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Politics : Politics for Pros- moderated
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To: LindyBill who wrote (543632)10/18/2013 10:59:48 AM
From: Elroy  Read Replies (2) of 793855
 
One implication of market efficiency is that trading rules, such as “buy when the price fell yesterday,” don’t work. As Fama’s University of Chicago colleague John H. Cochrane has written, many empirical studies have shown that “trading rules, technical systems, market newsletters and so on have essentially no power beyond that of luck to forecast stock prices.”

This one insight has a huge implication for large and small investors alike: don’t waste your money on professional financial managers who actively try to pick stocks.

There's no relationship between prices immediately reacting to publicly available news, and active management of investments. A good stock picker is better at forecasting the future than a bad stock picker. How quickly a share price reflects available news has nothing to do with how good a stock fund manager is at determining which companies will do well going forward.

The statement seems to assume that active managers are good because they are minutes faster than others. Active managers are good because they're views on what will happen in the future are accurate, and their ability to position their stock holdings allow the holdings to benefit from those accurate predictions. It has nothing to do with speed of news getting into prices.

As a group they underperform, but there are always some that do well, sometimes extraordinarily well. Given that it seems wrong to conclude that one should stay away from them.
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