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Investing (vs. Speculating) in ETFs

Ari

Joined
5/15/15
Messages
22
Points
13
Hey everyone,
Not sure if this is the right category for this question but it seemed closest:

If one were to invest (vs. speculate) in a stock, one might do a fundamental analysis of that stock (look at balance sheets, calculate ratios, etc.), but if you want to invest (vs. speculate) in an ETF, what's the "fundamental analysis" of an ETF? It doesn't seem reasonable to just do a fundamental analysis of each constituent in the ETF and add them all up (or I wouldn't spend my time doing that), so what kind of analysis do you do to decide if a certain ETF is a good choice or not?

I've talked about this with some friends, and they've given me quick/easy benchmarks like low management fees, good liquidity, well diversified, etc. But I'm wondering if there's something more in depth one can do?

One thing that I do recognize is that most people picking stocks are aiming to beat the market, while ETFs generally track the market. So maybe an ETF's fundamental analysis doesn't deal with analyzing the stocks in that ETF, but instead deals with analyzing where you think that market will be (e.g. commodities market)? But then how to sift through the noise? Often 10 different sources will give you 10 different answers.

Thanks,
Ari
 
Hi,

often investing in an fund means trusting the fund manager and relying on funds historical performance (which, however, does not imply good future performance).

And of course you should be more specific on what you mean with ETF.
This term is indeed often used for the funds that just track the market, e.g. a DAX-ETF, which tracks the DAX (main German stock index). Then yes, you should consider management fees and tracking error as key parameter.
But if you also mean mutual funds that invest in stocks then you can usually find sufficient information on what a fund does and which stocks it invests in.

As a good exercise have a look at my fund:
Somewhat better than DUCKS
(it is in German but it shouldn't be a problem since mostly there are numbers, not words).
As the name of my fund implies, I try to beat the DAX.
Current portfolio and complete trade history is open. Analyze them and argue whether or not my fund is worth investing.
 
Hi,

often investing in an fund means trusting the fund manager and relying on funds historical performance (which, however, does not imply good future performance).

And of course you should be more specific on what you mean with ETF.
This term is indeed often used for the funds that just track the market, e.g. a DAX-ETF, which tracks the DAX (main German stock index). Then yes, you should consider management fees and tracking error as key parameter.
But if you also mean mutual funds that invest in stocks then you can usually find sufficient information on what a fund does and which stocks it invests in.

As a good exercise have a look at my fund:
Somewhat better than DUCKS
(it is in German but it shouldn't be a problem since mostly there are numbers, not words).
As the name of my fund implies, I try to beat the DAX.
Current portfolio and complete trade history is open. Analyze them and argue whether or not my fund is worth investing.

Do you comment on each of your trade there? As in why did you think that this exact trade should be put on at this time and what is the rationale behind it?
 
Do you comment on each of your trade there?
Not every single trade but generally I do not spare comments, that's why I have a badge "Guter Kommunikator".

As in why did you think that this exact trade should be put on at this time and what is the rationale behind it?
It depends. The decisions are both technically and fundamentally (micro- and macro-economically) based.
I also try to cut losses quickly.
 
Not every single trade but generally I do not spare comments, that's why I have a badge "Guter Kommunikator".


It depends. The decisions are both technically and fundamentally (micro- and macro-economically) based.
I also try to cut losses quickly.

Interesting indeed.

What does "Guter Kommunikator" stand for? What are the technical and fundamental analysis that you mostly use? How do you measure whether your loss you are trying to cut is quick or not?
 
What does "Guter Kommunikator" stand for?
Literally, a good communicator :)
I.e. I regularly comment my trading activity

What are the technical and fundamental analysis that you mostly use?
Fundamental: P/E ratio, Cashflow, Debt structure.
Technical: trends, support and resistance, a couple of my proprietary indicators.
(Note, I do NOT use any patterns, in particular nonr of those discussed in this famous paper:
https://www.cis.upenn.edu/~mkearns/teaching/cis700/lo.pdf - I tried to reproduce these results with more recent data, seems to be that the statistical significance of these pattern has expired, if existed at all).

How do you measure whether your loss you are trying to cut is quick or not?
It depends. For example, I tolerate larger drawdowns for highly volatile stocks (otherwise I would cut the losses too quickly - i.e. just trade noise).
 
Literally, a good communicator :)
I.e. I regularly comment my trading activity

Однако!
But where are the good commentaries :)

Fundamental: P/E ratio, Cashflow, Debt structure.
Technical: trends, support and resistance, a couple of my proprietary indicators.
(Note, I do NOT use any patterns, in particular nonr of those discussed in this famous paper:
https://www.cis.upenn.edu/~mkearns/teaching/cis700/lo.pdf - I tried to reproduce these results with more recent data, seems to be that the statistical significance of these pattern has expired, if existed at all).

Thanks for the link, will take a look.

It depends. For example, I tolerate larger drawdowns for highly volatile stocks (otherwise I would cut the losses too quickly - i.e. just trade noise).

How do you measure your vol (historical/forward looking, time period, sigma/EWMA/GARCH)?
 
How do you measure your vol (historical/forward looking, time period, sigma/EWMA/GARCH)?
Ah, this GARCH is good for getting Nobel Prize but not necessarily for practice ;)
Just look at historical vola at different time frames.

For instance, Henkel is low-volatile stock:
Henkel AG & Co. KGaA Inhaber-Vorzugsaktien o.St.o.N - 604843 - Aktien | comdirect.de

Deutsche Bank is medium-volatile:
Deutsche Bank AG Namens-Aktien o.N. - 514000 - Aktien | comdirect.de

And RWE is extremely volatile
RWE AG Inhaber-Stammaktien o.N. - 703712 - Aktien | comdirect.de
 
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