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To: Wyätt Gwyön who wrote (121932)	7/22/2002 5:16:22 PM
From: Jim Willie CB	Respond to of 152472

deception-secrecy undermine the Efficient Market Theory /jw

To: Wyätt Gwyön who wrote (121932)	7/22/2002 5:53:41 PM
From: Art Bechhoefer	Respond to of 152472

MM--Most of the studies I've seen dealing with efficient market theory compare index type funds, like the Vanguard 500, with specialty funds. The reason they use mutual funds is that the data are easy to assemble. But, despite the size of mutual fund assets, they still don't consitute a universe of stocks to invest in, much less even stocks that typical U.S. investors might invest in. If you look only at the fund comparisons, you can make a pretty good argument for the efficient market. But as I said, it isn't the entire universe of stocks, or of investors. I also believe that you have to look at the data over a LONG period, say 30 years, before you can argue that index funds would be better than individual stocks bought and sold by knowledgeable investors. Besides Bill Miller and Warren Buffett, there are many investors who have done better than the market averages over a long period. I count myself and my father as two who have done substantially better. Only rarely did he or I ever invest in mutual funds, and neither of us ever used index funds. I agree that if a person doesn't have much background in investing and doesn't have time to study balance sheets, that person is probably compelled to use mutual funds, and some of those funds will probably be index funds. Art

To: Wyätt Gwyön who wrote (121932)	7/22/2002 6:47:50 PM
From: Maurice Winn	Read Replies (2) \| Respond to of 152472

Mucho, there's a logical gap in the argument: <passive strategies are obviously much better than most active strategies. this is not something that people who pay attention to these things even debate anymore. > The reason that indexed investments do better than traded investments is because of the costs of trading - the spreads and fees and costs of switching around learning about different investments. But if everybody indexed, then there would be no mechanism to price the indices. There has to be somebody to get out on the edge and do the dirty work. What the argument really means is that it doesn't take many people to keep the price of shares on the straight and narrow, when considered overall. Most people might as well just depend on others, skilled in the job, to shop around for the bargains, while the unskilled simply hold the indices, thus avoiding trading fees, spread and hassle = back to spreading the risk, buying the market at whatever price it is and holding until the money is needed for something else. But I like to be on the edge, pricing shares. The rewards are significant, if, as with everything, one is good at the job and also has luck. Of course, one can't really know what proportion is luck and what is being right, but evolution gave us the big lump over our eyebrows for learning, thinking and predicting the future, so we might as well use it, if we are in a field where we can profit compared with others who are also competing with their big lumps. If nobody thinks and everybody leaves pricing to somebody else, the indices will lose attachment to reality. The danger is in learning whether one is one of the few who has the skills to be out on the edge, pricing shares. Best not to find out by using the retirement fund. You also price shares - figuring it all out, conjuring up theories on this that and the other, <do you really think you're smarter than EVERY MUTUAL FUND MANAGER IN THE WORLD? do you really think that you're smarter than EVERY INSTITUTIONAL INVESTOR IN THE WORLD? because that's what you need to be in order to beat the market. if that's you, well, you're one smart guy! > Well, do you really think you're smarter than all those people [and computers]? If not, why do you bother trying to figure out whether QUALCOMM is a good price right now? I think we are doomed to think. If we don't think, the best we can do is be dragged along in the tide of human affairs and be skooshed by incoming space rocks in a galactic random mutation process. Such is life. It sure is a lot of fun. Thrills and spills. Life's a giggle, but be ready to duck! Mqurice PS: I suppose what it means is that 95% of people should just invest in a mutual fund following the index. But there has to be somebody out there battling away. 5% maniacs out on the bleeding edge is probably enough.