31–40 of 115 posts
and yet he himself is an example of exactly the opposite mentality. He has been an outlier manager for decades and would have been a great choice of manager for anyone he would take money from. He effectively takes new money whenever his holdings pay dividends and reinvests it successfully. Roughly speaking he's returned 100% (vs 50% for the Sp500) in 10yrs giving about a 7.2% return rate. He consistently beats the m…
A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
There are managers who excel at investing money and unlocking value. Just because most managers in assets and investment vehicles afforded by those whose worth is not of a sufficient level does not mean they do not exist. People who can, do. They happen to charge 2 and 20 for the privilege of working your money.
From a scientific standpoint, that is false. You need to realize that it's not possible to show (prove, demonstrate) that such stories arise from anything but chance. A certain number of people are going to do very well because of chance, and some of those people are going to try to pose as experts.
But don't take my word for it -- instead, think. If there really was a surefire way to beat market averages, it wouldn't remain a secret for long, then everyone would practice it, then that "system" would become the norm -- the market average performance.
And if there really was a way to beat the market averages, if it was possible to make a huge sum of money systematically without risk or uncertainty, using a scheme other than chance, businesspeople (who are not fools) would refuse to raise capital using equities.
If you think hard enough, you will realize why there cannot be a deterministic, legal system to beat the market. There's always insider trading, but that's illegal for a reason.
> Just because most managers in assets and investment vehicles afforded by those whose worth is not of a sufficient level does not mean they do not exist.
They do not exist. I just proved it. If you didn't understand the above proof, read it again.
"Only a fool plays the stock market without insider information."
A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
Thank you for the interesting link. >statistics tells us that 50 of them will do better than the market averages (and 50 will do worse) This is a common misunderstanding, but actually 50% will do better than the median not the average. Averages can be dominated by extreme events, so more than 50% can do better (or worse) depending on the skew.
A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
Thank you for the interesting link. >statistics tells us that 50 of them will do better than the market averages (and 50 will do worse) This is a common misunderstanding, but actually 50% will do better than the median not the average. Averages can be dominated by extreme events, so more than 50% can do better (or worse) depending on the skew.
If the market were skewed to the degree that a symmetrical normal distribution wasn't a realistic model, then (assuming a particular skew) beating the median would be child's play, but it also wouldn't produce returns different than the average portfolio -- that average portfolio that sits at or near the mean, not the median.
Another way to say this is that, if a skewed distribution peaked at some mean value M (the value on the curve that has a zero first derivative), and if there was a pathological, nonsymmetrical tail at the right or left that shifted the median value, the majority of portfolios would remain at the mean value in spite of the asymmetry.
A quote from Warren Buffet: "In addition to the ones benefitting from short-term luck, I believe it possible that a few [stock portfolio managers] will succeed—in a modest way—because of skill." Yes, but with an appropriate degree of scientific skepticism, the "skill" assumption could actually be chance. And Occam's razor argues that chance is the more likely cause, not skill. For 100 stock fund managers buying and s…
If you're going to simplify things, take out the numbers because the numbers are wrong.
For example, let's suppose that there are six companies you can invest in, and six managers who each invest in one company. One company grows 600%, and the other five declare bankruptcy. Average growth is 16%, but only 1 in 6 managers beat the average.
The other thing that's wrong is that you use the term "statistics" where you mean "probability theory". Probability theory describes how many managers you'd expect to beat the average. Statistics describes how you'd test this.
Earlier quoted context omitted.
Warren Buffett once wrote an article about the points you are making: http://www.tilsonfunds.com/superinvestors.pdf . Interesting read
This comment deserves more votes. Buffett's argument in favour of skill is very persuasive, not to mention genuinely funny. Here's an extract: -------------------------------------- I would like you to imagine a national coin-flipping contest. Let's assume we get 225 million Americans up tomorrow morning and we ask them all to wager a dollar. They go out in the morning at sunrise, and they all call the flip of a coin…
Thanks for posting this -- it's first-rate. The fact that it corresponds exactly to my personal views can't be a factor, of course. :)
Earlier quoted context omitted.
There are managers who excel at investing money and unlocking value. Just because most managers in assets and investment vehicles afforded by those whose worth is not of a sufficient level does not mean they do not exist. People who can, do. They happen to charge 2 and 20 for the privilege of working your money.
> There are managers who excel at investing money and unlocking value. From a scientific standpoint, that is false. You need to realize that it's not possible to show (prove, demonstrate) that such stories arise from anything but chance. A certain number of people are going to do very well because of chance, and some of those people are going to try to pose as experts. But don't take my word for it -- instead, think…
Not if it's costly. By that I mean what if there is a market oracle that can pick tomorrows winners, but you have to pay X dollars to pull the crank and get the info.
In that case, it could be possible to "beat the market" in the sense that your stocks overperform, but you do not actually beat the market if you factor in the cost of the oracle.
Real world example: http://www.cnbc.com/id/100809395
>A closely watched consumer confidence number that routinely moves markets upon release is accessed by an elite group of traders, for a fee, a full two seconds before its official release, according to a document obtained by CNBC.
Another situation would be that you could overperform the market if you hired thousands of employees that analysed the markets, but not so much that you could pay their wages and still win.
It could also be the case that some people have a comparative advantage. Maybe they have certain skills that enable them to win were other people cannot.
Earlier quoted context omitted.
> There are managers who excel at investing money and unlocking value. From a scientific standpoint, that is false. You need to realize that it's not possible to show (prove, demonstrate) that such stories arise from anything but chance. A certain number of people are going to do very well because of chance, and some of those people are going to try to pose as experts. But don't take my word for it -- instead, think…
>But don't take my word for it -- instead, think. If there really was a surefire way to beat market averages, it wouldn't remain a secret for long, then everyone would practice it. Not if it's costly. By that I mean what if there is a market oracle that can pick tomorrows winners, but you have to pay X dollars to pull the crank and get the info. In that case, it could be possible to "beat the market" in the sense tha…
> Real world example: http://www.cnbc.com/id/100809395
That's an announcement effect, not a method for beating the market. It exploits people's stupidity, not their intelligence. For a classic announcement effect, there are an equal number of winners and losers, and the average return is zero. In this specific example, some people get to buy the stocks in advance of the public announcement, then the public investors stupidly and dutifully buy stocks whose price has already peaked and is about to fall. It transfers money from uneducated investors to educated ones. If the uneducated investors realized what was being done to them, they would not invest and the system would collapse.
http://www.investopedia.com/terms/a/announcment-effect.asp
A typical announcement effect scam are online penny stock touters, who:
1. Buy a worthless stock.
2. Tout the stock online: "I just heard from my cousin that this stock is about to move!"
3. Wait for some idiots to invest in the stock.
4. Sell.
> It could also be the case that some people have a comparative advantage. Maybe they have certain skills that enable them to win were other people cannot.
Maybe Occam's razor says that it's all chance.
It's interesting that this article states "Buffett, then just 44 years old" while in the tech industry 44 years old is considered...