It is really remarkable how, in just about every other field besides investing imaginable, skill, education, accomplishment and hard work are required at the elite levels. But in investing, picking index funds and then leaving them the heck alone for decades, with the possible exception of rebalancing, is a proven and repeatable method for an average person to absolutely crush the pros over the long run ...
Yes. It certainly seems that way. But try this:
Imagine a flowing trout stream. Ripples, eddies, waves lapping gently on the shore. Relax for a moment and enjoy this thing of beauty. Now suppose that you would like a prediction of the exact state of the stream an hour from now; all the ripples, eddies, and waves. Would you expect to find an expert rippleologist with skill, education, and accomplishments who could give you that information? I don't think so. Why? Because the stream behavior is random. No one can predict the results of a random process.
But is the behavior truly random? Well, we understand the physics of incompressible fluid flows very well, so why can't the rippleologist just calculate the future state? Here's why: To calculate a future state the rippleologist would have to know the sream's current state very exactly -- probably millions of parameter values. The problem is too complex by many orders of magnitude. The stream is
effectively random.
As I said a couple of posts ago, if one accepts the almost-unacceptable fact that market's behavior is effectively random, then it is not remarkable at all that no one can predict it. Or turn the coin over: The fact that no one can predict the market's behavior is solid evidence that it
is effectively random.
But that's not quite the end of the story. We have to look at the distribution of values in the random process. Fat tails, particularly the left tail, lead to lots of excitement but are not of much interest to a long-term investor. The thing that
is of interest is the fact that the distribution is not centered on zero like a classic bell curve. If it were, there would be no sense in investing because prices would never go anywhere. It isn't, though. It drifts to the right (higher prices) at something like 7% +/- per year. That's why long term investing works.
So, ... why does it drift to the right? It drifts because this is not some mathematical game. Underneath all the furor of the market is the fact that we are talking about owning shares in enterprises with employees who are working diligently to make the profits that move the share prices rightwards. Not all the enterprises make profits, of course, and many of them don't even survive. But the net effect of all of them is that 7% rightwards movement.
This is how I have come to understand the apparently-remarkable situation you describe.
