Are markets efficient? Because if they are, you should just buy an index fund. In today’s article, I’ll explain to you why it still makes sense to invest in individual stocks.
Some fund managers are spending 60-80 hours on researching stocks and they still underperform the market.
It's a sad thing.
If you ask me, the main reason for their underperformance is a wrong investment approach. They think on the short term, have commercial incentives, ...
Another great article CQ, Thank you, and I have to agree with you.
As a new investor i started a new small PF (22 Stks) using DCA for my daughter in July 2022 and was told many times about the bad timing, and to wait etc, but believing long term i should be ok with good companies, we just finished our first year, last month July 2023 and ended up with ~$40k & +27% after costs and fees so I am more than happy with that for Yr 1, especially when leaving it in cash would of cost me money through Inflation and loss of purchasing power.
Yes there were multiple +30% draw-downs and the road gets bumpy at times, but preferred to continue buying and to average down and for this year it paid off, time will tell long term, but with Bull mkts on average 65-75% of the time, I still feel the numbers are with us.
I don't think any theory can account 100% for our energetic human emotions in both directions when it comes to stocks, and history shows they are still the best investments long term.
Thanks again CQ, much appreciated, it's yr solid/factual info that helps to steady the boat.
Stay tuned for October as I'll start a premium service which gives an insight in my portfolio, investment cases, courses, ... Hopefully we can improve your results even more from that point in time!
Many thanks for the highly informative post and the excellent advice provided on making the most of Mr. Market's opportunities. I hold the view that a significant portion of your readership (myself included) do not subscribe to the Efficient Market Theory. You are absolutely correct in highlighting the profound impact of human irrationality. Regrettably, the folly of our kind extends well beyond the realm of financial markets. : (
Exactly. In universities they teach that markets are efficient, but in practice it's still possible to outperform the market if you use a sound strategy.
Tha ks for the content just finished your ebook for the second time. And nog I starten screening and studying companies. Thans for the knowledge I hope In 30 years from now, it Will pay off.
Looking at long term chart of an index you can see the madness in the week to week / month to month and even year to year. But if you lay in the 200 day moving average line that looks rational.
Personally I think markets are quite rational, but there are still huge investment opportunities for those who use a disciplined and rational approach.
This was a great post. Thankfully the markets aren't efficient. Otherwise, we're wasting our lives.
Exactly!
Some fund managers are spending 60-80 hours on researching stocks and they still underperform the market.
It's a sad thing.
If you ask me, the main reason for their underperformance is a wrong investment approach. They think on the short term, have commercial incentives, ...
Another great article CQ, Thank you, and I have to agree with you.
As a new investor i started a new small PF (22 Stks) using DCA for my daughter in July 2022 and was told many times about the bad timing, and to wait etc, but believing long term i should be ok with good companies, we just finished our first year, last month July 2023 and ended up with ~$40k & +27% after costs and fees so I am more than happy with that for Yr 1, especially when leaving it in cash would of cost me money through Inflation and loss of purchasing power.
Yes there were multiple +30% draw-downs and the road gets bumpy at times, but preferred to continue buying and to average down and for this year it paid off, time will tell long term, but with Bull mkts on average 65-75% of the time, I still feel the numbers are with us.
I don't think any theory can account 100% for our energetic human emotions in both directions when it comes to stocks, and history shows they are still the best investments long term.
Thanks again CQ, much appreciated, it's yr solid/factual info that helps to steady the boat.
Cheers Kev
It's an honor!
Stay tuned for October as I'll start a premium service which gives an insight in my portfolio, investment cases, courses, ... Hopefully we can improve your results even more from that point in time!
CQ,
Many thanks for the highly informative post and the excellent advice provided on making the most of Mr. Market's opportunities. I hold the view that a significant portion of your readership (myself included) do not subscribe to the Efficient Market Theory. You are absolutely correct in highlighting the profound impact of human irrationality. Regrettably, the folly of our kind extends well beyond the realm of financial markets. : (
Have a wonderful weekend!
Warm Regards,
As long as you're able to think independently, the stock market offers plenty of opportunities!
“People have always made money by taking advantage of inefficient markets.” - Sam Zell
To conduct valuation you have to believe that markets are some what efficient, otherwise how else would the market realize the inefficiency?
I agree with you that markets are reasonably efficient.
In the long term stock prices always evolve to their intrinsic value.
However, in the short term their can be huge discrepancies between a company's stock price and intrinsic value.
Great article, So whatever happens in the market is beyond the text book knowledge. Professor did not pick the note… amazing Insight 👀
Exactly. In universities they teach that markets are efficient, but in practice it's still possible to outperform the market if you use a sound strategy.
Tha ks for the content just finished your ebook for the second time. And nog I starten screening and studying companies. Thans for the knowledge I hope In 30 years from now, it Will pay off.
Dear Jonathan,
It's a true honor! If you keep learning, you'll be very wealthy in 30 years from now.
Looking at long term chart of an index you can see the madness in the week to week / month to month and even year to year. But if you lay in the 200 day moving average line that looks rational.
Personally I think markets are quite rational, but there are still huge investment opportunities for those who use a disciplined and rational approach.
Great article! Many thanks. Do you mind sharing the names of your investment universe?
Hi Inum,
The honor is mine!
The names within the investable universe is for Premium Subscribers only. The launch will take place tomorrow!