4 ms·

This is funny because it's one of these things that is : - empirically incorrect (the idea that very few people beat the index) - but repeatedly constantly wi

by anm89 4y ago

This is funny because it's one of these things that is : - empirically incorrect (the idea that very few people beat the index) - but repeatedly constantly with unbelievable confidence by people who don't know the subject well - while misunderstanding the reasons why someone with that level of wealth wouldn't want to buy the index even if it gave them statistically good returns

reducesuffering 4y ago
> - empirically incorrect (the idea that very few people beat the index) Yep, definitionally 50% of stock market capital outperforms the market index average. People recommend index because you don't know who / what will outperform (funds will charge you fees like 1% so random dart choosing a fund means on avg. you get market index - 1%).
- danielmarkbruce 4y ago
  Fees make this wrong, and then no one is talking about "stock market capital". They are talking about funds or people. As such, it's correct that few people beat the market.
  - reducesuffering 4y ago
    50% of funds and people absolutely beat the avg. index. Again, assuming efficient market hypothesis, it's by definition. As I've said, after fees, which is returned to the investor in the fund ~ -1%, of course it's not worth it. But the funds are throwing darts, the people are throwing darts, and 50% are beating the index. Only if you disbelieve the efficient market hypothesis, and think a few funds are disproportionately profiting ~100%/yr (you could maybe make the case for Rentech $10m medallion), would that be untrue.
    - danielmarkbruce 4y ago
      Brokerage fees. Even without that, still no. There is an implicit assumption in your math that bad and good investors aggregate funds in the same amount. They don't. And, depending on exactly how strictly you are defining EMH - I mean, does anyone believe it in it's strictest form? It's a crazy idea.
- WkndTriathlete 4y ago
  No, this is definitely wrong. You're comparing an apple (average returns by investors) against an orange (average annual index returns). 50% of of returns, over all investors, beats the median (not average) returns over all investors, by definition, but the annual median returns over all investors is much smaller than the average annual index return. A very small number of people/investors (1) have beaten the average annual S&P returns over the long term. (1) https://www.amazon.com/Four-Pillars-Investing-Building-Portfolio-ebook/dp/B0041842TW https://www.amazon.com/Four-Pillars-Investing-Building-Portf...
julianeon 4y ago
Your comment is funny because of the loads of irony behind it. Empirically incorrect? The 'index fund strategy' stated under another name is essentially the same as efficient markets theory, which multiple economists have won Nobel Prizes for. This is mainstream economic theory today. But even worse - to my knowledge even skeptics of efficient markets theory don't deny that few people beat the index. They think they can pick them of course - but they never claim that most people outperform the market (the same thesis, restated). So your comment is, bluntly stated, empirically incorrect, because no serious academic (to my knowledge) denies that very few people beat the index. The reason incidentally is because index funds have zero fees, and active investors have nonzero fees, and long term they converge - so the zero fee lower cost basis strategy wins out. And if you're claiming that average investors with "zero fees" generally outperform the market... that is empirically, provably, incorrect. Stated with unbelievable confidence... yes, the confidence that the papers that the economists who won those Nobel Prizes instilled, which has now become economic orthodoxy, which also helped spur the creation of index funds in the first place. There is a strong connection between efficient markets theory & those funds very existence: because if active investors underperform the market, then the best strategy is just to hold the market, a strategy which got repackaged and named as 'index funds.' A good book on the topic: https://www.amazon.com/Trillions-Renegades-Invented-Changed-Finance/dp/0593087682 https://www.amazon.com/Trillions-Renegades-Invented-Changed-...
- reducesuffering 4y ago
  Your idea of them being empirically incorrect is your appeal to authorities' opinions? Explain how it's incorrect that, by definition, 50% of capital outperforms the index? If you gave 10 monkeys darts that pick stocks, roughly 5 will beat the index, by your very own beloved efficient market theory.
  - klipt 4y ago
    > If you gave 10 monkeys darts that pick stocks, roughly 5 will beat the index Yes but you can't pick the winning monkeys in advance, can you? Picking winning monkeys is just as hard as picking winning stocks.
danielmarkbruce 4y ago
What is empirically incorrect? The statement is that the person will take a bet Bayshore will underperform... there is research showing that the person is in fact lying and is not willing to take a bet? I'll take a bet the Bucs win this weekend... do you also have empirical evidence to the contrary? The commenter is almost certainly stating they think Bayshore has <50% chance, but not some tiny number. Most people on stating "i'll bet x" intend for such bet to be priced at even money. If they stated they were laying generous odds, that might imply with confidence. And it might still be reasonable because it is reported widely, and people like Warren Buffett have won bets by betting on such underperformance. No one is saying that no one beats the market. Buffett himself has said that upon his death there is a fund for his widow which will be 90% sp500 index. I'm not sure how much we are talking about, and it will be less than $100 billion, but I'm not sure it makes much difference, if any. You might disagree with someone like Buffett on things like this, but the idea that the original comment is naive or stupid is plainly wrong. He's basically repeated what one of the best investors on the planet has stated.
- sopooneo 4y ago
  One potentially relevant nuance: the odds of a particular investment strategy beating the market over a given period can be >0.5 while still providing negative expected return.

