[DcifrThs]

[ QUOTE ]
I guess I disagree with you Barron about the necessity of believing that the market is efficient or it isn't. I see a continuum of efficiency from non-existent to strong.

[/ QUOTE ]

interesting. i've said numerous times that i believe the market is weakly efficient, thus implying a clear spectrum from 100% efficiency (which i've also used as a thought experiment in the posts above) to 0 efficiency. when i say the market isn't 100% efficient, i mean that literally and i think you'd agree. are you sure you read my post directly above?

namely where i said:
[ QUOTE ]
simply by finding exceptions, the efficient market hypothesis has been disproved. to what degree do you think the market is not efficient?

[/ QUOTE ]

[ QUOTE ]
I tend to belive that the market is more efficient than it is generally creditted to be.

[/ QUOTE ]

lets just be clear that we are talking only about equity markets, correct?

in that case, i wholeheartedly agree in the same sense that i agree that those beating the game of poker are more likely to think their skill is a larger driver than it likely is. poker is more variance than it is generally credited to be at the practitioner level.

similarly, i agree that eequity markets are more efficient (where successes are more likely to be the result of positive variance) than is generally acknowledged

[ QUOTE ]


I part from you in believing that there are massive inefficiencies. I think these are largely identified in hindsight.

[/ QUOTE ]

i don't think that is true. many people have gone bust shorting a rising market. they were correct, the stocks they were aiming at were indeed overvalued & eventually tumbled well below the levels at which the short was instituted...but those short folks couldn't ride out the storm. taking the 1990s bubble, the fed chairman even said the markets were clearly valued beyond rational pricing. the bubble in the equity market was clear, but the flows & intermarket action were driving the market ever higher despite the fundamental aspect.

so in this case, the bubble (inefficiency) was known at the time, yet it went on. that is a pretty strong case for a less efficient market than you're giving credit for.

[ QUOTE ]

I guess the reason I argue these things can be distilled to a couple of things that you can see on this board. One in fact is in this very thread.

First, I am battling claims from people who claim to 'beat the equity market', and usually claim to do so rather easily. I feel confident that the vast majority of those people don't have:

Any clue what market they are beating, or are not comparing their investments to the appropriate index. They almost always mean they achieved a return that exceeded the S+P 500.

No records to support their performance record.

Insufficient length of time to demonstrate that their positive risk adjusted returns are anything more than randomness. This is really the biggest one. For a trading strategy to prove itself it has to persist over several market cycles. I always feel foolish explaining this to poker players who accept that you need X amount of hands to show your true win rate, yet believe that two years of investing data is sufficient.

[/ QUOTE ]

i believe here that many people who claim to do it easily are wrong as you do. i have faith that DC, scorpion man, and folks like mrbaseball have indeed beaten the market b/c their apporach is sound.

taking a step away from equity markets for a second. this is analagous to picking hedge funds for institutional investors (pension funds etc.). they can't just go by returns. even 10 years of strong risk adjusted returns is not sufficient. due diligence into their process is necessary. you have to have faith in the hedge fund's process. strong risk adjusted returns over 10 years AND a strong process are likely sufficient conditions.

similarly, strong risk adjusted returns (i don't want to say that DC or the like should post their returns, but i'd bet you significant money they beat the market handily) and a strong thought process over many cycles IS extremely strong evidence of beating the equity market.

further, your post implies that there ARE people who CAN beat the market and that goes immediately to the point that the market can be beaten and is thus sufficiently NOT efficient for that to be the case. i believe, as i've said before, that the equity market is weakly efficient. that it has sufficient inefficiencies to be beaten.

[ QUOTE ]
Finally, I argue about this because I am appalled by the lousy and contradictory advice most people get when they seek it.

[/ QUOTE ]

isn't that the case in almost all endeavors? where more variance is concerned, i'd think the more likely it is that the advice on average is poor. especially when those giving the advice have financial (or other) motives for giving it.

[ QUOTE ]
Investing successfully is really very simple.

[/ QUOTE ]

not to bring this up again but if by "investing" you mean "putting your money someplace and earning market returns" then yes, investing is easy.

[ QUOTE ]
There are thousands of high cost products created and marketted to obscure that simplicity.

[/ QUOTE ]

obviously because those doing the marketing gain regardless of performance. further, those who have performed well, have better marketing and thus earn higher profits off of investors.

[ QUOTE ]
Quite simply, the vast majority of people would fare best with a properly diversified and allocated portfolio of index, or very low cost actively managed mutual funds that are invested in a way consistent with their goals and risk tolerance.

[/ QUOTE ]

that i'd take as sufficient for good results. i'd go one step further though and aim for outstanding results with passive investing and say that you can do better than just equity markets without having anybody manage anything for you and achieve a higher sharpe ratio than is available via solely index (or low cost managed quity) investing through international & inter-asset class diversification.

[ QUOTE ]

Basically, go to the Vanguard website answer some questions and you will achieve performance that is far better than your peers.

[/ QUOTE ]

well, that depends on who your peers are now doesn't it?

[ QUOTE ]


There is another tangent I have been thinking about and I think I will follow up in another thread if there is interest, but I think some of the things poker players learn helps them be better investors, and some things really hurt them. I think one of the most detrimental ideas is that to be a successful investor you have to win. In poker there must be a loser for every winner (in fact several losers for every winner).

[/ QUOTE ]

well, to take a quick point at that, i believe you are mistaken. there really only needs to be a few big losers for many winners. either way, the distribution isn't important, just that it is zero (or actually negative) sum.

[ QUOTE ]
As an investor you don't need to be smarter than the crowd.

[/ QUOTE ]

true if you are talking again solely about passive investing.

[ QUOTE ]
The rake is on your side and the more effort you apply to winning the worse you are likely to do.

[/ QUOTE ]

i very strongly disagree with that statement, as many would so long as that effort is well placed and not just going in and out of funds for no rhyme or reason chasing the best performers. learning about markets and having a passive portfolio in addition to an actively managed portfolio can be even better than just a passive one.

i'm strongly in the camp that shoving money away in a diversified passive portfolio AND having money to trade with is the way to go if you want to put in a ton of effort. i'd bet those people are the ones that fare better than the crowd or their peers if their peers are their friends and family and classmates.

specifically, when i get my money from the lovely illiquid investments that i'm temporarily regretting right now (since i don't have the money, but will obviously be quite happy when i get it), i plan on doing just that.

keeping money to trade with (actively manage aside from my passive portfolio) in large part invested in very safe assets like tbonds and waiting for opportunities to arise while studying the market. i've found good ones and wish i had a ton of money to throw at them (and many of those i've documented on this site).

that, to me, is the way to go..may not be for everyone though.

Barron