Insights

January is the time for forecasts. How useful are investing forecasts for global investors?

In the years between 2009 and 2019, if you picked only the top 25% of funds in the previous 5 years, only 21% of global equity funds went on to continue to outperform, and 29% of global fixed income funds went on to outperform. That means if you simply picked the previous winner, expecting it to continue to be a winner in the future, you had basically a random outcome over the next 5 years.

We know that markets are efficient, but that can be an abstract concept. In this video, I used examples to demonstrate market efficiency in action. News about a company stock is almost immediately reflected in its share price.

In this video I introduce the concept of efficient markets using an example from when I was a kid - yard sales! The efficient markets theory (Efficient Market Hypothesis), is one of the most important ideas in all of finance. Once you can grasp the idea that markets are a very efficient pricing machine, it unlocks the answer to a lot of other important questions: 1) Why do stocks return more than bonds? 2) Why do professional investment managers struggle to beat plain old index funds? 3) Why should we diversify vs. own a small subset of stocks or a concentrated portfolio? 4) How do I pick an investment strategy where I can just invest and relax? I will discuss these questions and more in future videos. I hope you enjoy this video. Leave comments, feedback, and suggestions below. Thanks, Mark