[Hermel]

Note that you are somehow arguing in favor and against the efficient market hypothesis at the same time.

By arguing for ETFs, you are implicitely assuming that there is not much to gain by doing your own research because markets are efficient and have already priced in everything.

By arguing that most people underperform the market, you are implicitely assuming that it is easy to underperform the market - something that should in fact be hard if markets were efficient and everything priced fairly.

[jeffreyrogers]

No, I'm arguing that the market is efficient most of the time and that most people don't have the time and inclination to find underpriced securities.

Also, most people underperform the market because of fees. If you invest in a mutual fund with a 2% management fee, then the fund needs to outperform the index by 2% to breakeven. It needs to do significantly better than that if you're invested in a hedge fund with a typical 2-and-20 fee.

Edit: in particular, small-cap stocks tend to be inefficiently priced because it doesn't make sense for institutional investors to research them heavily since they cannot allocate a large percentage of funds to them without: 1) significantly disturbing the market price 2) in some cases owning a significant percentage of shares (5% or 10% I think) that requires filing with the SEC.

[batguano]

> By arguing that most people underperform the market, you are implicitely assuming > that it is easy to underperform the market - something that should in fact be hard > if markets were efficient and everything priced fairly.

I think the argument is that many people (including fund managers) trade too actively, which generates costs that cause them to underperform an efficient market.

[enjo]

My wife (a PhD holder in the field) would smile and say "that is of course because markets aren't efficient".

[metacorrector]

no, what you describe is not an argument against EMH; not defending the poster, I have no idea if the poster understands this, but your critique is faulty and is explained by standard finance theory.