Pragmatic Capitalism

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Indexing is Average

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> It’s been well established that picking stocks is very, very difficult.¹ In fact, it’s so difficult that
> 92% of the professionals can’t beat an index consistently.

It’s a classic case of GIGO that has become a self-reinforcing faux truthism. The reality is professionals DO pick stocks that outperform which is why they’re paid large salaries on Wall Street (what, you think they would pay that such for 92% incompetence?). But where does all that outperformance actually go? It’s completely whittled away by institutional frictions of their employers. That’s the real tragedy here.

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Posted by MachineGhost
Posted on 02/11/2017 6:26 PM
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Well, we do know that pros beat retail investors. But that’s only because we know that retail investors hold a lot of cash while pros hold much less cash. But the pros piss their alpha away by then charging the retail investor too much in fees. And since it’s the retail investor who pays that it’s their direct underperformance that makes the managers rich for underperforming. This isn’t a “faux truthism”. It’s a well established fact.

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Cullen Roche Posted by Cullen Roche
Answered on 02/11/2017 7:04 PM