Nobody Knows Nothing - A Chart

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Rowan Oak
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Nobody Knows Nothing - A Chart

Post by Rowan Oak » Thu Jan 18, 2018 10:15 am

Tune out the noise and stay-the-course. This blog post and chart from Ben Carlson gives another example why you can't beat the market.

Updating My Favorite Performance Chart For 2017

"Predictions about the top (or bottom) performing asset classes in any given year are hard.” - Ben Carlson

"There is no person or software program in existence that can do this reliably. " - Josh Brown
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Last edited by Rowan Oak on Fri Jan 19, 2018 8:44 am, edited 2 times in total.
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NibbanaBanana
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Re: Nobody Knows Nothing - A chart

Post by NibbanaBanana » Thu Jan 18, 2018 10:38 am

9 year annualized look fantastic. But 18 year annualized return on SNP is about 5.6% if I calculated correctly. So what should be the long term expected returns for stocks?

Just goes to show, given any set of data, you can calculate an average. But it has no predictive power whatsoever.

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JoMoney
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Re: Nobody Knows Nothing - A chart

Post by JoMoney » Thu Jan 18, 2018 11:59 am

NibbanaBanana wrote:
Thu Jan 18, 2018 10:38 am
...Just goes to show, given any set of data, you can calculate an average. But it has no predictive power whatsoever.
Does anyone actually have a out-of-sample analysis of this? Take a long-term average like the "Siegel Constant" 7% inflation adjusted return, use that as a prediction of forward returns, and determined how much of the forward return can be explained by that?
I'm certain over shorter time periods the variability in returns is horrid, but I would be curious how it stacks up against other popular methods of trying to forecast returns over longer periods.
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Rowan Oak
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Re: Nobody Knows Nothing - A chart

Post by Rowan Oak » Thu Jan 18, 2018 11:40 pm

NibbanaBanana wrote:
Thu Jan 18, 2018 10:38 am
9 year annualized look fantastic. But 18 year annualized return on SNP is about 5.6% if I calculated correctly. So what should be the long term expected returns for stocks?

Just goes to show, given any set of data, you can calculate an average. But it has no predictive power whatsoever.
When 2008 drops off the 10-year return numbers those predictive powers will look even more nonsensical given the lower future returns expected by Jack Bogle and Vanguard.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

JCE66
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Re: Nobody Knows Nothing - A chart

Post by JCE66 » Fri Jan 19, 2018 7:48 am

Does anyone actually have a out-of-sample analysis of this?
JoMoney....That comparison chart there is very simple, intuitive, and one of the best I have seen thusfar. I have to confess, none of these methods is what I would call particularly good, in terms of explanatory power. My response to the the professors who create these explanatory metrics, "Call me when your explanatory power is at 70%, then we can have a conversation".

The meta-conclusion I draw is that markets are inherently unpredictable, and will always remain that way as long as humans are running it. I have a hard enough time predicting what I will do in the next 1-2 hours, let alone performance over decades. I imagine it is the same for the people running companies, and making markets. There just is no reliable way to predict human behavior....none. And when you distill the numbers and metrics away, what you are left with is a person - filled with their preconceptions, foibles, habits, and a mental framework - who ultimately make decisions that other people (with a different set of preconceptions, foibles, habits, mental frameworks) react to.

That comparison chart is a real winner. It helped me clarify and articulate my thinking.

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Re: Nobody Knows Nothing - A chart

Post by Toons » Fri Jan 19, 2018 7:51 am

"Tune out the noise and stay-the-course"

100% Correct.
Noise=Pure Distraction.






:thumbsup
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Rowan Oak
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Re: Nobody Knows Nothing - A chart

Post by Rowan Oak » Fri Jan 19, 2018 8:17 am

JCE66 wrote:
Fri Jan 19, 2018 7:48 am
Does anyone actually have a out-of-sample analysis of this?
...There just is no reliable way to predict human behavior....none. And when you distill the numbers and metrics away, what you are left with is a person - filled with their preconceptions, foibles, habits, and a mental framework - who ultimately make decisions that other people (with a different set of preconceptions, foibles, habits, mental frameworks) react to.
Absolutely true. Trying to predict the market is folly.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: Nobody Knows Nothing - A Chart

Post by garlandwhizzer » Fri Jan 19, 2018 10:47 am

Great post, Rowan Oak, thanks.

