tag:blogger.com,1999:blog-5465015914589377788.post8781161139267578855..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Winning the Loser’s GameMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-5465015914589377788.post-37389678211706269032009-12-22T10:59:06.360-05:002009-12-22T10:59:06.360-05:00Canadian Investor: The study you cite was conducte...Canadian Investor: The study you cite was conducted with 11 years of data on the Oslo stock exchange. Ellis claims that it takes several decades to get statistically-significant evidence of alpha. Ellis also says that alpha existed a few decades ago when pros didn't dominate markets. I wonder if pros currently dominate the Oslo exchange. In any case, the study you cite seems to disagree with others (who are at least as credible) who say that alpha among individual investors doesn't exist (or is extremely rare). I'm not completely convinced either way yet.<br /><br />I can see where efficient market theory seems like a paradox, but I think it can be resolved. Pricing errors do exist, but are very small because of the efforts of experts.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-11252559770556006872009-12-22T10:42:49.467-05:002009-12-22T10:42:49.467-05:002 Cents: It's always possible for non-pros to...2 Cents: It's always possible for non-pros to outperform the market by luck. Ellis is saying that non-pros have no expectation of outperforming. The way he phrases it is that they cannot have sustained outperformance.<br /><br />I'm not sure what Ellis thinks of advisors. He may have said something about this, but I can't remember reading anything. He is certainly down on added costs, and he thinks that investors need to set their investing policy to avoid future bad emotional decisions. Perhaps a by-the-hour advisor could help set investing policy, but that may undermine the investor's ability to keep emotions in check. If the investor doesn't take the time to understand how to use indexing effectively and develop his own simple policy plan, can we really expect him to react reasonably to the next bear market?Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-26866914065672679242009-12-22T10:41:30.962-05:002009-12-22T10:41:30.962-05:00There has actually been a study of retail investor...There has actually been a study of retail investors which showed them outperforming the market. see my post reporting this here http://canadianfinancialdiy.blogspot.com/2007/10/individual-investors-can-outperform.html<br /><br />The efficient market theory seems like the efficient market paradox: the market is efficient as a whole only if smart investors, whether individual or institutional, find inefficiencies and exploit them, making excess profit. If I understand efficient market theory correctly it only says there is no systematic bias in under- or over-pricing, not that there is never any under- or over-pricing, and that it is hard to tell the difference between the two.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-44302738210672555942009-12-22T09:24:02.602-05:002009-12-22T09:24:02.602-05:00I am also skeptical of the idea that non-pros can&...I am also skeptical of the idea that non-pros can't ever beat the market. I would agree that it's difficult, and perhaps uncommon, but never?<br /><br />I do like the ETF approach and I think there are lots of ways for regular folks to manage their own investments without professional help. What is his position on whether to use an advisor or not?<br /><br />Thanks for the detailed review. I'm putting this one on my reading list.2 Centshttp://www.balancejunkie.comnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-11003538464218339292009-12-22T04:50:44.318-05:002009-12-22T04:50:44.318-05:00Gene: I've read in several places the ideas t...Gene: I've read in several places the ideas that small investors can win in small stocks and by taking a longer-term view. I used to believe it, but now I'm not so sure. There must be some professionally-managed money that thinks long-term, and how many public companies are there that are so small that all professional money ignores them? I'm still thinking about this one.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-73668046095342264642009-12-22T02:23:19.673-05:002009-12-22T02:23:19.673-05:00I sort of disagree with his idea that ordinary peo...I sort of disagree with his idea that ordinary people can't beat the market. Professionals generally invest based on a short-term investment horizon. If an investor can spot a quality company with serious, but temporary problems, he may be able to pick it up cheaply.<br /><br />Also, there are many small companies that professionals cannot really invest in due to limited liquidity. A small investor can wade in these waters to chase the fish the sharks can't get.<br /><br />I largely agree though, that most people should just invest in index funds and do something more fun or productive with their free time.genehttps://www.blogger.com/profile/05608927986297939720noreply@blogger.com