OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
That's a fairly common criticism of the EMH. If prices are truly efficient then there is no reason to trade. The first flaw is that no one really knows what the "right" price is. The right price is sometimes said to be the NPV of all future cash flows. But right after a willing buyer and a willing seller establish a price, someone will come along who has a different forecast of the future cash flows. So the price really never stabiliizes. The other factor, which Fama seems reluctant to acknowledge, is the psychological factor. This is the factor that moves prices up and down on trivial news and recent events. It is also the factor that leads to manias where the price of a stock loses any financial anchor and rises due to true believers and greater-fool trading strategies.By that logic, everything we already know is already baked into the share price of every public company. ... Since everything we know about a company is already baked into the share price, it doesn't matter which companies you invest in.
Zzzz ... Nothing is easier than picking winners in the rear view mirror. As Will Rogers advised, "If it don't go up, don't buy it."...
Guess what, for every $10,000 I had invested back then would now be worth $1,230,000.00! That's $1.2 million for anyone challenged by all those zeros. I wanted to invest about $30K but was waiting for it to hit a "more reasonable" $20/share, LOL! I missed out on over $3.6 million in profits for my want of a "more reasonable" price.
Now I see why you get so excited when anyone mentions an imperfection in your baby. William Bernstein has this comment on that kind of strategy: “Do you think that by choosing a portfolio of only a few stocks that you hope will score big, you are maximizing your chances of becoming wealthy? Indeed you are, but you are also maximizing the chances of a retirement of cat food cuisine.” But you know more than he does.I have a bit over half of my retirement currently invested in Tesla. I'm 57 years old, retired, and not worried one bit. All investment carries some risk. It takes money to make money.
We agree on this one. The genesis was Harry Markowitz's PhD thesis in 1952: Portfolio Selection. Harry Markowitz. The Journal of Finance, Vol. 7, No. 1. (Mar., 1952) I guess the idea has value for someone; after all he got the Nobel. But I don't see that it is a very good idea for small investors beyond the need for a good defense against SORR. Risk is Enron, JDS Uniphase, GE, Sears Holdings, Wirecard, and thousands of others where the business ended up not being what the market thought it was or would become. IOW the discounted cash flow forecast was way off the mark. Measuring volatility is of no use in identifying those.... that financial analysts use volatility as a proxy for risk. ...
Coincidentally, last week I had a guy ask me what I thought about the Ray Dalio "All Weather" portfolio, said to minimize volatility. It certainly does that; over the last 10 years a total US market fund had an SD of 14.28 vs his 5.8. But the cost of that stability was huge! 12.37% CAGR for the US market vs 8.47% for Dalio. Is low volatility worth paying that much for? I guess some people think so.