Comments on: How Easy is it to Beat the Market? http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/ A premiere personal finance blog, established 2003. Within, Flexo discusses his own experiences with money, and he and other authors comment on a wide range of personal finance topics. Sun, 08 Nov 2009 07:50:42 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Mighty Bargain Hunter » Roundup for week of 4 March 2007 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-88771 Mighty Bargain Hunter » Roundup for week of 4 March 2007 Wed, 14 Mar 2007 02:41:35 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-88771 [...] Consumerism Commentary questions how easy it is to beat the market. [...] [...] Consumerism Commentary questions how easy it is to beat the market. [...]

]]> By: AllFinancialMatters » Blog Archive » JLP’s Weekly Roundup http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-88474 AllFinancialMatters » Blog Archive » JLP’s Weekly Roundup Mon, 12 Mar 2007 04:54:26 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-88474 [...] asks how easy is it to beat the market? - Today (Sunday) is also Flexo’s [...] [...] asks how easy is it to beat the market? – Today (Sunday) is also Flexo’s [...]

]]> By: Free Money Finance http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87663 Free Money Finance Fri, 09 Mar 2007 11:22:26 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87663 Star Money Articles for the Week of March 5... Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: Five Cent Nickel starts to deal with a fender bender. Blueprint for Financial Prosperity lists the risks of dollar cost averaging. Consumerism Commentary asks h... Star Money Articles for the Week of March 5…

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: Five Cent Nickel starts to deal with a fender bender. Blueprint for Financial Prosperity lists the risks of dollar cost averaging. Consumerism Commentary asks h…

]]> By: tinyhands http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87568 tinyhands Thu, 08 Mar 2007 17:29:37 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87568 Nagel, You sound like you're either advocating buying the individual stocks that comprise the index or you don't believe in long term investing. If the former, you're going to get killed on transaction costs. If the latter, I'll agree that there are no guarantees but note that there has never been a 15-year period in the market that didn't make money. All, Where is it written that we have to BEAT the market anyway? On average, half of us will and half of us won't; That's what "the market" is, not some arbitrary number chosen by bluesuits. All you really have to do is beat inflation with a large enough stockpile to retire at the age you've chosen in the lifestyle you've chosen. Now, if your goal is more specific, such as turning $100 into $5M by age 40, I hope you have a backup plan. Nagel,
You sound like you’re either advocating buying the individual stocks that comprise the index or you don’t believe in long term investing. If the former, you’re going to get killed on transaction costs. If the latter, I’ll agree that there are no guarantees but note that there has never been a 15-year period in the market that didn’t make money.

All,
Where is it written that we have to BEAT the market anyway? On average, half of us will and half of us won’t; That’s what “the market” is, not some arbitrary number chosen by bluesuits. All you really have to do is beat inflation with a large enough stockpile to retire at the age you’ve chosen in the lifestyle you’ve chosen. Now, if your goal is more specific, such as turning $100 into $5M by age 40, I hope you have a backup plan.

]]> By: the Cerebral Assassin http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87481 the Cerebral Assassin Thu, 08 Mar 2007 14:57:13 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87481 Nagel: for a large-cap index, you'll pay under 20 bps. I'd take a bet that my S&P 500 index fund will outperform a comparable large-cap blend or growth fund. Even in the Journal of Financial Planning, the CFP-types in there acknowledge there are only a couple spots that active management CONSISTENTLY outperforms passive management. I can't recall the 3 (out of ~12) areas, but I think it was something internationally, small cap growth, and maybe midcap value. The idea of core/satellite investing seems to make a lot of sense. Take a good S&P or total market index fund that you'll hold onto forever and build off of that. You'll probably choose some other areas to index with a little bit (i.e. less than half) of active management. Nagel: for a large-cap index, you’ll pay under 20 bps. I’d take a bet that my S&P 500 index fund will outperform a comparable large-cap blend or growth fund. Even in the Journal of Financial Planning, the CFP-types in there acknowledge there are only a couple spots that active management CONSISTENTLY outperforms passive management. I can’t recall the 3 (out of ~12) areas, but I think it was something internationally, small cap growth, and maybe midcap value.

The idea of core/satellite investing seems to make a lot of sense. Take a good S&P or total market index fund that you’ll hold onto forever and build off of that. You’ll probably choose some other areas to index with a little bit (i.e. less than half) of active management.

