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After 2008, my brand of finance got a bad rap.
I buy the market through index funds. Since I'm getting older, I buy TIPS.
An investor doesn't have a prayer of picking a manager that can deliver true alpha.
I’d compare stock pickers to astrologers but I don’t want to bad mouth astrologers.
An investor doesn’t have a prayer of picking a manager that can deliver true alpha.
Active management is a zero-sum game before cost, and the winners have to win at the expense of the losers.
In an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value.
In an efficient market, at any point in time, the actual price of a security will be a good estimate of its intrinsic value.
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.
I take the market-efficiency hypothesis to be the simple statement that security prices fully reflect all available information.
Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity.
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.
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?
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.
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.
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.
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.
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.
After taking risk into account, do more managers than you’d see by chance outperform with persistence? Virtually every economist who studied this question answers with a resounding 'no.'
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.
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.
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.
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.
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.
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.
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.
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.
The efficient market theory is one of the better models in the sense that it can be taken as true for every purpose I can think of. For investment purposes, there are very few investors that shouldn't behave as if markets are totally efficient.
The distribution of the market is fat-tailed relative to the normal distribution... For passive investors, none of this matters, beyond being aware that outlier returns are more common than would be expected if return distributions were normal.
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.
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 can't figure out why anyone invests in active management, so asking me about hedge funds is just an extreme version of the same question. Since I think everything is appropriately priced, my advice would be to avoid high fees. So you can forget about hedge funds.
I don't think the Federal Reserve has any role in how high rates are right now. I don't understand why everyone is paying attention to this tapering. The Fed is using one kind of bond to buy another kind of bond. What's the big deal, and why is anyone taking the Fed seriously?
I don't even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? 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.
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.
Markets are efficient, but there are different dimensions of risk and those lead to different dimensions of expected returns. That's what people should be concerned with in their investment decisions and not with whether they can pick stocks, pick winners and losers among the various managers delivering basically the same product.
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.
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 would be a lot more skeptical if they understood that there is an incredible amount of chance in the results that you observe for active managers. So the distribution of outcomes is enormously wide - but that's exactly what you'd expect by chance with lots of active managers who hold imperfectly diversified portfolios. The really good portfolios contain a lot of really lucky picks, and the really bad portfolios contain a lot of really unlucky picks as well as some really bad ones.