4 ms·

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 sa

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.
  - reducesuffering 4y ago
    Nope, you can't pick the winning monkeys. Picking the avg. (index) is better; same avg. returns, less variance. But, it's still true that 50% outperform the index, not "very few" as many people like to think.
    - klipt 4y ago
      Well it's kind of tautological that if you can * Achieve the mean * Add some kind of noise to that You have a chance of beating the mean. But I think when people say "beat the market", they mean a better than 50% chance due to some secret sauce. Or, beat the market repeatedly, which variance is unlikely to do (if chance of beating the market one year is 50%, chance of beating it 10 years running is only ~0.1%)
Galanwe 4y ago
> This is mainstream economic theory today. To be fair, EMH is mainstream econometrics from the 70s... I don't think there exist more than a handful of academics in 2020 that would defend a strong form of EMH. The whole current quantitative finance industry is based on the factor model theory, and behavioral finance. Factors have been proven to S3account for consistent abnormal returns for decades, on multiple asset classes. Stronger than factor form of inefficiencies, such as PEAD, have also been common knowledge for decades. Behavioral finance, for which there has been Nobel prizes as well - post 70s :) - would even go as far as telling you that there is most likely a self realization effect of factors in the market. Eg. "Quality exists because people trade quality because they believe it exists"

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.
- reducesuffering 4y ago
  Nope, you can't pick the winning monkeys. Picking the avg. (index) is better; same avg. returns, less variance. But, it's still true that 50% outperform the index, not "very few" as many people like to think.
  - klipt 4y ago
    Well it's kind of tautological that if you can * Achieve the mean * Add some kind of noise to that You have a chance of beating the mean. But I think when people say "beat the market", they mean a better than 50% chance due to some secret sauce. Or, beat the market repeatedly, which variance is unlikely to do (if chance of beating the market one year is 50%, chance of beating it 10 years running is only ~0.1%)

Galanwe 4y ago

> This is mainstream economic theory today. To be fair, EMH is mainstream econometrics from the 70s... I don't think there exist more than a handful of academics in 2020 that would defend a strong form of EMH. The whole current quantitative finance industry is based on the factor model theory, and behavioral finance. Factors have been proven to S3account for consistent abnormal returns for decades, on multiple asset classes. Stronger than factor form of inefficiencies, such as PEAD, have also been common knowledge for decades. Behavioral finance, for which there has been Nobel prizes as well - post 70s :) - would even go as far as telling you that there is most likely a self realization effect of factors in the market. Eg. "Quality exists because people trade quality because they believe it exists"