If you want to buy stocks, you should probably invest in an index fund. An index fund is just a portfolio of shares that mirrors the wider market: if you buy Vanguard’s FTSE Global All Cap, you’re buying shares in 7,180 companies that are representative of global stocks as a whole. You won’t be buying shares in literally every company, but the index fund will perform the same as the wider market because the composition is the same as the wider market. American stocks weighted by market cap account for ~64% of stocks in the global stock market, and about 64% of stocks in the index fund you buy will be American, and so on.
I’m a big fan of aggregated experts, but for the major decisions in my life (both by volume and importance), such high quality sources aren’t available. Despite knowing about the above, I have only had opportunity to take personal action three times: Donating (thanks, Sam, you inspired me with one of your early posts), downgrading my monkeypox concern, and calibrating my nuclear concern.
But the decisions I really have to make are (at the extremes) “What should I make for lunch?” And “should I switch jobs?” Both are too context specific. I recently used Stack Overflow surveys for guidance in setting up a new development environment, but even then I was stretching the external validity of its findings.
I like Trevor's article about index funds (https://tmychow.substack.com/p/the-vanguard-of-the-revolution), and think one of its broader points applies to your examples: quasi-index funds destroy important incentives. Even if the typical pundit would make better predictions about British politics just deferring Smarkets, this norm would destroy a lot of what is best about our media culture by turning political journalism into a hermeneutic exercise, rather than an attempt to hold power to account. I think sometimes there's a fallacy of aggregation in the neighbourhood of 'market efficiency'–esque arguments: it might be better for each individual to defer to the consensus of the 'market', but in aggregate this decision could be harmful on net.
If you can't beat the market and it's all priced in, what long run return should you expect to receive on index trackers? Long term shares have outperformed bonds but I don't know if that is on a risk adjusted basis or not.
My point is, if everything is priced in (including long term asset class performance) then presumably the return to capital should just be long term trend economic growth? Or should the return on equity actually match the return on all other asset classes, with perhaps some variance to reflect the short term volatility of return?
Maybe YOU can’t beat the market but ONE can beat the market so buying an index is fine if you don’t want to work to outsmart the average but is not fine if you have better ideas on expected returns and correlations than the average. The efficient markets hypothesis as popularly understood is one of the more silly things to fall out of financial economics as it completely disregards the psychology or sociology of crowds. When was bitcoin efficient? Yesterday or 14 months ago?
I’m a big fan of aggregated experts, but for the major decisions in my life (both by volume and importance), such high quality sources aren’t available. Despite knowing about the above, I have only had opportunity to take personal action three times: Donating (thanks, Sam, you inspired me with one of your early posts), downgrading my monkeypox concern, and calibrating my nuclear concern.
But the decisions I really have to make are (at the extremes) “What should I make for lunch?” And “should I switch jobs?” Both are too context specific. I recently used Stack Overflow surveys for guidance in setting up a new development environment, but even then I was stretching the external validity of its findings.
I like Trevor's article about index funds (https://tmychow.substack.com/p/the-vanguard-of-the-revolution), and think one of its broader points applies to your examples: quasi-index funds destroy important incentives. Even if the typical pundit would make better predictions about British politics just deferring Smarkets, this norm would destroy a lot of what is best about our media culture by turning political journalism into a hermeneutic exercise, rather than an attempt to hold power to account. I think sometimes there's a fallacy of aggregation in the neighbourhood of 'market efficiency'–esque arguments: it might be better for each individual to defer to the consensus of the 'market', but in aggregate this decision could be harmful on net.
If you can't beat the market and it's all priced in, what long run return should you expect to receive on index trackers? Long term shares have outperformed bonds but I don't know if that is on a risk adjusted basis or not.
My point is, if everything is priced in (including long term asset class performance) then presumably the return to capital should just be long term trend economic growth? Or should the return on equity actually match the return on all other asset classes, with perhaps some variance to reflect the short term volatility of return?
if it’s all “priced in” then why does it go up and down every day?
Maybe YOU can’t beat the market but ONE can beat the market so buying an index is fine if you don’t want to work to outsmart the average but is not fine if you have better ideas on expected returns and correlations than the average. The efficient markets hypothesis as popularly understood is one of the more silly things to fall out of financial economics as it completely disregards the psychology or sociology of crowds. When was bitcoin efficient? Yesterday or 14 months ago?