corn18
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I like trains.
Why I believe we are about to embark on a historic bull market run
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RetiredAtThirty-eight
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If you believe authors who tell you you cannot do something, you will be proven right.
Because you can never succeed at anything you believe you cannot succeed at. I don't read for people to tell me what I can't do, I read to learn how to do it! For those of you with a similar bent and open mind, I will note that most of my learnings from books falls more on the side of what not to do. And brokerage analysts are mostly useful as contrarian indicators.
A little snark doesn't bother me but it's pushing the boundaries of the forum rules and I would like this thread to continue to have a long life, so I would appreciate it if you would leave the snark behind.
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flintnational
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If I believed it was possible for skilled individuals to outperform the market (risk adjusted). there are still at least two reasons why personally I would not try.
1) If there are excess returns available to the skilled, they would not come to me. They would go to folks like Goldman Sachs or the Yale endowment. They have staffs of MBA's that do research full time. They also have super computers and vast sums of money to exploit any inefficiencies. I have none of these.
2) I would find the individual that is best at achieving superior results and give them my money. It would still not make sense for me to do the investing. If skill is the prerequisite, surely there is someone more skilled than I am.
1) If there are excess returns available to the skilled, they would not come to me. They would go to folks like Goldman Sachs or the Yale endowment. They have staffs of MBA's that do research full time. They also have super computers and vast sums of money to exploit any inefficiencies. I have none of these.
2) I would find the individual that is best at achieving superior results and give them my money. It would still not make sense for me to do the investing. If skill is the prerequisite, surely there is someone more skilled than I am.
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corn18
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Trying to beat the market is not for everyone and definitely not for me. I am too emotional and spastic. When I tried it, I bought high and panic sold low. For those that are successful, I couldn't be happier.
I am in total agreement that almost all investors should just buy the market.
However, I believe it a bit ridiculous to not believe some individuals are actually very good at picking stocks.
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OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well said. The academics are very careful to observe that they cannot say there are no people with investing skills, only that they have not been able to find any. Very rigorous, those guys. I have seen a video where Fama is bemoaning the fact that he only has 100 years of data available for this type of analysis.
To your point #1, I think anyone with such skills would quickly leave the world of suits and salaries to lounge at his/her yacht swimming pool or private tropical island. There would be no reason for them to remain employed. (Nor to hang around internet forums, for that matter.)
To your point #2, the same difficulty applies. No reason for skilled folks, if they exist, to go to work for us. They wouldn't need us.
The French video that I linked above ( https://famafrench.dimensional.com/videos/identifying-superior-managers.aspx ) basically makes your points. The paper he refers to is here: "Luck Versus Skill in the Cross Section of Mutual Fund Returns" :https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1356021 It's 43 pages and the dense mathematics stops me after the first few. From the abstract:
"For fund investors the simulation results are disheartening. When α [alpha] is estimated on net returns to investors, the cross-section of precision-adjusted α estimates, t(α), suggests that few active funds produce benchmark adjusted expected returns that cover their costs. Thus, if many managers have sufficient skill to cover costs, they are hidden by the mass of managers with insufficient skill."
The other problem being, of course, how to identify a manager who will be a winner five or ten years from now even if you can identify them in the rear view mirror.
Finally, you mention the Yale Endowment. I just finished reading David Swensen's "Unconventional Success, A Fundamental Approach to Personal Investment" twice. (Swensen runs the Yale Endowment.) It's 15 years old and I bought it to see how his former opinions might have panned out. That didn't turn out to be the most interesting part, though. After recommending the passive approach as most experts do, he peels the cost onion in very interesting ways. For example, he explains why the Russell 1000 is a particularly bad index to track. There is also quite a bit of detail on the innards of ETFs. The book carries its age well. I recommend it for those who want to supplement Malkiel, Ellis, et al.
Do you believe there are people that do not work in the Investment world that are just very good at picking stocks?
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well, there's no way to prove a negative. IOW no way to prove that such people do not exist. The problem is that stock prices are very close to being a perfectly random process. And no amount of skill can predict random behavior.
I think the hard lift for us in buying the randomness/no possible skill situation is that we mostly think of situations which are not random and for which skill is important. Sports and music are the easy examples, but science, teaching, auto racing, etc. are among the many other examples. Investing is more like a trout stream. While it is true that we understand the mechanics of incompressible fluid flow well enough to know that the stream's behavior is not random, as a practical matter it is random and no one can predict from one ripple to the next. We do, however, know the general direction of the stream. Hence, buy-and-hold works.
That said, randomness can deceive us into seeing patterns. Lots of books discussing this. Taleb's "Fooled by Randomness" is pretty good and he's enough of a lunatic to be quite funny at times. I've recently read "The Drunkard's Walk, How Randomness Rules our Lives" by Leonard Mlodniow. That one is pretty good, especially if you don't like Taleb's style.
You mention Buffett. I don't know much about your other guys but I have read both Buffett bios and find him to be a very interesting guy. He learned under Ben Graham and they looked for extreme value stocks they called "cigar butts." But it was not stock picking. Buffett bought and ran companies -- a very different thing than stock picking. If you haven't, I encourage you to read both of them (Lowenstein and Schroeder). Quite fun. As a stock picker I don't think he's achieved his benchmark for close to ten years.
