After costs, only the top 3% of managers produce a return that indicates they have sufficient skill to just cover their costs, which means that going forward, and despite extraordinary past returns, even the top performers are expected to be only as good as a low-cost passive index fund. The other 97% can be expected to do worse.
Eugene Fama
In an efficient market, at any point in time, the actual price of a security will be a good estimate of its intrinsic value.
Active investment is a zero-sum game. Passive managers don't play the game. They buy something resembling the market as a whole, or some segment of the market, and they don't respond to the actions of active managers.
With less regulation, I think you would see growth come back. Of course, there are situations where you need regulation. Antitrust regulation, for example, is a good idea because you want competition. But beyond that, it gets very difficult.
State constitutions typically provide that the state first has to service its debt, then make it pension payments, and then pay for services. What we don't know is whether that order will be enforced. And ultimately, the busted state is going to be looking to the federal government for a bailout. Think Greece, but on a much bigger scale.
I don't believe anyone wants to hear what I have to say.
The investors who generate big returns over five years, the guys they write books about, are supposed to keep winning, right? Well, they don't.
Economies typically do not function well in hyperinflation. The real value of government debt might disappear, but the economy is likely to disappear with it.
An investor doesn't have a prayer of picking a manager that can deliver true alpha.
Market timing doesn't work. If all the bubbles and all this mispricing really exist, how come so few people see it before it turns out that way?
All the central banks are doing is substituting one form of debt with another form of debt. They're issuing short term debt and using it to buy long term debt. In finance, we tend to think that's a neutral activity, even though those stimulus programs are huge.
I'm an extreme libertarian, but I realize we're in a democracy, and in a democracy, people can have views of all stripes, and there's no reason to argue about it.
I don't know what a credit bubble means. I don't even know what a bubble means. These words have become popular. I don't think they have any meaning.
The proposition is that prices reflect all available information, which in simple terms means since prices reflect all available information, there's no way to beat the market.
Everybody wants the world to be a better place, and some think that government actions can bring that about. But they don't take into consideration that government actions can often do more harm than good.
People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.
I buy the market through index funds. Since I'm getting older, I buy TIPS.
In my junior year in college, I was getting kind of tired of French. So, I took an economics course, and I loved it. The rest of my two years in college I spent in economics.
After 2008, my brand of finance got a bad rap.
The problem that people don't understand is that active managers, almost by definition, have to be poorly diversified. Otherwise, they're not really active. They have to make bets. What that means is there's a huge dispersion of outcomes that are totally consistent with just chance. There's no skill involved it. It's just good luck or bad luck.
People think rationally that the world really is more risky. Imagine in 2008 that investors thought there was a 10% chance we'd have a depression. That would partly justify the drop in prices.
Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity.
People don't walk away from their homes unless they can't make the payments. That's an indication that we are in a recession.
There's quite a bit of evidence that even professionals don't show any ability to pick stocks or to predict market rollbacks. Most of the people we identify as skilled based on returns have probably just been lucky.
I think bubbles are things people see with 20/20 hindsight. If you look at any particular period where prices go up and then they go down, you will always find people who predicted that they would go down. Those are the people you pay attention to.
If you go back to the late '50s, there really was nothing called "academic finance." Well, there was something being taught in business schools as finance, but it really had no strong research underpinnings.
Tastes and behavior are important in economics. Nobody denies that. But the question is: How much of behavior is irrational, and how much of the irrational behavior really affects prices? It turns out that's very difficult to answer.
