Just Say No to Active Investing: Part 2


Father, techie, and money geek. Sometimes I write about personal finance.

2 Responses

  1. Steven J. Saines says:

    • According to the S&P and Dow Jones as of 12/31/22, the percentage of US equity funds that underperform the S&P 1500 is >80% over a 3 year period and rises to 97% over a 20-year period [source].

    Shouldn’t that be S&P 500? Not 1500.

    • “Nobel prize-winning economist Paul Samuelson has argued that the market is “micro efficient” but not “macro efficient.”

    What does Samuelson mean?

  2. georgesaines says:

    Yeah, thanks for catching that. Fixed the typo!

    My interpretation is that Samuelson is saying that if you only look at the level of how a stock responds to some small information disclosure, say a quarterly earnings report, that the price fully incorporates all there is to know about the business. But that if you consider the much broader context in which a company operates, the price is unlikely to fully reflect the value of the stock.

    For instance, an energy stock might jump 10% after an earnings call, but in a couple of months drop 50% after it becomes clear that climate change mitigations will cause the company to bleed money for the foreseeable future. Someone who believes in a macro-efficient market would say “that 50% was priced in because there was always a risk that something like that would happen to petroleum companies,” but Samuelson is saying that most investors aren’t reacting to big, uncertain macro trends, only quantifiable micro-trends.

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