Why you'll never be rich

[dopp16]

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Large cap, "beating" the market is damn near impossible because inefficiencies have been worked out.

However, for Small Cap and International, I definitely believe that experts with a wide range of information and contacts at their disposal can beat the markets

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There are more inefficiencies in the international and small cap markets. And most people that "beat the market" generally do so in these asset classes. It is also more difficult, however, to measure SD and therefore determine whether you are in fact beating the market.

[mo42nyy]

the fees are out the ass on ITHAX

[DesertCat]

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What you're essentially saying is that you're a believer in a strongly efficient market. I'm not, so I feel the market can be beat. What you said in your post hasn't been said over and over again before.

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It's not just an articulation of the strong efficient market hypothesis. It is also the notion that reading the time-delayed news, public filings, investment banking research, and applying Graham & Dodd doesn't work, because other "quasi public" information--unavailable to you but traded on in the market by sophisticated players--is where the alpha comes from. There's a ton of information in the market that the general investing public doesnt and can't get access to. For example, statements made by management at conferences; off-the-record conversations made by management despite the existence of Reg-FD; "flow" information from sell side traders; information from service providers like lawyers and financial advisors who will never speak with you; industry-specific information from companies like Gerson Lehrman consultants; quantitative tools that allow analysts to backtest different variables in order to set up hedges to isolate the risks they want to take on, or create pair trades; access to sell-side researchers to have qualitative conversations about issues, information, etc. not necessarily compiled in published research reports; the ability to hire outside service professionals to help advise you on indentures, bankruptcy events, litigation risk, etc. that could bear on valuation; etc. etc.


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Warren Buffett doesn't use any of this stuff. He could have access to it if he cared, but he moved back to Omaha so he could ignore people on Wall Street.

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If you tell me that you're a former research analyst, investment banker, CFA, MBA, corporate lawyer, finance academic, deep industry expert, or whatnot--fine, you might have a chance at beating the market if you work very very hard. If, on the other hand, you tell me that you're just a smart guy who got a 1520 on his SATs, went to Princeton, worked at McKinsey drawing charts, and now work at Procter & Gamble as a product line manager setting the brand strategy for small-bag potato chip distribution in academic institutions--I'll tell that you're best off trying to avoid picking winning stocks/bonds, because your smarts arent enough and you dont have access to the right information to beat the WSJ. Being able to read a financial statement, and the Wall Street Journal does not make a stock picker.

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Buffett has said you don't have to be super smart to beat the market, you have to be reasonably intelligent (120ish IQ) and have the right emotional qualities that allow you to be patient, and not get carried away by the market's swings. He has said you don't need to know much more than basic mathematics, either. His recommendation would be to learn how to read a financial statement, and read many of them along with the wall street journal, and a couple of other good papers every day.

I'm pretty sure Monish Parabai's has averaged around a 25% return, and is one of the young guys described as the next Warren Buffett. I think he takes a nap in the middle of the work day, he describes himself as a man of leisure who doesn't work too hard.

[mbsocc1346]

Low alpha?????? you want a high alpha