back 20 years or more.

This chart is badly out of date but should give you the idea.


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## twa2w (Mar 5, 2016)

> _So if i understand this correctly i can buy $10,000 worth of share in the XSP and hold it indefinitely at no charge then only pay $10.00 once i decide to pull my money out. Does this sound correct ?_​


Well not exactly. That is the general idea but you are a new investor so I am not sure you understand the buying process.

Unlike a mutual fund, you cannot place an order for $10,000 of an ETF. 

First you transfer 10,000 from your bank to your broker.

You then have to see what the ETF is trading for - lets say 29.99 a unit or share. You would divide 10,000 by 29.99 and get 333.45. This means at 29.99 a share you would place an order for 333 shares at 29.99. If your order is filled you will have paid 29.99X333=9,986.67 plus a commission(if applicable). In your case your broker does not charge a commission on buys so you would have 333 shares of the ETF plus 13.33 in cash in your brokerage account.

You can place an order for a fixed price, but if the price offered on the market changes, your order may not get filled. You can also place an order 'at market' which means your trade should get filled at the at the market price when the trade hits the trading desk assuming there is enough volume of trades - it may be higher or lower than 29.99 so you may need more or less than 10,000.
You can place a fixed price order for a little lower than the current market price is showing - hoping you get lucky and get a little under the current price but you may not get filled. You may decide to price it a penny higher to have a better chance of getting your order filled - you may pay the higher rice or the brokers trading person may snag it for you at a lower price.

That is in very general terms. There are other types of trades - your broker should have an educational piece on the website on how to setle trades and what the different trading terms means.


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## MrMatt (Dec 21, 2011)

GreatLaker said:


> I can't because he did not say it. It was supposed to be funny. I edited my post to be more clear.


https://www.cnbc.com/2017/05/12/war...etirement-sense-practically-all-the-time.html

He says it in that interview right in the first few seconds.

He even bet on it. https://www.cnbc.com/2018/01/03/why-warren-buffett-says-index-funds-are-the-best-investment.html


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## GreatLaker (Mar 23, 2014)

MrMatt said:


> https://www.cnbc.com/2017/05/12/war...etirement-sense-practically-all-the-time.html
> 
> He says it in that interview right in the first few seconds.
> 
> He even bet on it. https://www.cnbc.com/2018/01/03/why-warren-buffett-says-index-funds-are-the-best-investment.html


That's not the post to which I was responding. Read the thread.


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## Rusty O'Toole (Feb 1, 2012)

More on the moving average cross system. I happened upon this article today and thought it was relevant.

The chart and the article:https://www.advisorperspectives.com...6/on-my-radar-risk-management-for-all-markets


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## Rusty O'Toole (Feb 1, 2012)

And this from John Mauldin

There are all kinds of methods, but here’s one very simple one as an example. The 200-day moving average identifies an asset’s long-term price trend. You can use it to stay on the right side of the trend. Stay exposed when the current price is above the 200-day MA, get out when it drops below.

Is this perfect? No. It will make you miss opportunities and occasionally keep you in the market through a quick-developing plunge. But it doesn’t have to be perfect to improve your results. It just has to be better than what you would do on your own.

The lower part of this chart shows the Dow Jones Industrial Average total return (blue line) and the same Dow if you had entered and exited using a 200-day MA rule, going all the way back to 1900.



Source: Ned Davis Research

Note this is a log scale so the difference in dollars is even greater than it appears. Better yet, the difference in your mental state would have been incalculable as you missed the major bear markets and then got back in when the uptrend resumed.

Now, there are much more sophisticated versions of this strategy. Some are better than others. But again, I think even something this simplistic is much better than going it alone, particularly in the unprecedented, never-before-seen conditions I anticipate in the 2020s. The one thing we can be pretty sure about is the trends will change periodically, and every such change will be an opportunity for profit or loss.

A close look at the chart reveals that this method made over $300,000 vs $56,000 for buy and hold.


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## My Own Advisor (Sep 24, 2012)

There are many S&P 500 funds to follow, and even then, there are other U.S. ETFs you can buy to ride total U.S. market returns. 
https://www.myownadvisor.ca/great-low-cost-etfs-for-the-u-s-stock-market/


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## Steve64 (Jun 28, 2016)

Hi BoringInvester... i'm happy to declare i am now the owner of XSP.TO (iSHARES CORE SP500 IDX ETF CAD HEDGED (TSX) through Questrade.
so far i'm up .27 basis points which is a 2.7% gain over 48 days since I purchased the ETF and annualized ROI of 22.45% ! (i'm starting to feel like i know what i'm doing - ha)

I understand a realistic "actual" Annualized return will be in the 8% range so i'm not too excited about the 22.45%

My question is I read that ETF's are usually purchased to be traded (meaning not held for long term). If this is correct does this mean i'm supposed to keep an eye on the buy/sell rates and cashout when i've made a few bucks - hold the funds in the Questrade account until i see the buy rate drop and repeat the process?

I am attempting to follow the example of Warren Buffet's experiment where he outperformed the hedge fund mgr over a 10yr period by doing nothing more than parking the funds in the s&p500 and checking the value at the 10yr mark compared to the value of the same investment the hedge fund mgr was playing with over the same time period. 