by anm89 4y ago

reducesuffering 4y ago

> - empirically incorrect (the idea that very few people beat the index) Yep, definitionally 50% of stock market capital outperforms the market index average. People recommend index because you don't know who / what will outperform (funds will charge you fees like 1% so random dart choosing a fund means on avg. you get market index - 1%).

danielmarkbruce 4y ago
Fees make this wrong, and then no one is talking about "stock market capital". They are talking about funds or people. As such, it's correct that few people beat the market.
- reducesuffering 4y ago
  50% of funds and people absolutely beat the avg. index. Again, assuming efficient market hypothesis, it's by definition. As I've said, after fees, which is returned to the investor in the fund ~ -1%, of course it's not worth it. But the funds are throwing darts, the people are throwing darts, and 50% are beating the index. Only if you disbelieve the efficient market hypothesis, and think a few funds are disproportionately profiting ~100%/yr (you could maybe make the case for Rentech $10m medallion), would that be untrue.
  - danielmarkbruce 4y ago
    Brokerage fees. Even without that, still no. There is an implicit assumption in your math that bad and good investors aggregate funds in the same amount. They don't. And, depending on exactly how strictly you are defining EMH - I mean, does anyone believe it in it's strictest form? It's a crazy idea.
WkndTriathlete 4y ago
No, this is definitely wrong. You're comparing an apple (average returns by investors) against an orange (average annual index returns). 50% of of returns, over all investors, beats the median (not average) returns over all investors, by definition, but the annual median returns over all investors is much smaller than the average annual index return. A very small number of people/investors (1) have beaten the average annual S&P returns over the long term. (1) https://www.amazon.com/Four-Pillars-Investing-Building-Portfolio-ebook/dp/B0041842TW https://www.amazon.com/Four-Pillars-Investing-Building-Portf...

julianeon 4y ago

Your comment is funny because of the loads of irony behind it. Empirically incorrect? The 'index fund strategy' stated under another name is essentially the same as efficient markets theory, which multiple economists have won Nobel Prizes for. This is mainstream economic theory today. But even worse - to my knowledge even skeptics of efficient markets theory don't deny that few people beat the index. They think they can pick them of course - but they never claim that most people outperform the market (the same thesis, restated). So your comment is, bluntly stated, empirically incorrect, because no serious academic (to my knowledge) denies that very few people beat the index. The reason incidentally is because index funds have zero fees, and active investors have nonzero fees, and long term they converge - so the zero fee lower cost basis strategy wins out. And if you're claiming that average investors with "zero fees" generally outperform the market... that is empirically, provably, incorrect. Stated with unbelievable confidence... yes, the confidence that the papers that the economists who won those Nobel Prizes instilled, which has now become economic orthodoxy, which also helped spur the creation of index funds in the first place. There is a strong connection between efficient markets theory & those funds very existence: because if active investors underperform the market, then the best strategy is just to hold the market, a strategy which got repackaged and named as 'index funds.' A good book on the topic: https://www.amazon.com/Trillions-Renegades-Invented-Changed-Finance/dp/0593087682 https://www.amazon.com/Trillions-Renegades-Invented-Changed-...

reducesuffering 4y ago
Your idea of them being empirically incorrect is your appeal to authorities' opinions? Explain how it's incorrect that, by definition, 50% of capital outperforms the index? If you gave 10 monkeys darts that pick stocks, roughly 5 will beat the index, by your very own beloved efficient market theory.
- klipt 4y ago
  > If you gave 10 monkeys darts that pick stocks, roughly 5 will beat the index Yes but you can't pick the winning monkeys in advance, can you? Picking winning monkeys is just as hard as picking winning stocks.

danielmarkbruce 4y ago

What is empirically incorrect? The statement is that the person will take a bet Bayshore will underperform... there is research showing that the person is in fact lying and is not willing to take a bet? I'll take a bet the Bucs win this weekend... do you also have empirical evidence to the contrary? The commenter is almost certainly stating they think Bayshore has <50% chance, but not some tiny number. Most people on stating "i'll bet x" intend for such bet to be priced at even money. If they stated they were laying generous odds, that might imply with confidence. And it might still be reasonable because it is reported widely, and people like Warren Buffett have won bets by betting on such underperformance. No one is saying that no one beats the market. Buffett himself has said that upon his death there is a fund for his widow which will be 90% sp500 index. I'm not sure how much we are talking about, and it will be less than $100 billion, but I'm not sure it makes much difference, if any. You might disagree with someone like Buffett on things like this, but the idea that the original comment is naive or stupid is plainly wrong. He's basically repeated what one of the best investors on the planet has stated.

sopooneo 4y ago
One potentially relevant nuance: the odds of a particular investment strategy beating the market over a given period can be >0.5 while still providing negative expected return.