Is it that hard to beat the market?

[numi]

@sglondon

^^Lol. It was possible to make 1000% if you picked the right small caps…

Have you guys ever read this book? One of the dude’s comments were like “I’ve beaten the market conistently every year, average compound return is 70%” or something stupid like that.

Hands down worst book on investing i’ve ever read.

http://www.amazon.ca/Creating-Portfolio-like-Warren-Buffett/dp/1118182529

Ha, I skimmed some of the pages on Amazon “Look Inside” and agree that this is a pitiful piece of literature. It’s obvious (to me, anyway) that the reviewers are probably all cronies of the author (maybe family members or relatives) and basically stuffed the ballot box. The content in this book is so bad, it’s laughable.

[Matt_Likes_Analysis]

best ever. on page 3: “Graham once told California investor Charles Brandes ‘Warren has done very well’”

what a blockbuster quote. how have i never seen this quote before!?!?

ooh, and “you can make multimillions of dollars”. who talks like that?

[numi]

A bumbling idiot, that’s who.

[former_trader]

@sglondon

^^Lol. It was possible to make 1000% if you picked the right small caps…

Have you guys ever read this book? One of the dude’s comments were like “I’ve beaten the market conistently every year, average compound return is 70%” or something stupid like that.

Hands down worst book on investing i’ve ever read.

http://www.amazon.ca/Creating-Portfolio-like-Warren-Buffett/dp/1118182529

The SEC should get involved ASAP.

[naren]

@Destroyer_of_Worlds

@bchad

An interesting point is that monkeys throwing darts at a board should outperform something like the S&P 500 on average.

Why? Because their sample will be biased towards small-cap stocks (the S&P 500 has about 75% of the US market capitalization, but only 500 stocks, compared to the 1000s of stocks in the R1k, R3k, Wilshire 5000, etc), and the small cap universe tends to deliver higher returns on average.

So it may not be too hard to beat the market over the long term by a little, but it does seem to be pretty hard to beat it by a lot. One of the challenges is to figure out how much of the performance difference comes from buying high-beta stocks in an up market, versus finding stuff that outperforms an equivalently-levered index.

I like this idea a lot. Set up a mutual fund, benchmark it to the S&P500, implement a small-cap bias, slightly outperform the S&P 500 for 3 years until you have established that arbitrary track record for other monkeys, er, consultants and fund selectors, and then sit back and watch the mandates roll in. After all, nobody really expects any excess return from domestic large cap stocks in the long run, do they? Small sustainable excess returns in LCD equity land is something special. Of course, do not shine any special light on the small cap bias to any consultants reviewing your fund.

I plan to start this mutual fund, charge 1% per year - quite reasonable - and outperform the S&P.

Don’t tell anyone but all of the inflows will go into RSP (Guggenheim S&P 500 Equal Weight ETF).

[system]

@edupristine

Making a return of 30-100% for the last few years is possible . Pls check the credentials and then believe in the seminars

Respect. So you’re telling me there’s a chance!?

[Destroyer_of_Worlds]

@naren\_

@Destroyer_of_Worlds

@bchad

An interesting point is that monkeys throwing darts at a board should outperform something like the S&P 500 on average.

Why? Because their sample will be biased towards small-cap stocks (the S&P 500 has about 75% of the US market capitalization, but only 500 stocks, compared to the 1000s of stocks in the R1k, R3k, Wilshire 5000, etc), and the small cap universe tends to deliver higher returns on average.

So it may not be too hard to beat the market over the long term by a little, but it does seem to be pretty hard to beat it by a lot. One of the challenges is to figure out how much of the performance difference comes from buying high-beta stocks in an up market, versus finding stuff that outperforms an equivalently-levered index.

I like this idea a lot. Set up a mutual fund, benchmark it to the S&P500, implement a small-cap bias, slightly outperform the S&P 500 for 3 years until you have established that arbitrary track record for other monkeys, er, consultants and fund selectors, and then sit back and watch the mandates roll in. After all, nobody really expects any excess return from domestic large cap stocks in the long run, do they? Small sustainable excess returns in LCD equity land is something special. Of course, do not shine any special light on the small cap bias to any consultants reviewing your fund.

I plan to start this mutual fund, charge 1% per year - quite reasonable - and outperform the S&P.

Don’t tell anyone but all of the inflows will go into RSP (Guggenheim S&P 500 Equal Weight ETF).

For sure. You wouldn’t be the first person in finance to put something that already exists, with no modifications, in different packaging and charge for the packaging. It’s like selling bottled tap water.

