do you believe you can beat index funds?

As an aside, of course it is very difficult for managers, on average, to beat the average performance of representative stocks which they are buying a subset of.


You don't need decades of research, and heated debate, to demonstrate how it is also impossible for more than half of people to enjoy "above-average intelligence" - even if they believe they do.


In fact, the more tightly managers hug the benchmark - by intention - the proportionally larger effect the higher costs of active management vs. indexing will push more than half of active managers below indexing.


But if one day I rub my eyes and realize the childish mathematical reality that most people will have below-average incomes (skewness), am I going to put everything I have in t-notes and go on welfare?


The amusing thing about the stock market as compared to, for instance, brain surgery, is that you don't find a lot of investors who also fancy themselves as knowing the first thing about brain surgery.


El-Roi

Like an alcoholic, I had to finally admit that I was powerless when it came to investing in individual common stock issues. There was always someone, or usually many someones, who knew a lot more about a company than I did, and it was already reflected in the stock price. Then I'd have to get over the market-maker's outrageous bid-asked spread on some little name that traded about 3000 shares a day. I hit some small stuff for some big percentage gains but after expenses, yadayadayada I couldn't beat the S&P600 or Wilshire4500 or Russell2000 or whatever index tracked the size stocks I played with.


I found out that there are index funds that track almost all portions of almost every market: debt, equity, junk, emerging market, value, growth, Korean small cap, whatever. The funds are cheap (free) to buy and cheap (low expense ratios) to own. You can take on as much risk as you want, like owning small value stocks, without adding the type of risk that goes along with only owning a couple of names.


As a small-business owner and professional, I have become intensely aware of the worth of my time to the people who hire me to get things done, so while I might waste time throwing investment pearls of wisdom before y'all, I don't spend ten minutes a day thinking about whether I'm selling IBM puts tomorrow.


I am also intensely aware of how easily I could get broke. As a small-business owner and professional, I am taking on large, concentrated risks that revolve around my health, mental competence, the health of my dependents and parents, my ability to attract and keep clients, and on and on. I am no longer willing to take on the risks that I can easily and cheaply buy my way out of using index funds.


I am also intensely aware of the effect of taxes on my drop. Maximizing tax-deferred contributions is much more important than any trading strategy ever devised. And tax-loss harvesting in taxable accounts might cheer you up these days, but I'd rather have to worry about how to shelter gains than count losses.


I'm with dr, I believe, when I say that in the long run and after expenses, very few of this forum's readers will beat "the market" (name the index) over any five or ten year period while actively trading in stocks that comprise that "market". Of course it will happen to a lucky few, but we must remember that in 95 cases out of 100 it was luck, not trading skill, that led to the result.


If you're rich and like to play the market, play away; it's the reason the market's efficient. If you like to set aside 5% as mad money, trade away. If you really want to provide for yourself and yours in the future, you've got to find cheap, diversified, risk-suitable investment vehicles (index funds being the best example) and keep your fingers crossed. I know it sounds simple, but markets that are efficient where it counts, markets that reward risk, are simple and cheap to own and shouldn't be passed up. Good luck.