Sunday Morning Coffee

Barron’s profiled a hedge fund manager named Jaime Rosenwald who in addition to running his fund he also teaches a graduate level course on value investing at NYU. There was one nugget in there that I thought was interesting and can be applied beyond what is stated;

By definition, most investors can’t beat the market. But market-beating practices can be taught…

We talk a lot about the extent to which many investors engage in what turns out to be self destructive (investment) behavior. At a time like now it is easy to say “of course bear markets happen” or “I can tolerate the ups and downs of the stock market or say you will avoid owning too much of a fad that then sours and implodes. Unfortunately investors panic all too often, do load up on fads that then implode, eschew discipline and generally lose their ability for rational thought when they most need it.

Just as exercising and having a moderate diet will not guarantee good long term health, taking the time to learn what the right things are and then making the effort to do the right things gives you a better chance of reaching your objective whether it is good health, a successful financial plan, hopefully both and hopefully a couple of other objectives in life.

3 Comments

  1. “By definition, most investors can’t beat the market. But market-beating practices can be taught…”

    I think generally this is true, but consistently pocketing market beating performances over time AFTER EXPENSES and TAXES has shown to be extremely rare. Better to focus on factors within an investor’s control like cost. Hence the appeal of passive investing with low expense funds.

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  2. Something in the air perhaps but there are always those shades of grey.

    Tim Harford at http://tinyurl.com/c8sppk7

    A new research paper by David McLean and Jeffrey Pontiff explicitly examines the idea that academic research into anomalies is a self-denying endeavour …after an anomaly has been published, it quickly shrinks – although it does not disappear.

    The efficient markets hypothesis is surely false. What is striking is that it is very close to being true. For the Warren Buffetts of the world, ‘almost true’ is not true at all. For the rest of us, beating the market remains an elusive dream.

    The way Harry Browne used to phrase it (lo these many moons ago) was that there are some very gifted investors and traders out there just as there are some very gifted athletes and it is not wise to emulate them unless you have evidence you possess similar gifts; i.e., it is normally better to develop a consistent strategy that helps you earn and keep what the market offers rather than try to beat it.

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  3. Markets are efficient, except for the times that they aren’t–Roger Nusbaum

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