FT carries a terrific interview with Eugene Fama, Nobel Laureate and author of the concept of "efficent markets". that idea that market prices capture all the information that is available, so they are right. Meaning, it's hard for investors to beat the market. The best thing to do for investors, therefore, is to simply invest in passive funds, that is, funds that mimic the broad market.
The fundamental inference has proved right over the past several decades:
The latest data from S&P Global, a company that produces financial benchmarks, indicates that less than 10 per cent of American stockpickers and under 20 per cent of British ones have beaten the market during the past decade. The numbers are similar elsewhere in the world, and get worse the longer the timeframe. This is a major reason why trillions of dollars keep gushing out of traditional, actively managed funds and into cheap, passively managed ones.
Why do people keep investing in mutual funds that manage funds actively? Well, every investor hopes he has found the 10 per cent of fund managers who outperform the market.
Fama concedes that sometimes market prices may not be right but that doesn't disprove the basic hypothesis. For the most part, it's hard to beat the market. Stock pickers who claim otherwise are plain wrong. Fama has a great quote for them:
I’d compare stock pickers to astrologers, but I don’t want to bad-mouth the astrologers.
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