But over the very long run, Fama was right: Almost no one who is operating honestly can maintain a persistent information edge over the millions of other smart investors who comprise “the market.”
Some research I’ve recently come upon clinches it: Fewer than 1% of mutual fund managers persistently beat the market based on superior market-timing or stock-picking skills. That’s down dramatically since the mid-1990s, suggesting either a decline in managers’ skills or a great leveling of performance because of technology, high-frequency trading, what have you.
LOL
If you limit it to mutual funds, okay. But mutual funds are a fucking scam. They are not meant to earn money for the investor. They are meant to generate lots of transaction fees over time for the managing firm. Avoid.
Actual traders beat the market all the time. Long term. No problem.
Actively managed mutual funds are mostly a scam that underperform the market, yes.
Passively managed index funds, however, are awesome.
Let's see some examples of traders who persistently beat the market.
I've heard on various online college-level investment classes and financial podcasts that index funds outperform managed funds on average - which leaves room for some investment managers to outperform the indexes, but not most of them. This also means that matching the performance of an index fund isn't good enough, since the managers take fees, and these fees means you earned less than if you just parked your money in an index fund and left it alone.
So in order to outperform an index fund a manager has to not only match index performance, but also outperform it beyond the percentage that his own management fees will consume - and most can't do that.
DBTrek wrote:I've heard on various online college-level investment classes and financial podcasts that index funds outperform managed funds on average - which leaves room for some investment managers to outperform the indexes, but not most of them. This also means that matching the performance of an index fund isn't good enough, since the managers take fees, and these fees means you earned less than if you just parked your money in an index fund and left it alone.
So in order to outperform an index fund a manager has to not only match index performance, but also outperform it beyond the percentage that his own management fees will consume - and most can't do that.
That's the point. Whatever gains are had here and there are eaten up by the fees. On a long term scale, the market beats traders.
GrumpyCatFace wrote:Dumb slut partied too hard and woke up in a weird house. Ran out the door, weeping for her failed life choices, concerned townsfolk notes her appearance and alerted the fuzz.
In general, yes. Some traders, in defiance of the average, beat the market. Ray Dalio and Warren Buffet come to mind. There are probably many others who beat the market, just not as impressively. But yeah, unless you know personally someone who is consistently beating the market and has been for years it's best to park your money in an unmanaged index fund. In fact, I play it conservatively and 60/40 split between unmanaged indexes and bonds.
GrumpyCatFace wrote:Dumb slut partied too hard and woke up in a weird house. Ran out the door, weeping for her failed life choices, concerned townsfolk notes her appearance and alerted the fuzz.
Postby Speaker to Animals » Tue Mar 06, 2018 10:50 pm
I worked in the financial industry briefly. Shitty experience. Most traders I encountered were assholes, but most beat the market quite easily.
Don't confuse mutual fund performance with actual traders. It's easy as fuck to beat the market. Any of you could learn to do it. But it's more profitable to generate lots of transaction fees in a mutual fund to slowly rob your customers.
The financial industry is the closest thing to banditry that you can do without getting arrested, and even then plenty of people get arrested for something.
It's a rotten culture. Those movies don't do it justice. But, yeah, beating the market is quite easy. You are not a fucking moron. If a trade is bad, you hit your exit points and unwind your position, cutting your losses. If a trade is good you ride it till you hit your predetermined exit points and unwind at a profit. You only have to be right about 20% of the time, riding the successful positions to profit and cutting your losses on failed positions.
Any of you can do this if you have the capital to utilize and access to the market (as well as the kind of market data they have).
It's a lot harder to do with the kind of consumer accounts you get from a discount broker, but still not infeasible.
Postby Speaker to Animals » Tue Mar 06, 2018 11:00 pm
Theres a huge industry of people doing it every day, Nick. How do you think investment and trading firms stay in business? They have access to all the market data that you don't get via your discount broker. They can see the buy and sell orders stacked up on either side of the price. They can see big firms moving with iceberg and block orders and can tell where the price will go in the short term.
Hell, the markets themselves facilitate specialized traders, market makers, who profit by just making any trade at all.
Use your brain. If it was difficult, there wouldn't be a huge industry doing it.
It's basically a rigged game. The cloiser you are to it, the more information, the easier it gets.
Postby Speaker to Animals » Tue Mar 06, 2018 11:07 pm
I mean.. come on, guy. The stock indexes are, what, 8-15% annually? They'd fire you if all you did was make that.
The guys I knew were doing just fine trading spreads in futures market.
It comes down to having large capital, access to market information (earlier than most people), and trading speed. The closer you are to the market and deeper in the industy, the easier it becomes. It's mostly what you guys would consider cheating, but they walk the line as close as they can without getting indicted.
Last edited by Speaker to Animals on Tue Mar 06, 2018 11:11 pm, edited 1 time in total.
