I just saw a video of michael reeves that made a fish pick stocks and compared it to listening to wall street bets. I think that the fish also outperformed the market.
If a fund manager wanted to blow the market away, his best bet would be to pick a few small caps. However, this would also increase his chances of being beaten dramatically by the index. Plus it would not make it through a committee. Thus most managed funds stay conservatively close to the index, minus fees.
Some time ago I wondered if young people might be better off putting their retirement funds in an equally weighted or small cap index fund. I had a look at the performance of some of these vs SPY and their performance over the last decade looks about the same. Could be that the god of efficient market hypothesis has spotted what you noticed and is already pricing it in. I'm not sure.
True. To keep a fund running, cash inflow might be more important than returns as the income is mainly from fees (https://ofdollarsanddata.com/how-hedge-funds-get-rich/). This probably motivates them to stay conservative in their outlook.
But there has been a lot of interest in factor investing over the past few years which tries to give exposure to "factors" like value, small-caps, profitability, etc. without betting on any specific companies, and this supposedly reduces risk. Interestingly, this doesn't violate the efficient market hypothesis either - The Asset Pricing Model which combined the market and these "factors" actually agrees much better with the hypothesis than looking at market returns alone. An interesting topic into which I might take a look sometime!
Always interesting, well researched and useful information. I'm so glad I signed up for your blog. Thanks again for your hard work!
You are welcome! If you don't mind, can you tell me how you found this post - we don't send this out as a newsletter.
Of course. I subscribed to www.marketsentiment.substack.com a few months ago and I always have it open on my browser waiting for the next post :-)
Haha, that's great to know!
I just saw a video of michael reeves that made a fish pick stocks and compared it to listening to wall street bets. I think that the fish also outperformed the market.
https://www.youtube.com/watch?v=USKD3vPD6ZA
Haha yeah... It was trending on Wallstreetbets. Might have been a good addition to the post.
If a fund manager wanted to blow the market away, his best bet would be to pick a few small caps. However, this would also increase his chances of being beaten dramatically by the index. Plus it would not make it through a committee. Thus most managed funds stay conservatively close to the index, minus fees.
Some time ago I wondered if young people might be better off putting their retirement funds in an equally weighted or small cap index fund. I had a look at the performance of some of these vs SPY and their performance over the last decade looks about the same. Could be that the god of efficient market hypothesis has spotted what you noticed and is already pricing it in. I'm not sure.
True. To keep a fund running, cash inflow might be more important than returns as the income is mainly from fees (https://ofdollarsanddata.com/how-hedge-funds-get-rich/). This probably motivates them to stay conservative in their outlook.
But there has been a lot of interest in factor investing over the past few years which tries to give exposure to "factors" like value, small-caps, profitability, etc. without betting on any specific companies, and this supposedly reduces risk. Interestingly, this doesn't violate the efficient market hypothesis either - The Asset Pricing Model which combined the market and these "factors" actually agrees much better with the hypothesis than looking at market returns alone. An interesting topic into which I might take a look sometime!
I actually found an interesting article, of the first real life monkeys trading, and they have outperformed BlackRock by 7.54%. Interesting article: https://www.benzinga.com/content/40244757/real-monkeys-have-outperformed-the-largest-asset-manager-worldwide-by-7-54-in-july
looks very similar article to this one: https://medium.com/coinmonks/can-monkeys-outperform-the-financial-market-d87435763234
TL;DR small caps & value stocks are better in a recession
If this is true, how can this information be used to re-evaluate "lazy" portfolio performance?