[Poofler]

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Welcome to the effiecient market theory and its effects. With the exception of the above noted complex strategies, eg. covered calls, other derivatives, hedge funds etc. it is difficult to beat the indices, especially after the transaction costs of an actively traded portfolio.

Large, sophisticated investors, such as pension funds, are beginning to move away from traditional equity investments and replace them with "portable alpha" funds, basically funds of hedge funds. They have been successful at beating the indices during the bull market, but I wonder how well they have fared the last few weeks. Portable alpha managers claim to reduce volatility, but increase the mean return..ie raising but shortening a bar graph of probable returns. In the relatively stable markets up until now, Ive generally seen return improvements of 2-3% per year in up periods, and 1/2 to 1% less losses in down periods. The question is how do they fare during the roller coaster ride.

Oh...I also agree with the above that political leanings would not affect those general principles. However, political leanings may affect your decision to move in or out of the market for substantial portions of your portfolio. eg, I dont think a Democratic victory in '08 if full priced into the market yet, but will be around the time of the early primaries. I will be out of the market in a big way at that point, or, more accurately start taking hedged short positions unless something big happens between now and then to reduce the likelihood of a Democratic sweep.

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I worked for one of those funds of funds. We dealt nearly exclusively with the top 1% of performers, globally - who were consistently very very good after joining the matrix, down or up market. I don't remember the numbers off-hand, but the roller coaster scenario was a concern and I seem to recall the funds still easily beating traditional index investments in those situations as well. Of course, smaller sample size. And all of this is moot for the typical investor anyway, who doesn't have 25 million lying around.

I'm not a terribly strong believer in the efficient market hypothesis. Everyone's running the same fundamentals, but I certainly believe there are traditional manager minds out there who understand the psychology of it better than the vast majority of investors - and the real cream of the crop can fairly consistently beat the market with a concentrated approach - beyond the added costs of more volatility. And, they are not found managing mutual funds.