Any successful technical scheme must ultimately be self defeating. The moment I realize that prices will be higher after New Year's Day than they are before Christmas, I will start buying before Christmas ever comes around. If people know a stock will go up tomorrow, you can be sure it will go up today. Any regularity in the stock market than can be discovered and acted upon profitably is bound to destroy itself. This is the fundamental reason why I am convinced that no one will be successful in using technical methods to get above-average returns in the stock market." (underline mine)
Do you agree?
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Mostly agree, depending on the definition of "Technical".
The market is not very patient. I believe that there is a sustainable advantage if you have the patience to hold through the noise of market fluctuations.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
That may be true in many circumstances, but I think you can beat the market when most people are simply too terrified to do anything at all, other than bail out. Buying stocks in early 2009 was 50% off from their value in mid 2007. Algorithmically, it's obvious that the return from January 2009 to December 2019 will be a lot higher than the return from Oct. 2007 to December 2019. So why weren't people buying up everything in sight?
We might not be smarter than the market, but we can certainly be less emotional.
Interestingly, Malkiel's portfolio is a little more actively positioned than I'd have expected:
20% Vanguard Total Stock Market ETF (VTI) (Tracks a broad index of U.S. companies)
20% Vanguard FTSE All-World ex-US ETF (VEU) (Tracks a broad index of stocks from developed and emerging foreign markets.)
20% Vanguard Total Bond Market ETF (BND) (Tracks a broad index of high-quality U.S. bonds)
10% Vanguard Capital Opportunity (VHCOX) (An actively managed fund that likes big growth companies down on their luck)
10% Vanguard Emerging Markets ETF (VWO) (Tracks an index of stocks developing nations)
10% Templeton Dragon (TDF) (Invests in stocks from China and nearby nations)
10% Matthew's India (MINDX) (Invests in stocks from India)
- so 30% in Emerging Markets - with 20% devoted to India and China;
- a surprising 30% in active funds
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
This was my reaction as well when I happened upon this book in the early 1990s. Thanks for posting! Thanks also for your service to our country and to this site as well
baw703916 wrote:Algorithmically, it's obvious that the return from January 2009 to December 2019 will be a lot higher than the return from Oct. 2007 to December 2019. So why weren't people buying up everything in sight?
We might not be smarter than the market, but we can certainly be less emotional.
Undoubtedly there was some emotion involved, but there were also good, rational reasons not to pile into the stock market. Many people were quite sensibly hoarding cash in case they lost their jobs. In my case I was also piling up cash for a house downpayment since the housing market was finally coming to its senses.
If it wasn't for the April 2007 Kiplingers magazine review of the ninth edition - who knows where I would be today. At that time I was trying to learn "how the professionals" decide what to do. This half page review led me directly to B&N and from there ultimately to the Bogleheads.
Very few events can alter the course of a lifetime - this book for me was one of them.
Any successful technical scheme must ultimately be self defeating. The moment I realize that prices will be higher after New Year's Day than they are before Christmas, I will start buying before Christmas ever comes around. If people know a stock will go up tomorrow, you can be sure it will go up today. Any regularity in the stock market than can be discovered and acted upon profitably is bound to destroy itself. This is the fundamental reason why I am convinced that no one will be successful in using technical methods to get above-average returns in the stock market." (underline mine)
Do you agree?
It took me many years of blind investing and high anxiety until I finally discovered index investing and found the Bogleheads where I learned the fundamental truth that any known mispricing will be corrected by market forces before I can hope acting on it.
Let me point to a different Malkiel book: "The Inflation-Beater's Investment Guide" (1980). I finished a PhD and took an academic job in Sept 1967. You may recall that stocks were pretty much a disaster from 1968 to 1982. So about 1980, by then a full professor, I began to wonder about the 50% of my 403(b) going into CREF's stock fund. (This was before the proliferation of choice.) Malkiel argued compellingly that stocks were by 1980 so undervalued that they eventually had to go up a lot. He could not predict the future -- look at his title! -- and it took another 2 years, but he was right and the great 1982 to 2000 bull market ensured that I would have a comfortable retirement.
By the way, I do not consider his detailed study "market timing" but rather an application of the principle, not then well understood, that future returns are like to be higher when current prices are strikingly low. Shiller did a similar analysis of a greatly over-valued market in "Irrational Exuberance" (2000) and had the good luck to hit the top exactly.
Maynard F. Speer wrote:Interestingly, Malkiel's portfolio is a little more actively positioned than I'd have expected:
20% Vanguard Total Stock Market ETF (VTI) (Tracks a broad index of U.S. companies)
20% Vanguard FTSE All-World ex-US ETF (VEU) (Tracks a broad index of stocks from developed and emerging foreign markets.)
20% Vanguard Total Bond Market ETF (BND) (Tracks a broad index of high-quality U.S. bonds)
10% Vanguard Capital Opportunity (VHCOX) (An actively managed fund that likes big growth companies down on their luck)
10% Vanguard Emerging Markets ETF (VWO) (Tracks an index of stocks developing nations)
10% Templeton Dragon (TDF) (Invests in stocks from China and nearby nations)
10% Matthew's India (MINDX) (Invests in stocks from India)
- so 30% in Emerging Markets - with 20% devoted to India and China;
- a surprising 30% in active funds
I agree. I also believe he now includes or recommends Emerging Market Bonds!
John C. Bogle: “Simplicity is the master key to financial success."