Quote:
Originally Posted by al76slc
I protested that a perfect hedge would not allow making any money, because money made on the one side would be lost on the other. They assured me that this genius had found a way to spot market inefficiencies and, indeed, to make money off a perfect hedge.
http://www.nytimes.com/2008/12/28/business/28every.html?_r=1&em |
This is a great article. I particularly like the above sentiment.
It makes the case that I'm always making about the value of index funds. Everybody wants to beat the market, but the fact that is over the long term, almost nobody does. As measured over 15 year intervals, something like only 4% of all mutual funds beat the S&P 500 index.
While I'm on my soap box, Ben Stein's piece leads me to want to make to basic points about the markets and investing:
1. Investing is a zero sum game.
Investors as a whole make up the market, so as a group, investors can do no better than the market itself. If one investor outperforms the market, another one must underperform it by a like amount.
2. Financial markets are efficient.
Information is so readily available, especially about large U.S. companies, that it’s tough for any fund manager to sustain a performance edge over the long term. Some markets are less efficient (international and U.S. small capitalization companies), but they tend to have higher costs, which diminish their returns.