If everything was just random and nobody had the ability to analyze a company to determine whether it had an excellent probability of success, why are there so many very wealthy people.
Nobody can go 50 for 50 but it is just nonsense to think there are not people much better at it than others. Just like baseball, there are guys that hit .225 and guys that hit .325
Nobody can go 50 for 50 but it is just nonsense to think there are not people much better at it than others. Just like baseball, there are guys that hit .225 and guys that hit .325
It can be valuable when, emotions ramp up, to not step back, but instead dive deep. Why the emotion? Why the discomfort? Because snark is but a mental emotional response, maybe even more typically male (taking a guess here), than maybe a female response which is straight-up emotion. What is triggering such a response, if one is so confident in one’s correctness, why the need to repeatedly state and prove one’s correctness? Could it be that the challenge has some ground?
If it does, time will tell. If it doesn’t, time will also tell. Throughout the ages, advant garde thinkers were derided and reviled. Everyone knows the examples of Copernicus, Galileo, et al. Remember Bezos 20y ago? We like to say “think outside of the box,” but that’s not really acceptable, is it? Because thinking outside of the box, challenges everyone who chooses to remain in the box. When in fact, the box becomes an echo chamber, re-affirming and confirming, comforting.
Ultimately, maybe the better question is not which is the more effective investment strategy, but why one would be so invested that others adopt and swear allegiance to one’s beliefs. Because it is... a belief. There is not as of yet, a law, or laws of investing (in the scientific definition of law).
But this is just your assumption, correct? Because even if you knew x # personally, this would be just your personal sample size, self-selected. It would be impossible for 1 human being, with only 1 perspective, to understand the motivation, or even begin to assume the motivations of an entire world.
I don’t know about auto racing, but surely there is plenty of randomness in even the most skill-requiring field. The history of neurosurgery would have been written very differently if Harvey Cushing was born instead a Harriet. Pretty sure Rosalind Franklin felt there was a lot of luck and randomness in science. My point being that the end product, extrapolated to just about anything, has degrees of luck, randomness, and skill.
This thread is about trying to maximize the last, to the greatest degree, but not denying the existence of the first 2.
UnrealizedPotential
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Old shooter has a right to his opinion , but it's just his opinion. I don't agree with him on the issue and we can debate this until the cows come home, but no one will change their minds and it is veering away from the thread title. Life is too short to argue with those who have already made up their minds about something.
I would be interested to read that paper you are referencing, maybe you could provide a link. I have read quite a bit on MPT and Markowitz's work. I have not seen any work by him that proposed random walk theory.
Motley Fool is using a variety of metrics, depending on type of company. Fast growing ones they prefer Gross Revenue per employee or gross profit. They care nothing for net profit since amazon reinvestors have no net profit. They also look at capital allocation and return on capital.
We witness a confluence of worldwide Weimar-style currency destruction by the empires du jour, combined with a profound transformation of business, communication, health... Basically everything that has been promised about the internet is coming true, worldwide, in the next few years. All the developed countries plus the vast majority of everyone else. All 9 billion of us in one big room. The first worldwide market. Get ready! Meanwhile I will run toward functioning future businesses that will survive the transition/schism and ride the tidal wave of government money. The elites worldwide are printing furiously to stay in power and maintain their position. Precarious perch.
We witness a confluence of worldwide Weimar-style currency destruction by the empires du jour, combined with a profound transformation of business, communication, health... Basically everything that has been promised about the internet is coming true, worldwide, in the next few years. All the developed countries plus the vast majority of everyone else. All 9 billion of us in one big room. The first worldwide market. Get ready! Meanwhile I will run toward functioning future businesses that will survive the transition/schism and ride the tidal wave of government money. The elites worldwide are printing furiously to stay in power and maintain their position. Precarious perch.
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Well that's not a word I would have used but I guess I could say it is also my "opinion" that the earth is an oblate spheroid. I have made none of my own measurements and from my personal limited view I would say it has always looked flat to me, but I go with the settled science. If you are interested in this discussion, here is a great video of Fama kind of in the den of lions: "Investors from the moon.":https://www.top1000funds.com/2015/12/investors-from-the-moon-fama/ In the five years since the video, the stock pickers have still failed to excel; In the video Fama mentions that about 30% of the market is passive. IIRC it is now 50-60%.
Oh, I don't know that he has ever said "random walk," but his mean-variance approach assumes prices are random further idealizing things by assuming their distribution is Gaussian. This allows practitioners to calculate standard deviations and even to use them to make predictions of what is clearly not a Gaussian distribution. That is why the "100 year pullback" seems to come along so often.
UnrealizedPotential
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Old shooter,
Are you ever wrong? Or do you make up your mind and then find people who agree with you and then ignore everything else? I mean really. I have read your opinion of Warren Buffett. I find it rubbish. Why is so hard for you to accept that there are successful stock pickers out there? Is it against your religion or something? This is my last post on this topic because it is a waste of my time.
Are you ever wrong? Or do you make up your mind and then find people who agree with you and then ignore everything else? I mean really. I have read your opinion of Warren Buffett. I find it rubbish. Why is so hard for you to accept that there are successful stock pickers out there? Is it against your religion or something? This is my last post on this topic because it is a waste of my time.
Thanks for the interesting discussion. 
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