Unless i'm missing something here Warren's idea was to purchase the S&P park and forget about it and you will outperform the typical money manager's efforts over the long run (in this case 10 years) - but this conflicts with what i read about ETF's typically being purchased and sold in the short term and not really something to invest in for the long term?

your thoughts on this would be greatly appreciated.
cheers,


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## Rusty O'Toole (Feb 1, 2012)

Warren Buffet has spoken on this subject many times. His advice boils down to this:

Warren Buffet: Learn value investing. That means shopping for bargains. Benjamin Graham wrote the book on this, literally. Spend hours every day analysing stocks until you find the best 5 bargains.

Eager Student: But there are 3000 stocks! How am I supposed to find the bargains?

WB: Get a Value Line subscription. Start with the A's.

ES: What if I don't want to spend half my life poring over stocks?

WB: Index everything. Buy an index fund like the Vanguard S&P 500. You will beat 85% of the professional money managers just by buying the index fund.

Note, he put his money where his mouth is. When called on this advice by a hedge fund manager he offered to bet $1,000,000 that the S&P would beat the hedge fund manager's hand picked 5 best funds over 10 years. He was right, he beat the hedge fund guy so bad he conceded after the 8th year.

Now I am telling you the Rusty method to beat Warren Buffet. Buy the S&P but get out when the market is tanking, get back in when it recovers. This will save you the agony of watching your investment shrink by 30% or 40%, and increase your returns.


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## Steve64 (Jun 28, 2016)

thanks Rusty, 
what makes sense to me is to look a the previous performance of the S&P say over the last year and get a rough idea of the highs and lows - compare to my buy in price and sell when it reaches buy rate + 10% (for example) and wait to buy back in when i'm -5% of my previous buy rate (for example)

Is my thinking rational here?


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## Steve64 (Jun 28, 2016)

*reading historical performance data*

Can someone please show me how to read the following performance history chart? 
It starts at $10k and shows what the ETF did over a 1 year period in terms of overall value

I bought this fund at $31.57/share and want to see how that compares with the 1 year performance (did i buy high or low etc)

https://investor.vanguard.com/etf/profile/performance/voo
(having trouble attaching the jpg image)








looks like i figured out how to attach?


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## Rusty O'Toole (Feb 1, 2012)

The chart you linked to is a 10 year chart. It shows the Vanguard S&P 500 ETF, VOO. It was never $31.57 in the past year, it was always over $200 a share.


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## Rusty O'Toole (Feb 1, 2012)

Steve64 said:


> thanks Rusty,
> what makes sense to me is to look a the previous performance of the S&P say over the last year and get a rough idea of the highs and lows - compare to my buy in price and sell when it reaches buy rate + 10% (for example) and wait to buy back in when i'm -5% of my previous buy rate (for example)
> 
> Is my thinking rational here?


This is rational in that it makes sense, unfortunately markets don't make sense. Markets are not that predictable. You have to be ready to take what they offer, and step aside when they go into reverse. Nobody can predict what the markets will do beforehand, nobody. Unless by a lucky guess. The best you can do is react when conditions change.

What you are talking about here is swing trading. Here is a good tutorial on one method of doing swing trading. You will have to sign up for a free account, go to the Free Account Special Videos page and look for the video Improving Swing Trade Entries.

https://askslim.com/


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## Steve64 (Jun 28, 2016)

Forgive my ignorance here but when I told QUESTRADE I wanted the sp500 I was directed to XSP.TO which was explained to me to be a cdn etf that closely mimics the sp500 (but was traded on the TSX)
Should I be concerned this isn’t exactly the sp500 (which I believe is AMERICAN )


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## GreatLaker (Mar 23, 2014)

Steve64 said:


> Forgive my ignorance here but when I told QUESTRADE I wanted the sp500 I was directed to XSP.TO which was explained to me to be a cdn etf that closely mimics the sp500 (but was traded on the TSX)
> Should I be concerned this isn’t exactly the sp500 (which I believe is AMERICAN )


The S&P 500 is a stock index of approximately 500 large US companies, managed and published by S&P Indices. https://en.wikipedia.org/wiki/S&P_500_Index 

You cannot specifically buy the index. What you can do is purchase a mutual fund or ETF that attempts to replicate the performance of the index. XSP attempts to track the S&P500 in Canadian dollars, filtering out the effect of fluctuations in the Canada-US exchange rate.

There are US based ETFs that track the S&P500, trading on the NYSE. iShares IVV and Vanguard VOO are examples. If you want to buy them you need to have a US dollar investing account, and depending on your broker the currency conversion fees can be expensive. But on the plus side, MERs are usually lower on US based ETFs, and when held in an RRSP, withholding taxes can be avoided.

