Can anyone in the world beat the market?

[Brad243480]

I understand how skeptical Harry Browne was and I love it.  But does anyone else have a hard time not thinking that there are SOME people, maybe only 25 in the world, whatever, who can beat the market?  Some of these hedge fund managers and their annualized returns over a long period of time is hard to discredit (Ed Thorp comes to mind).  What about Buffett, Soros, and the like...what would Browne say about this question?

[herbgoat]

He would say, "The moment you decide to invest YOUR money with this manager, it will start to underperform."

[Pkg Man]

I agree with Herbgoat.  I would certainly allow for the possibility, but it could also just be plain luck that explains their performance.  What is even more important is that I think the odds of me finding a person who can consistently beat the market are infinitesimally smaller than the mere existence of such a person.

[MediumTex]

There are undoubtedly people who can beat the market, they are just hard to identify before the fact.

Warren Buffett is clearly a gifted investor, but he was in his 60s before the rest of the world began to notice. Since Warren Buffett became a household name, BRK's performance has been much less impressive.

I always chuckle when I hear a story of the guy who started in the mailroom and became the CEO.  The moral of the story seems to be that anyone who starts in the mailroom might one day become the CEO, but the fact is that there may have been 10,000 mailroom workers and if only one ever became CEO then those are pretty crappy odds.

It's hard to pick winners before the fact.

[Otto]

...what would Browne say about this question?

He also mentioned that these people have a lot of talent and spend years developing that talent. Most people simply aren't going to function at that level.

Thorp is a mathematical genius. Buffett is a brilliant businessman. Soros is...well, I'm not sure what Soros is, but he's not like other people.

So Browne didn't rule out the possibility of unusual skill, but he did emphasize that it was more unusual than a lot of people think.

It's also hard for the rest of us to identify these people until they've been successful for several decades.

[Otto]

I always chuckle when I hear a story of the guy who started in the mailroom and became the CEO.

Hey, I worked in a mailroom when I was 17. And now you're telling me it might not pay off?

9 months of my life down the drain...

[Brad243480]

Yeah, it was really just more of a philosophical question.  I didn't know if Browne believed that the ability to beat the market existed in anyone.  Either way, the point is irrelevant for whether or not I should implement a permanent portfolio.  There is ZERO chance that I can consistently beat the market or find someone who can.

[Plurimus]

Soros and Buffett sort of have an advantage other us normal mortal investor.
I believe Soros ex-fund had in the early 90s a bet against the British pound that was bigger than the Central Bank of England could afford to balance off.
Buffett can approach and get information from any company that we would never see.

And then any system and rule must have some outliers and exceptions and maybe those 2 guys are exactly such exceptions 

[MediumTex]

And then any system and rule must have some outliers and exceptions and maybe those 2 guys are exactly such exceptions 

There are clearly outliers, but there is no way to know which ones they will be while the betting window is still open.

[Plurimus]

There are clearly outliers, but there is no way to know which ones they will be while the betting window is still open.

I fully agree

[travelingheelfan]

It takes work (lots of it), skill, and some luck but I have the opinion that some people can beat the market.  I use to dance in and out of individual equities when I was single and had the time to keep up with that type of portfolio.  Since I've gotten married and had children, I don't have the time to devote to that type of investing anymore.  To be quite honest, I don't want to go back to that type of investing.  I think my time can be spent much more productively than staring at a bunch of squiggly lines on a computer screen.

[MediumTex]

It takes work (lots of it), skill, and some luck but I have the opinion that some people can beat the market...I think my time can be spent much more productively than staring at a bunch of squiggly lines on a computer screen.

If the market can be beaten, what could be more productive than staring at the squiggly lines?

If the market can't be beaten in any reliable manner I would agree with you that staring at the lines is a waste of time.

[travelingheelfan]

MT,

To answer your question,

If the market can be beaten, what could be more productive than staring at the squiggly lines?

Spending time with my family is the main thing.  Tomorrow's not guaranteed.  The returns I got when investing in individual equities was only a little higher than if I had implemented the PP but it was like having an additional job.  To me, the additional work and risk involved by having an equity heavy portfolio was not worth the time I was putting into it. 

[MediumTex]

Spending time with my family is the main thing.  Tomorrow's not guaranteed.  The returns I got when investing in individual equities was only a little higher than if I had implemented the PP but it was like having an additional job.  To me, the additional work and risk involved by having an equity heavy portfolio was not worth the time I was putting into it. 

I think that is a wonderful stand-alone statement for why the PP is such a great alternative to conventional investment wisdom.

I think the part of the PP story that doesn't get told enough is how much less stressful it is than almost any other approach to investing.

[moda0306]

Well when you think of the additional risk one takes on when they break a VTI-esque index fund into a specific sector or size, or especially a specific stock, add that to the tax implications of moving in and out as the "underpriced" stock or fund moves into "overpriced," and you'll realize that between the two of those it's a fruitless effort to time the market and especially to pick the individual winners and losers.  You are basically throwing out the window all the tax-deferral and risk-spreading advantage that our tax-code and efficient securities market gives you (to be able to invest in a total stock market type fund gets laughed at by some but should be awed for its ability to improve the risk-adjusted return of its individual securities... more than the sum of its parts... like the PP)

I think it's the same part of our brain that wants to gamble that makes people do this.  Everyone knows we probably won't see a single year better than maybe 35% gains out of the VTI, but if you break it down to a hot sector or single stock... penny stock, even better... you could double, triple, quadracentuple your money so fast!!  Though somehow the billions of dollars floating around out there has somehow vastly underpriced the risk-adjusted return of this penny stock that you're looking at on your HP... but you sell cars for a living, so you know a thing or two about finance.  It's so much more obvious to me now when I see my friends try to do this stuff, with individual stocks no less, because they like a few ratios that they read about or heard from a friend are the "magic ratios."

The wise tortoise wins the race, fellas.