After costs, only the top 3% of managers produce a return that indicates they have sufficient skill to just cover their costs, which means that going forward, and despite extraordinary past returns, even the top performers are expected to be only as good as a low-cost passive index fund. The other 97% can be expected to do worse.
Active investment is a zero-sum game. Passive managers don't play the game. They buy something resembling the market as a whole, or some segment of the market, and they don't respond to the actions of active managers.
The proposition is that prices reflect all available information, which in simple terms means since prices reflect all available information, there's no way to beat the market.
State constitutions typically provide that the state first has to service its debt, then make it pension payments, and then pay for services. What we don't know is whether that order will be enforced. And ultimately, the busted state is going to be looking to the federal government for a bailout. Think Greece, but on a much bigger scale.
In my junior year in college, I was getting kind of tired of French. So, I took an economics course, and I loved it. The rest of my two years in college I spent in economics.
People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.
Economies typically do not function well in hyperinflation. The real value of government debt might disappear, but the economy is likely to disappear with it.
The problem that people don't understand is that active managers, almost by definition, have to be poorly diversified. Otherwise, they're not really active. They have to make bets. What that means is there's a huge dispersion of outcomes that are totally consistent with just chance. There's no skill involved it. It's just good luck or bad luck.
People think rationally that the world really is more risky. Imagine in 2008 that investors thought there was a 10% chance we'd have a depression. That would partly justify the drop in prices.
Everybody wants the world to be a better place, and some think that government actions can bring that about. But they don't take into consideration that government actions can often do more harm than good.
I'm an extreme libertarian, but I realize we're in a democracy, and in a democracy, people can have views of all stripes, and there's no reason to argue about it.
All the central banks are doing is substituting one form of debt with another form of debt. They're issuing short term debt and using it to buy long term debt. In finance, we tend to think that's a neutral activity, even though those stimulus programs are huge.
Debates go on to this day about what caused the Great Depression. Economics is not very good at explaining swings in economic activity.
People don't walk away from their homes unless they can't make the payments. That's an indication that we are in a recession.