]]> By: Flexo http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87441 Flexo Thu, 08 Mar 2007 05:01:57 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87441 Nagel: While nothing is "guaranteed" there is more of a chance that the index will rise over the long term than any one company (or ten companies) that even the most astute pick. You can do all the homework you want, but most likely, whatever information you find will all ready be priced into the stock. Nagel: While nothing is “guaranteed” there is more of a chance that the index will rise over the long term than any one company (or ten companies) that even the most astute pick.

You can do all the homework you want, but most likely, whatever information you find will all ready be priced into the stock.

]]> By: Nagel http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87424 Nagel Thu, 08 Mar 2007 00:29:00 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87424 I personally do not believe it is prudent to invest in a large cap index or mutual fund. If you do your homework and learn the companies you can do this on your own. There is no guarantee that the index will rise over a long-time horizon and who want to pay 100 basis points for a manager that tracks the S&P 500 when you are paying him to demolish it. I personally do not believe it is prudent to invest in a large cap index or mutual fund. If you do your homework and learn the companies you can do this on your own. There is no guarantee that the index will rise over a long-time horizon and who want to pay 100 basis points for a manager that tracks the S&P 500 when you are paying him to demolish it.

]]> By: Dave http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87419 Dave Wed, 07 Mar 2007 23:23:49 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87419 > If their clients include pension funds and insurance companies, which value conventional investment wisdom above everything, they can be fired for doing too well I think what he meant to say is that if they deviate from the index _and_do_worse_ they can be fired but if they simply match the index, they will be fine, so there is no incentive to take the risk of going against the herd. Certainly managers can and do beat the market, but its difficult to tell the difference between the lucky managers who won't be able to do it consistently, from the smart managers who will. You have to wait until they have a long term track record and then everyone knows they are good and their funds are so large that it now becomes difficult for them to continue that trend. Their success becomes a drag on their future performance. > If their clients include pension funds and insurance companies, which value conventional investment wisdom above everything, they can be fired for doing too well

I think what he meant to say is that if they deviate from the index _and_do_worse_ they can be fired but if they simply match the index, they will be fine, so there is no incentive to take the risk of going against the herd.

Certainly managers can and do beat the market, but its difficult to tell the difference between the lucky managers who won’t be able to do it consistently, from the smart managers who will. You have to wait until they have a long term track record and then everyone knows they are good and their funds are so large that it now becomes difficult for them to continue that trend. Their success becomes a drag on their future performance.

]]> By: Paul http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87380 Paul Wed, 07 Mar 2007 19:59:15 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87380 If a hundred people flip a coin a hundred times, there will be a few people who consistently flip "heads". They will have beaten the odds by luck. The same thing is true of fund managers. When there are thousands of funds, there will be a few fund managers who consistently beat the market. The trick is to separate the skillful fund managers from the merely lucky ones. If a hundred people flip a coin a hundred times, there will be a few people who consistently flip “heads”. They will have beaten the odds by luck. The same thing is true of fund managers. When there are thousands of funds, there will be a few fund managers who consistently beat the market. The trick is to separate the skillful fund managers from the merely lucky ones.

]]> By: Josh B. http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87379 Josh B. Wed, 07 Mar 2007 18:46:30 +0000 http://www.consumerismcommentary.com/2007/03/07/how-easy-is-it-to-beat-the-market/#comment-87379 The Key argument against this guy's position is his own statement that "It is true that over long periods, popular indexes and group averages converge." He appears to be advocating that the best way to beat the market is to pick the best managers and the best funds. The precise reason that I would argue that index funds are a smart choice is that the repercussions of picking the wrong manager are soooo much worse than picking an index fund. Sure, if you pick the right fund, you can beat the market. The problem occurs when you pick the wrong fund. And in the long-term you can wear yourself out jumping from winning fund to winning fund (and assuming you can keep your streak going), but in the end, as the author admits, "It is true that over long periods, popular indexes and group averages converge." The Key argument against this guy’s position is his own statement that “It is true that over long periods, popular indexes and group averages converge.”

He appears to be advocating that the best way to beat the market is to pick the best managers and the best funds. The precise reason that I would argue that index funds are a smart choice is that the repercussions of picking the wrong manager are soooo much worse than picking an index fund.

Sure, if you pick the right fund, you can beat the market. The problem occurs when you pick the wrong fund. And in the long-term you can wear yourself out jumping from winning fund to winning fund (and assuming you can keep your streak going), but in the end, as the author admits, “It is true that over long periods, popular indexes and group averages converge.”

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