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staythecourse
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Re: Nobody Knows Nothing - A Chart

Post by staythecourse » Fri Jan 19, 2018 11:21 am

The question is NOT can anyone predict the markets. We have enough data, history, studies, etc... to show that is not true for the last 20-30 years. The problem is we already know and have known this yet everybody seems to still quote person x or person y predicting something and everyone still falls for it. Vanguard saying something and people fall for it. Mr. Bogle predicts something and people fall for it. Mr. Buffett, etc...

So the real question is not can folks predict the markets, but WHY do folks still think that even though we know it can't be done?

I have said before investing is interesting as the only real thing you can't control is the one aspect folks care most about and that is returns. Investors are best served if they focus on everything else that CAN be controlled: Making money, saving a ton, LBYM, asset allocation, avoiding active management, minimize taxes, minimize costs, and just learning to stay the course. Investing became easy for me when I accepted that one has NO CLUE what the markets will do and not to focus on that aspect.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Nobody Knows Nothing - A Chart

Post by 2015 » Fri Jan 19, 2018 12:16 pm

staythecourse wrote:
Fri Jan 19, 2018 11:21 am
The question is NOT can anyone predict the markets. We have enough data, history, studies, etc... to show that is not true for the last 20-30 years. The problem is we already know and have known this yet everybody seems to still quote person x or person y predicting something and everyone still falls for it. Vanguard saying something and people fall for it. Mr. Bogle predicts something and people fall for it. Mr. Buffett, etc...

So the real question is not can folks predict the markets, but WHY do folks still think that even though we know it can't be done?

I have said before investing is interesting as the only real thing you can't control is the one aspect folks care most about and that is returns. Investors are best served if they focus on everything else that CAN be controlled: Making money, saving a ton, LBYM, asset allocation, avoiding active management, minimize taxes, minimize costs, and just learning to stay the course. Investing became easy for me when I accepted that one has NO CLUE what the markets will do and not to focus on that aspect.

Good luck.
+1
OTOH, what other hobby besides inflating investing complexity would do as good a job siphoning time from people while feeding their sense of overconfidence and superiority?

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Re: Nobody Knows Nothing - A Chart

Post by GibsonL6s » Fri Jan 19, 2018 12:53 pm

+1
OTOH, what other hobby besides inflating investing complexity would do as good a job siphoning time from people while feeding their sense of overconfidence and superiority?
[/quote]

I still listen to a few of the CNBC type shows and the hosts and their guests do come across very authoritatively. I feel analysis and data provide many people with a a false sense of confidence in their ability to predict the market, a stock an industry etc. What I tell people when they ask me why I index goes something like this. We also have 113 years of baseball data but how many people are going to correctly pick next years world series winner.

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Rowan Oak
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Re: Nobody Knows Nothing - A Chart

Post by Rowan Oak » Fri Jan 19, 2018 3:16 pm

staythecourse wrote:
Fri Jan 19, 2018 11:21 am
The question is NOT can anyone predict the markets. We have enough data, history, studies, etc... to show that is not true for the last 20-30 years. The problem is we already know and have known this yet everybody seems to still quote person x or person y predicting something and everyone still falls for it. Vanguard saying something and people fall for it. Mr. Bogle predicts something and people fall for it. Mr. Buffett, etc...

So the real question is not can folks predict the markets, but WHY do folks still think that even though we know it can't be done?

I have said before investing is interesting as the only real thing you can't control is the one aspect folks care most about and that is returns. Investors are best served if they focus on everything else that CAN be controlled: Making money, saving a ton, LBYM, asset allocation, avoiding active management, minimize taxes, minimize costs, and just learning to stay the course. Investing became easy for me when I accepted that one has NO CLUE what the markets will do and not to focus on that aspect.

Good luck.
Agreed. For me, it's Jack Bogle. I can't help but believe he knows even though he always starts his predictions (outlook? forecast?) with saying he doesn't.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

JimmyJammy
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Re: Nobody Knows Nothing - A Chart

Post by JimmyJammy » Fri Jan 19, 2018 4:58 pm

Looking at the quilt, I'm surprised by how many times REITS have been in the top 3 asset classes.

