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That's actually entirely not what he said there. He said "On average, active investors will do just as well as passive investors, but due to fees will actually

by debacle 12y ago

That's actually entirely not what he said there. He said "On average, active investors will do just as well as passive investors, but due to fees will actually perform worse." That doesn't mean that some active investors are not going to do incredibly well. Some of those active investors will be smart and lucky, and some of them will be very good at what they do.

hsitz 12y ago
Efficient market hypothesis does not disagree that some active investors will do incredibly well. It does say that those who do will succeed based on luck rather than smarts/skill. Also, the efficient market hypothesis is of course not completely true. I take it that Buffett is a good counterexample to the strongest possible form of efficient market hypothesis. However, I also take the fact that there are not many Buffetts in the world as evidence that markets are very efficient. Buffett, I believe, is a genuine counterexample to EMH. Most other people offered as counterexamples are not; i.e., their results are completely consistent with proper statistical understanding of investment results in perfectly efficient markets.
im3w1l 12y ago
Actually, passive investors should slightly underperform active investors, before fees. The passive investor will have to buy at slightly above market cost, and sell slightly below market cost to avoid tracking error. This cost is probably dwarfed by the fees of active investing though.
meric 12y ago
The set of active investors plus the set of passive investors is the set of all market participants. If the passive investors all earn the market average, then the average earnings of active investors, before fees, must also be equal to the market average. Since passive investors pay less fees and active investors, the average earnings of an active investors, after fees, must always be less than that of the passive investor.
lern_too_spel 12y ago
It looks like you missed Buffet's last paragraph, where he says high IQ hedge fund managers can beat the market, but not by much, and not enough to cover their fees. In other words, that is actually entirely what he said there.

by debacle 12y ago

hsitz 12y ago

Efficient market hypothesis does not disagree that some active investors will do incredibly well. It does say that those who do will succeed based on luck rather than smarts/skill. Also, the efficient market hypothesis is of course not completely true. I take it that Buffett is a good counterexample to the strongest possible form of efficient market hypothesis. However, I also take the fact that there are not many Buffetts in the world as evidence that markets are very efficient. Buffett, I believe, is a genuine counterexample to EMH. Most other people offered as counterexamples are not; i.e., their results are completely consistent with proper statistical understanding of investment results in perfectly efficient markets.

im3w1l 12y ago

Actually, passive investors should slightly underperform active investors, before fees. The passive investor will have to buy at slightly above market cost, and sell slightly below market cost to avoid tracking error. This cost is probably dwarfed by the fees of active investing though.

meric 12y ago

The set of active investors plus the set of passive investors is the set of all market participants. If the passive investors all earn the market average, then the average earnings of active investors, before fees, must also be equal to the market average. Since passive investors pay less fees and active investors, the average earnings of an active investors, after fees, must always be less than that of the passive investor.

lern_too_spel 12y ago

It looks like you missed Buffet's last paragraph, where he says high IQ hedge fund managers can beat the market, but not by much, and not enough to cover their fees. In other words, that is actually entirely what he said there.