There are also several Canadian domiciled S&P500 ETFs like XSP, XUS, ZSP, ZUE, VFV and VSP. XSP, ZUE and VSP are hedged, which means the manager attempts to eliminate the effect of fluctuations in the Canada/US exchange rate on the fund performance. If you are worried short-term about currency fluctuations then hedging is a good way to reduce that risk, but over the long term hedging is not always efficient and should probably be avoided. This link will take you to articles on hedging: https://canadiancouchpotato.com/?s=hedge

This is an article on when to use US listed ETFs: https://canadiancouchpotato.com/2013/12/09/ask-the-spud-when-should-i-use-us-listed-etfs/

Anyway, that was a long winded way of saying XSP is a good ETF if you want a hedged S&P500 ETF that trades in Canadian dollars. Unhedged funds may be a better choice for long term holding. You can get lower fees, and lower taxes (if held in an RRSP) by using US listed funds, but with increased cost and complexity from currency conversion to US$.

P.S. is there a reason you are looking at the S&P500? Do you also have other investments that build a diversified portfolio?

P.P.S. discount brokers like Questrade are not supposed to give investment advice. They can advise on how to use their platform, make trades, supporting their website, but since they are a discount broker, specific investment advice will be limited to non-existent.


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## Steve64 (Jun 28, 2016)

thanks GreatLaker,
i was wondering about the currency difference (i know the SP500 was top 500 "American" companies). In summary the public can't buy the "literal" top 500 companies (without doing all the work themselves) they can buy an ETF that tracks the S&P and pay a small MER to have the firm watch and mimic the SP500. If i buy the CAD equivalent (XSP) i have the added variable of the currency adjustment from the top 500 american companies converted into CAD funds. And you're saying the management of the ETF is hedging the CAD currency. Wouldn't this mean my XSP will always lag a little below the true SP500 due to the hedging step? (again assuming by hedging we're giving up a little of the gains to avoid some of the risk)?

So would you say the XSP is a good vehicle to use (keeping things Canadian) to compare with the SP500? What i really want to do is own the top 500 US companies. but if that would mean owning them in USD then i like the option of owing them in CAD funds instead.(less variables to contend with - preferred at this stage of my investing evolution)

I do have the majority of my investments managed by an outside firm - i decided on the SP500 as a side project - after hearing about the warren buffet bet he could park the funds for 10yrs without doing anything else (mimicking the inexperienced investor) and still out perform the money managers over the 10 yr period. That really grabbed my attention!

thanks again,


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## Rusty O'Toole (Feb 1, 2012)

I have had a US dollar account for years and have made a lot of money just on the difference between US and Canadian dollars. This will continue as long as Canada is run the way it has been run, and the US dollar is the world's benchmark currency. Keep in mind what I said above about all predictions being worthless including this one.


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## Steve64 (Jun 28, 2016)

Rusty O'Toole said:


> I have had a US dollar account for years and have made a lot of money just on the difference between US and Canadian dollars. This will continue as long as Canada is run the way it has been run, and the US dollar is the world's benchmark currency. Keep in mind what I said above about all predictions being worthless including this one.


thanks Rusty


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## GreatLaker (Mar 23, 2014)

Steve64 said:


> thanks GreatLaker,
> i was wondering about the currency difference (i know the SP500 was top 500 "American" companies). In summary the public can't buy the "literal" top 500 companies (without doing all the work themselves) they can buy an ETF that tracks the S&P and pay a small MER to have the firm watch and mimic the SP500. If i buy the CAD equivalent (XSP) i have the added variable of the currency adjustment from the top 500 american companies converted into CAD funds. And you're saying the management of the ETF is hedging the CAD currency. Wouldn't this mean my XSP will always lag a little below the true SP500 due to the hedging step? (again assuming by hedging we're giving up a little of the gains to avoid some of the risk)?
> 
> So would you say the XSP is a good vehicle to use (keeping things Canadian) to compare with the SP500? What i really want to do is own the top 500 US companies. but if that would mean owning them in USD then i like the option of owing them in CAD funds instead.(less variables to contend with - preferred at this stage of my investing evolution)
> ...


You should read the articles on currency hedging at the CanadianCouchPotato link I provided:
https://canadiancouchpotato.com/?s=hedge
Especially this one: https://canadiancouchpotato.com/2014/03/06/why-currency-hedging-doesnt-work-in-canada/
And the info on XSP here: https://canadiancouchpotato.com/2012/03/30/ishares-2011-tracking-errors/


> But it’s currency hedging that creates the biggest drag on fund’s like XSP. The fund’s tracking error was –0.64%, despite an annual fee of just 0.25%. But there’s more: XSP’s index accounts for the currency hedging strategy, which is reset each month, and this index returned 1.71%. However, the S&P 500’s actual return in US dollars was 2.11% last year. So the true underperformance of XSP was –1.04%. Over the last seven years, this performance gap has averaged more than 2%. This is why I don’t recommend currency hedging.


(Granted the above quote is from 2011 so don't know if the situation has improved.)

My belief on currency hedging is if you are holding for the short term, hedging can reduce risk, but you should not hold equities short-term. If you are holding long-term for retirement, avoid hedging since analysis I have read shows that it is inefficient and lowers return. Plus in a typical retirement savings scenario you contribute gradually over decades, then withdraw gradually over decades. Therefore you are not at a high risk of being hurt by a sudden unfavourable currency shift.

So for my own retirement savings I use non-hedged US funds.


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