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stemikger
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Re: Nobody Knows Nothing - A Chart

Post by stemikger » Sat Jan 20, 2018 7:36 am

Rowan Oak wrote:
Fri Jan 19, 2018 3:16 pm
staythecourse wrote:
Fri Jan 19, 2018 11:21 am
The question is NOT can anyone predict the markets. We have enough data, history, studies, etc... to show that is not true for the last 20-30 years. The problem is we already know and have known this yet everybody seems to still quote person x or person y predicting something and everyone still falls for it. Vanguard saying something and people fall for it. Mr. Bogle predicts something and people fall for it. Mr. Buffett, etc...

So the real question is not can folks predict the markets, but WHY do folks still think that even though we know it can't be done?

I have said before investing is interesting as the only real thing you can't control is the one aspect folks care most about and that is returns. Investors are best served if they focus on everything else that CAN be controlled: Making money, saving a ton, LBYM, asset allocation, avoiding active management, minimize taxes, minimize costs, and just learning to stay the course. Investing became easy for me when I accepted that one has NO CLUE what the markets will do and not to focus on that aspect.

Good luck.
Agreed. For me, it's Jack Bogle. I can't help but believe he knows even though he always starts his predictions (outlook? forecast?) with saying he doesn't.
That is because Jack is so humble, but IMHO he is the smartest intellect in the investment world. I'm fortunate enough to have his personal blessing on my life long investing strategy. It makes it that much easier to stay the course when storms come from time to time. Thanks to Mel for making that happen!
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Nobody Knows Nothing - A Chart

Post by willthrill81 » Sat Jan 20, 2018 12:43 pm

Rowan Oak wrote:
Thu Jan 18, 2018 10:15 am
Tune out the noise and stay-the-course. This blog post and chart from Ben Carlson gives another example why you can't beat the market.
I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Rowan Oak
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Re: Nobody Knows Nothing - A Chart

Post by Rowan Oak » Sat Jan 20, 2018 1:01 pm

willthrill81 wrote:
Sat Jan 20, 2018 12:43 pm
Rowan Oak wrote:
Thu Jan 18, 2018 10:15 am
Tune out the noise and stay-the-course. This blog post and chart from Ben Carlson gives another example why you can't beat the market.
I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
Over the long-term (30 years or more) I would argue you can't beat the market. For shorter time periods I would say you can't consistently beat the market.

But we can agree to disagree. I understand and respect your opinion and that of anyone who wants to try to beat the market. I gave up on the idea years ago.

Jack Bogle: "After nearly 50 years in this business, I do not know of anybody who has done market timing successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently."

What Experts Say About Market-Timing vs. Stay-The-Course

"The Little Book of Common Sense Investing, 10th Anniversary Edition"
"Little Book of Common Sense Investing--10th Anniversary Edition" A Gem
Last edited by Rowan Oak on Sat Jan 20, 2018 1:42 pm, edited 5 times in total.
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Re: Nobody Knows Nothing - A Chart

Post by david1082b » Sat Jan 20, 2018 1:07 pm

willthrill81 wrote:
Sat Jan 20, 2018 12:43 pm
Rowan Oak wrote:
Thu Jan 18, 2018 10:15 am
Tune out the noise and stay-the-course. This blog post and chart from Ben Carlson gives another example why you can't beat the market.
I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
If every investor tried the things that outperformed historically would they still work? If it doesn't give a fair chance for the average investor to outperform I'd argue that "you can't beat the market" makes sense. A tiny minority can beat the market, the exceptions that prove the rule.