[jimmy6467]

he said the last 7 years, so including 2008. I guess he shorted? but he said he is a long term investor. He seems to know a bit about the stock market but I am wondering can you really kick Mr Martket’s ass like that? I mean with diversification and everything its very unlikely? Anyone here make a 20% return in the last 7 years?

[frisian]

There was an interesting take on this skill v luck topic in an article from the Conference Proceedings Quarterly from September 2013. If you’re curious, the article was titled “The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing,” by Michael Mauboussin, head of global financial strategies at Credit Suisse.

Here’s the part I found most interesting:

"Skill is defined as the ability to use one’s knowledge effectively and readily in the execution of performance. So, someone knows how to do something and then can turn it on when he or she needs to. Luck is more difficult to define, although luck is in place when three conditions are satisfied: (1) It operates for an individual or a group; (2) it can be good or bad, not necessarily symmetrical; and then finally and importantly, (3) it is reasonable to expect a different outcome could have occurred.

If something different reasonably could have occurred, then luck is at work. The challenge is to figure out where we are on the luck–skill continuum. There is an elegant test to know whether there is any skill in an activity: If an activity can be lost on purpose, then there is some skill in that activity.

For example, suppose that on 1 January 2013, two 50-stock portfolios are constructed. One is expected to do better than the S&P 500 Index and one is expected to do much worse than the S&P 500. When tabulated one year later, I would bet that the “bad” portfolio in aggregate will do roughly as well as the “good” portfolio. Investing is particularly interesting because it is not only hard to win on purpose, but it is also actually hard to lose on purpose. The conclusion is that investing is more toward the luck side of the continuum."

[ohai]

How is Warren Buffet ok with having his picture on some random guy’s terrible book?

[naren]

^ Because he is no Warren Buffe tt. (Sorry cheap shot)

[bchad]

I always liked Mauboussin’s test for luck. If there is skill, it should be possible to be able to lose on purpose (though I’d add that this assumes the person playing against you isn’t also trying to lose on purpose).

[S2000magician]

In the State of California, contract bridge is, legally, a game of skill, not a game of luck.

Therefore, in the State of California, playing contract bridge for money is not, legally, gambling.

[heavenskrow]

Is it that hard to beat the market? NO. I’ve beaten the market several times personally, but then again I’ve had years where they crushed me.

However if the question is , “Is it that hard to beat the market consistently?” Then YES.

For example 2010 up 50%, 2011 up 80%, 2013 down 90%(started dabbling with options)

This year was up 60% in March, then down to 10% in April.

And I would never take the amount of risk I did with a broke college student budget to an actual portfolio over 50k+.

[Mobius_Strip]

@bchad

An interesting point is that monkeys throwing darts at a board should outperform something like the S&P 500 on average.

Why? Because their sample will be biased towards small-cap stocks (the S&P 500 has about 75% of the US market capitalization, but only 500 stocks, compared to the 1000s of stocks in the R1k, R3k, Wilshire 5000, etc), and the small cap universe tends to deliver higher returns on average.

The dart surface should be composed of stocks whose representation on the board is an area proportional to their market capitalization. Otherwise we are comparing the return of a market-weight index like the S&P 500 to some equal-weight index created by the monkeys - apples and oranges. The ability of the monkeys to outperform is not due to random stock selection, but by design.

[bchad]

@Mobius_Strip

@bchad

An interesting point is that monkeys throwing darts at a board should outperform something like the S&P 500 on average.

Why? Because their sample will be biased towards small-cap stocks (the S&P 500 has about 75% of the US market capitalization, but only 500 stocks, compared to the 1000s of stocks in the R1k, R3k, Wilshire 5000, etc), and the small cap universe tends to deliver higher returns on average.

The dart surface should be composed of stocks whose representation on the board is an area proportional to their market capitalization. Otherwise we are comparing the return of a market-weight index like the S&P 500 to some equal-weight index created by the monkeys - apples and oranges. The ability of the monkeys to outperform is not due to random stock selection, but by design.

Yes, exactly.

[S2000magician]

I didn’t even know that monkeys threw darts.

[former_trader]

^ They also spin wheels to predict sport’s outcomes. Search for Maggie the Monkey.

[Greenman72]

Wasn’t there an octopus that correctly predicted every single game in the NFL playoffs a couple of years ago?

[bchad]

It was the 2010 World Cup games. The octopus’s name was Paul, I believe.