there's a guy on the o'reilly factor right now, daniel solin, who says the "big secret" is that it is "mathematically impossible" to beat indexes over a 10 year period. he is the author of the book, "does your broker owe you money?" o'reilly was like, "so there's nothing you can do?" the guy said, "statistically." solin also said someone won the nobel prize for this discovery. i'm not saying i agree with this, but i figured i'd post it here.
If "mathematically impossible" means that the average joe has a probability of success <5%, then i might agree. Otherwise I don't see where there could be a truth hidden in that obviously false statement.
hahaha, idiots like that just kill me! does this twit realise what he is saying? that SOMEONE'S arbitrarily constructed group of stocks (which is what an index is) will perform better than mine, or someone else's, over a 10year (was he being specific with this figure?) period. and supposedly he has irrefutable proof of this (which is what by saying "mathematically impossible"). what a joke! i feel another round of "are the markets random" coming on....
if anyone wants to watch the interview, the show will be on again tonight at 11 pm est on the fox news channel. the segment is about 30 minutes into the show.
To note, Markowitz (father of modern portfolio theory) didn't actually win THE Nobel Prize. He won A Nobel Prize - specially, a memorial prize in memory of Nobel - which is not the Nobel Prize that we think of.
1) He is not a mathematician and he could said anything, 2) He is not a good mathematician and he could said anything, 3) The author have not been reported correctly for the context of his proof, and the title was more exciting for a citation than to said what was the true topic! Said that "mathematically impossible" is a very strong affirmation for a mathematician, and very unusual in this context, this is why 1 or 3 are more likelihood.
What, you're saying that someone on the O'Reilly Factor was exaggerating the significance of some idiotic oversimplification? I just can't believe it...
Obviously it is nonsense to claim that it is mathematically impossible to beat indexes. I am guessing there are a lot of unstated qualifications. Statistically, most active long-only portfolio managers have failed to beat the index. Plenty have beaten it handily. But what are the odds that the next 10 years repeat the last? Index investing is momentum investing by another name. As certain stocks get bigger and bigger, index funds, and the army of closet index funds, have to buy more and more of these names. Result? Those names rise, and they have to buy even more, thereby driving up the price of their existing largest positions. Pretty neat virtuous circle. Only when those names start to go down, the process reverses and becomes a vicious circle.