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Re: Nobody Knows Nothing - A Chart

Post by willthrill81 » Sat Jan 20, 2018 1:35 pm

david1082b wrote:
Sat Jan 20, 2018 1:07 pm
willthrill81 wrote:
Sat Jan 20, 2018 12:43 pm
Rowan Oak wrote:
Thu Jan 18, 2018 10:15 am
Tune out the noise and stay-the-course. This blog post and chart from Ben Carlson gives another example why you can't beat the market.
I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
If every investor tried the things that outperformed historically would they still work? If it doesn't give a fair chance for the average investor to outperform I'd argue that "you can't beat the market" makes sense. A tiny minority can beat the market, the exceptions that prove the rule.
If anyone can consistently beat the market, then the EMH is false.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Nobody Knows Nothing - A Chart

Post by willthrill81 » Sat Jan 20, 2018 1:39 pm

Rowan Oak wrote:
Sat Jan 20, 2018 1:01 pm
willthrill81 wrote:
Sat Jan 20, 2018 12:43 pm
Rowan Oak wrote:
Thu Jan 18, 2018 10:15 am
Tune out the noise and stay-the-course. This blog post and chart from Ben Carlson gives another example why you can't beat the market.
I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
Over the long-term (30 years or more) I would argue you can't beat the market. For shorter time periods I would say you can't consistently beat the market.
So do you dispute, for instance, that SCV has beaten TSM over the long-term?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Rowan Oak
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Re: Nobody Knows Nothing - A Chart

Post by Rowan Oak » Sat Jan 20, 2018 2:02 pm

willthrill81 wrote:
Sat Jan 20, 2018 1:39 pm
Rowan Oak wrote:
Sat Jan 20, 2018 1:01 pm
willthrill81 wrote:
Sat Jan 20, 2018 12:43 pm
Rowan Oak wrote:
Thu Jan 18, 2018 10:15 am
Tune out the noise and stay-the-course. This blog post and chart from Ben Carlson gives another example why you can't beat the market.
I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
Over the long-term (30 years or more) I would argue you can't beat the market. For shorter time periods I would say you can't consistently beat the market.
So do you dispute, for instance, that SCV has beaten TSM over the long-term?
Oh, I'm sure there's all sorts of data that shows what could have beaten a total stock market index fund over a 30 year time period. I fully understand your point that it's not impossible.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: Nobody Knows Nothing - A Chart

Post by willthrill81 » Sat Jan 20, 2018 2:10 pm

Rowan Oak wrote:
Sat Jan 20, 2018 2:02 pm
willthrill81 wrote:
Sat Jan 20, 2018 1:39 pm
Rowan Oak wrote:
Sat Jan 20, 2018 1:01 pm
willthrill81 wrote:
Sat Jan 20, 2018 12:43 pm
Rowan Oak wrote:
Thu Jan 18, 2018 10:15 am
Tune out the noise and stay-the-course. This blog post and chart from Ben Carlson gives another example why you can't beat the market.
I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
Over the long-term (30 years or more) I would argue you can't beat the market. For shorter time periods I would say you can't consistently beat the market.
So do you dispute, for instance, that SCV has beaten TSM over the long-term?
Oh, I'm sure there's all sorts of data that shows what could have beaten a total stock market index fund over a 30 year time period. I fully understand your point that it's not impossible.
Then you're saying that going forward, SCV is not likely to beat the TSM, either in absolute or risk-adjusted returns?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Rowan Oak
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Re: Nobody Knows Nothing - A Chart

Post by Rowan Oak » Sat Jan 20, 2018 2:14 pm

willthrill81 wrote:
Sat Jan 20, 2018 2:10 pm
Rowan Oak wrote:
Sat Jan 20, 2018 2:02 pm
willthrill81 wrote:
Sat Jan 20, 2018 1:39 pm
Rowan Oak wrote:
Sat Jan 20, 2018 1:01 pm
willthrill81 wrote:
Sat Jan 20, 2018 12:43 pm


I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
Over the long-term (30 years or more) I would argue you can't beat the market. For shorter time periods I would say you can't consistently beat the market.
So do you dispute, for instance, that SCV has beaten TSM over the long-term?
Oh, I'm sure there's all sorts of data that shows what could have beaten a total stock market index fund over a 30 year time period. I fully understand your point that it's not impossible.
Then you're saying that going forward, SCV is not likely to beat the TSM, either in absolute or risk-adjusted returns?
What I'm saying is that I don't know. Do you?
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: Nobody Knows Nothing - A Chart

Post by garlandwhizzer » Sat Jan 20, 2018 2:27 pm

willthrill81 wrote:
So do you dispute, for instance, that SCV has beaten TSM over the long-term?
The question is: does that guarantee that SCV or trend following will necessarily beat TSM after costs going forward now that many billions of investor dollars are pursuing those strategies. The answer to that question is IMO not as clear as saying it worked over the last 30 years when markets were less aware of them and less professionally dominated. Like all strategies which seek to outperform, these two have capacity restraints. Put simply, outperformance attracts investment dollars until the inflow extinguishes that outperformance.

