| There are always going to be a few exceptions to the rule... Back when I lived in NY and worked in bond markets, an interesting study came out evaluating active mutual fund managers. A chance distribution was able to account for all but 2 at a 95% confidence level. Those two exceptions were named Peter Lynch and Warren Buffett. Peter Lynch unfortunately retired from active investing, and his advice is that people should invest in indexed mutual funds. He also is not unexplainable by chance - the chance of someone having done that well by chance was under 5%, but it was still possible. At a 99% confidence level, only Warren Buffett was left. Warren Buffett is unquestionably knowledgeable. But his returns have been boosted over the long term by a couple of major investing advantages. The first is that he likes to buy whole companies, and is reportedly a stellar manager. His management expertise then turns into improved returns for that company, which becomes a good investment. Thus the cause/effect relationship is not clear. The second advantage is that when a company has problems (eg Goldman Sachs in 2008) they tend to call Warren, because they know that if they get him on board then they will restore confidence. But the deal that he gets is significantly better than what anyone else can get from that company. The study did not include hedge funds like the one George Soros ran because their complex trading strategies can't readily be compared. Anyways, the professionals can't run funds which beat chance returns. Why do you think will be able to? (Technical detail. It is possible to beat the averages, and my understanding is that the professionals do on average tend to do so. The problem is that their cost of beating the average is sufficiently high that their funds don't come out ahead. And the results of their research get reflected in the stock price, which is available for everyone to look at.) |