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The real takeaway from this is not that it's impossible to beat the market consistently (it's not) or that the price movement of securities are random and norma
by smabie 5y ago
The real takeaway from this is not that it's impossible to beat the market consistently (it's not) or that the price movement of securities are random and normally distributed (they're not), but that as an average retail investor (or sometimes as a sophisticated institutional allocator), it is very difficult to find funds that can outperform (which isn't a linear/one dimensional thing btw, more sophisticated analysis is required) that also you can invest in.
When allocating capital to funds you are being adversely selected against: those who can generate returns probably aren't interested in your money (there's a lot more money in the world than profitable trading/investment opportunities).
As such, I normally recommend to people that unless they are professionals and know that they are doing or HNW (say >50mil), they stick to ETFs for the bulk of their portfolio. To be clear this isn't the optimal strategy, but it's easy and it mostly works.
- galaxyLogic 5y ago> it's impossible to beat the market consistently (it's not) Is there any proof of that? Some traders of course will get very rich, just like some lottery-players.
- csee 5y ago> Is there any proof of that? Some traders of course will get very rich, just like some lottery-players. If we're talking about short-term traders, yes. There's firms and traders that make money almost every day of the year. If we're talking about investors with 4 week+ holding periods, then I agree the evidence is much more flimsy and the luck explanation (or risk premium explanation) can apply very often (or all the time).
- Panzer04 5y agoLook up renaissance technologies. More quant than typical investing, but it proves that beating the market is possible
- mmmrk 5y agoI recently read an interesting German article on them (use Google Translate if necessary) and they paint a more nuanced picture of Renaissance. https://www.gerd-kommer-invest.de/der-beste-fonds-aller-zeiten/ https://www.gerd-kommer-invest.de/der-beste-fonds-aller-zeit...
- carnitine 5y agoTry actually modelling it. People like to hand-wave the outperformers as luck, but the chance of just one of the top firms existing by chance alone is basically impossible.
- vasco 5y agoRead this piece from 1984 addressing this topic. The core point being if you find a group of people with some proximity and they're all lotto winners, as you put it, maybe there's something else to explain it: https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors https://www8.gsb.columbia.edu/articles/columbia-business/sup...
- deleted 5y ago[deleted]
- throwaway-hnw 5y agoWhat do you recommend that HNW (well, UHNW if you're talking > 50m) do? Why not also ETFs?