Backtesting as a predictor of the market's future over any set time frame has serious accuracy limits as markets and economies evolve. Because someone chooses to use an ultra-low cost cap weighted equity does not imply that they are somehow mentally slow or incompetent. There are brilliant examples, like Warren Buffett and Jack Bogle, who endorse these strategies as the best choice for most investors. Surely these two are aware that SCV and trend following have beaten TSM historically, yet they continue to endorse low cost cap weighted index approaches.

Garland Whizzer

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Re: Nobody Knows Nothing - A Chart

Post by willthrill81 » Sat Jan 20, 2018 2:40 pm

garlandwhizzer wrote:
Sat Jan 20, 2018 2:27 pm
willthrill81 wrote:
So do you dispute, for instance, that SCV has beaten TSM over the long-term?
The question is: does that guarantee that SCV or trend following will necessarily beat TSM after costs going forward now that many billions of investor dollars are pursuing those strategies. The answer to that question is IMO not as clear as saying it worked over the last 30 years when markets were less aware of them and less professionally dominated. Like all strategies which seek to outperform, these two have capacity restraints. Put simply, outperformance attracts investment dollars until the inflow extinguishes that outperformance.

Backtesting as a predictor of the market's future over any set time frame has serious accuracy limits as markets and economies evolve. Because someone chooses to use an ultra-low cost cap weighted equity does not imply that they are somehow mentally slow or incompetent. There are brilliant examples, like Warren Buffett and Jack Bogle, who endorse these strategies as the best choice for most investors. Surely these two are aware that SCV and trend following have beaten TSM historically, yet they continue to endorse low cost cap weighted index approaches.

Garland Whizzer
I understand that and agree with you. However, the question then shifts from "it's impossible to beat the market" to "will SCV continue what it has done regularly across both time and geography, namely, significantly higher absolute and risk-adjusted returns." If the latter is accurate, then the EMH, as specified by Fama, becomes highly suspect.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Nobody Knows Nothing - A Chart

Post by Geneyus » Sun Jan 21, 2018 3:10 pm

JimmyJammy wrote:
Fri Jan 19, 2018 4:58 pm
Looking at the quilt, I'm surprised by how many times REITS have been in the top 3 asset classes.
And Large Cap... And Mid Cap...

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Re: Nobody Knows Nothing - A Chart

Post by Güero » Sun Jan 21, 2018 3:42 pm

[quote]
I would take to task the idea that "you can't beat the market." It depends on precisely how this is defined. Buy-and-hold of SCV, for instance, has beaten the TSM quite handily over the long-term in both absolute and risk-adjusted returns. Trend following has beaten the TSM in terms of risk-adjusted returns.
[/quote]

Buying SCV is the market of SCV. This kind of sounds like managers who claim alpha by having a fund that invests in SCV and then saying "Look it beat the S&P 500." No kidding.

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Re: Nobody Knows Nothing - A Chart

Post by willthrill81 » Sun Jan 21, 2018 4:35 pm

Güero wrote:
Sun Jan 21, 2018 3:42 pm
Buying SCV is the market of SCV. This kind of sounds like managers who claim alpha by having a fund that invests in SCV and then saying "Look it beat the S&P 500." No kidding.
That's why I said that the idea that "you can't beat the market" depends entirely on how you define literally every word in that phrase, especially "market."

If we define the market in terms of the total stock market, then the historical answer has been that SCV as an asset class has had higher returns than the market, both in absolute returns and, more troubling for the EMH, in risk-adjusted returns.

The idea that "you can't time the market" depends on precisely what is meant by that statement. Academic research has shown that, apart from trading and tax issues, a simple 200 DMA strategy has indeed beaten the market significantly over the last several decades, both in absolute and risk-adjusted returns.

Whether either of these 'strategies' will 'beat' the market going forward is an unknown. There are no guarantees of anything.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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