CingularDuality

And yet, I named a mutual fund that is up 40% for the year...

You can ignore the lesson if you wish, but I'll not.

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TacticalGamer TX LAN/BBQ Veteran:

xTYBALTx

USNSquid is up 40% in two months. And there are a lot more mutual funds to choose from than there are TG members playing in this league.

I'm not saying that I'd trust my money to Squid (sorry!) or myself over a mutual fund. I'm saying that I'd probably rather put it in an ETF/Index Fund than a mutual fund. And I'm also pointing out the unpredictable nature of any/all of these funds. They might rise 10%/year for ten years, they might stay flat for ten years, they might drop for ten years (the S&P500 is down 10.3% since the year 2000).

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CingularDuality

Ah, see, I wasn't hearing that from you. I'll agree that there can be debate over which of the two types of funds are better, but all I was hearing in this thread was talk of "beating the market". I don't think your average investor can beat the market without simply being lucky.

Index funds vs. mutual funds will be another thread another day.

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TacticalGamer TX LAN/BBQ Veteran:

Sabre_Tooth_Tigger

You can beat the market with a index tracker fund, the skill then becomes knowing when to get in and get out, hopefully you get it the right way round by going up not down


My current theory is to use indexes abroad but employ more personal investment and increase risks closer to home

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xTYBALTx

My point was that no investor, average or otherwise, can beat the market without being lucky - unless they use illegal methods such as insider trading or manipulation.

In finance, the efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information. The efficient-market hypothesis states that it is impossible to consistently outperform the market by using any information that the market already knows, except through luck. Information or news in the EMH is defined as anything that may affect prices that is unknowable in the present and thus appears randomly in the future.

http://en.wikipedia.org/wiki/Efficient_markets_theory

The efficient markets hypothesis is highly contested, and while probably not absolutely true - ie, there certainly are inefficiencies in the market which can be exploited - it is most likely "mostly true," ie close enough to truth to be true for most intents and purposes.

Finally, now that the markets have opened and the bear has roared yet again, Tybalt too is beating the market. Fat fingered trades and all. So that's at least three TG traders doing better than the S&P500/DJIA. We should expect about 50% of TG traders to do better than, and 50% worse than the market.

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CingularDuality

Hmmm... Well, there are some funds that have been lucky for over 50 years. That sure seems less like luck, and more like a positive trend to me.

Your efficient markets theory ignores the fact that mutual funds aren't limited to a single market. A fund might shift its assets from stocks in one industry, to a commodity, to stocks in another industry, depending on the market. In doing so, the fund can certainly beat the average of the combined markets.

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TacticalGamer TX LAN/BBQ Veteran:

USN_Squid

You may just want to hold a Dow/S&P/Nasdaq index fund. They seem to be pretty lucky:

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xTYBALTx

The fact that some funds are able to beat the market year after year would be interesting were it not for the presence of all those other funds which fail to beat the market year after year. If you have 10,000 traders, half of whom beat the market every year and half of whom fail to beat the market every year, then after ten years, about ten of them would be expected to have beaten the market every single year. All due to chance - but you can bet the house that those ten traders certainly wouldn't chalk their success up to pure chance!

I'd like to know which fund has beaten the market for fifty consecutive years. I'm not saying it's never happened, but even the vaunted Berkshire Hathaway failed to beat the market in the following years: 1967, 1975, 1980, 1999, (19 straight years! wow!), 2003, 2004, and most likely 2008.

The efficient markets theory does not apply only to the NYSE. It should apply to most all well regulated highly liquid markets. So yes, it does account for the fact that mutual funds are able to switch trading markets - between stocks, options, currencies, commodities, and foreign exchanges. And as Squid and I have pointed out, it's not clear at all that mutual funds in general are better investments than index funds (index funds mirror the market - they don't even attempt to beat the market, just to match it).

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CingularDuality

But you don't have to purchase funds that fail to beat the market year after year! You can purchase funds that have a 50 year track record of averaging over 10%!

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TacticalGamer TX LAN/BBQ Veteran:

xTYBALTx

A wildly successful firm... A fund such as Berkshire Hathaway, perhaps? Which is down something like 10% this year?

There's a saying in finance, "Past performance is not indicative of future results." The efficient markets theory actually predicts the existence of funds/firms/traders whom beat the market: Since there are a huge number of market actors, some number of them are bound strictly by chance to be successful year after year. What efficient markets theory brings to the party is the idea that these successful actors are actually lucky actors.

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CingularDuality

There are dozens of them, run by different companies...

Like I said, if a fund has been "lucky" for over 50 years, I'm willing to consider that it's more likely a trend.

Look at what all of you are doing here in this thread. Listening to leejo's advice to try to become elite traders. He gave a lot of good advice that many of us had never considered before, right? Now consider the fact that fund managers know more about the markets than leejo has forgotten. That's the key to mutual funds.

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TacticalGamer TX LAN/BBQ Veteran:

Hambergler

This article says a common statistic is that index funds have outperformed mutual funds by 80%. I haven't been able to find hard data. One thing to keep in mind is there were only about 300 mutual funds in 1970 and index funds did not become a commercial product until 1976. So they were very diffrent products back then.

http://www.investopedia.com/articles.../03/032803.asp

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CingularDuality

OK. What's your point? Are you going to invest in a poor performing fund?

Anyone know of a free site that will let you screen funds for returns past ten years? This is the best I could get from Morningstar, but it only goes back ten years: http://quicktake.morningstar.com/fun...A&Symbol=CGMFX

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TacticalGamer TX LAN/BBQ Veteran:

bkelly

Just to toss in my $.02 Tybalt, I don't agree with the efficient market hypothesis for everything. The market is very good at digesting news, so I suspect it would be almost impossible to beat the market consistently with a focus on fundamentals. Everyone knows the numbers and everyone's done the math so there is no way to get an upper hand.

However, I think the market is a poor predictor and you can make money with a better understanding of where things are going. As a friend of mine said, "Buy on the rumor; sell on the news."

For example, I had heard Nintendo was working on a video game console called "Revolution" (now known as the Wii) and I kept my eye on it. The idea it had for it's controllers seemed interesting and fun. In the summer of 2006, they showed off a demo model at E3 and the lines to try it dwarfed anything for the Playstation 3 or XBox 360. I bought Nintendo (NTDOY) shortly thereafter and the run-up has been incredible as the hype turned into news.

bkelly

xTYBALTx

Bkelly -

Like I said earlier, the efficient markets hypothesis is certainly not absolutely true. There are exceptions. And keep in mind that, according to the theory, the market creates expectations of the future which are probabilities. There is nothing wrong with expecting the markets' probabilities to be off - to suspect that the market is wrong. But I don't expect it to be a reliable strategy. One of the cool things about our league is that I get to test my own hypotheses on myself. It's kinda cool. I

Black Monday was a perfect example of the market being inefficient. Grossly inefficient! But even that inefficiency was random - I don't think anyone on earth predicted Black Monday. So long as there's no pattern to exploit, the market remains mostly random and essentially impossible to reliably beat.

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