FIS Evidence-Based Investment Insights: Financial Gurus and Other Unicorns
October 17, 2014 | By fischer |
Welcome to the next installment in our series of FIS Evidence-Based Investment Insights: Financial Gurus and Other Unicorns
In our last piece, “Ignoring the Siren Song of Daily Market Pricing,” we explored how price-setting occurs in capital markets, and why investors should avoid reacting to breaking news. The cost and competition hurdles are just too tall. Here in Financial Gurus and other unicorns, we’ll explain why you’re also ill-advised to seek a pinch-hitting expert to compete for you. As Morningstar strategist Samuel Lee has described, managers who have persistently outperformed their benchmarks are “rarer than rare.”
Group Intelligence Wins Again
As we covered in “You, the Market and the Prices You Pay,” independently thinking groups (like capital markets) are better at arriving at accurate answers than even the smartest individuals in the group. That’s in part because their wisdom is already bundled into prices, which adjust with fierce speed and relative accuracy to any new, unanticipated news.
Thus, even experts who specialize in analyzing business, economic, geopolitical or any other market-related information face the same challenges you do if they try to beat the market by successfully predicting an uncertain reaction to unexpected news that is not yet known. For them too, particularly after costs, group intelligence remains a prohibitively tall hurdle to overcome.
The Proof Is in the Pudding
But maybe you know of an extraordinary stock broker or fund manager or TV personality who str