We'll see how my little experiment works out. My goal - create a place where lots of varied content relating to evidence-based investing or "passive" investing can be found. Please use my e-mail at the bottom to alert me to additional content.
Introduction
What is evidence-based investing? If we analyze market data going back as far as we have accurate information - there are a few persistent trends that are statistically significant: Stocks beat bonds, value beats growth, small beats large, higher profitability beats lower profitability.
What about "sage" investors who have the Midas touch? There are investment managers, a rare few among thousands that have had amazing streaks of investment success. But when studied, their efforts are not able to be identified with science/statistics as skill. If you put 100,000 people in a stadium flipping coins, about 80 people can toss 10 consecutive heads or ten consecutive tails. Skill or luck? No one talks about the investment managers that lost, whose funds were shut down due to performance or ineffective marketing. It's important to say; you can only benefit if you find the successful active investment manager before their winning streak. This is future not present or past.
Can I choose one of these managers whether they are lucky or skillful? Of course it's possible! However, you have two daunting obstacles in your quest to find and experience 30 future years of that winning manager - and you won't know if you've been successful until after the fact! Building wealth happens through compounding over many years. Let's say our investing time horizon is 30 years. So you must find the manager and stick with them over 30 years.
First daunting obstacle: One day one you must choose the winning investment manager and no matter how hard you work at it, you don't know if you made the right choice until 30 years later. The winner will go through peaks and valleys which leads to the next obstacle..
Daunting obstacle #2: You must have amazing discipline and confidence to stick with your chosen winner even during his/her most steep drops. These winners are winners because they are picking winners - diversification is low and volatility is high. It will get wild by default. Will you have the discipline to tell yourself "I know I made the right choice" when your portfolio goes down by 40% in one brief time period? In 30 years you're likely to have 4 or 5 of very difficult time periods.
You have to overcome not just one, but BOTH of these daunting obstacles. Think you can do it? Highly doubtful if not completely impossible.
"Owning the Haystack": Think of the universe of stocks as a "haystack" - how do you find the needles in the haystack - the next "Apple"? Well, the truth - it's mostly luck - just as finding a needle in a haystack is lucky. How do you find the "next Apple"? Own the haystack!
Your humble blogger has spoken - now on to a plethora of evidence-based investing content - not necessarily in any order. Around March 1, 2015 just getting started....
Please find below videos on Professor Kenneth French on Identifying Superior Managers, French again on “Is it a Good Time for Active Investing and finally Weston Wellington with Robin Powell on various aspect of how to view Active Managers and their work n different markets.
Robin Powell (Sensible Investing) and DFA's Weston Wellington