Saturday, December 01, 2007

Blaine Lourd Profile - Executive Articles -

What a great article! Inherently readable, a great story, and even ends up with a happy ending. I usually hate to give away the story, but in this case I will. It is the story of a stereotypical stock broker who sees the light and realizes that indexing is generally a better idea.

Blaine Lourd Profile - Executive Articles -
"As a group, professional money managers control more than 90 percent of the U.S. stock market. By definition, the money they invest yields returns equal to those of the market as a whole, minus whatever fees investors pay them for their services. This simple math, you might think, would lead investors to pay professional money managers less and less. Instead, they pay them more and more...Nobody knows which stock is going to go up. Nobody knows what the market as a whole is going to do, not even Warren Buffett. A handful of people with amazing track records isn’t evidence that people can game the market. Nobody knows which company will prove a good long-term investment. Even Buffett’s genius lies more in running businesses than in picking stocks. But in the investing world, that is ignored. Wall Street, with its army of brokers, analysts, and advisers funneling trillions of dollars into mutual funds, hedge funds, and private equity funds, is an elaborate fraud."
And later on some so-called experts:
" There's a shelf of financial bestsellers whose titles now sound absurd: Ravi Batra's The Great Depression of 1990; James Glassman's Dow 36,000; Harry Figgie's Bankruptcy 1995: The Coming Collapse of America and How to Stop It. There’s BusinessWeek’s 1979 description of "the death of equities as a near permanent condition,"

and after he finds DFA (yeah Eugene Fama's firm) and comes to realize that indexing is probably the way to go.
"I think more and more brokers will move to an efficient-markets strategy, because all of their products go bad. They just do...

BTW, IF I haven't convinced you to read it, consider this: it was written my Michael Lewis (Of MoneyBall fame) which should be reason enough to read it even if it were on checkers.

Thanks to Greg for pointing this out to me! (two articles in one day, definitely not random ;) )

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