In this updated investing classic, market expert Charles D. Ellis offers a solid and unbiased analysis of how markets work today, and he explains why even the best professionals can no longer expect to sustain a winning streak. The savviest strategy for individual investors, he argues, is to invest in low-cost index funds where the objective is to replicate – not outperform – the broad market. While getAbstract never offers investment advice, it believes that anyone saving and investing to achieve a comfortable retirement and other goals will want this important reference book in their libraries.
It’s no longer possible to beat the market.
The traditional notion of investment management holds that beating the market is possible and that superior management will do the job. In any given year, a couple of funds may do better than the averages, but sustained outperformance is rare indeed. In the dim past, experts with information and skills could beat the market. Nowadays, the market effectively consists of institutions with state-of-the-art technology. Nearly all trades in listed stocks are executed by institutional investors. The professionals trading for these institutions all have the same good technical capability and data. Their collective decisions establish the prices of stocks, so these professionals can’t beat themselves. In fact, when fees and expenses enter the calculation, most fund managers will underperform the broad market indexes. Individual investors, moreover, will underperform the professionals by a large margin.
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Charles D. Ellis founded Greenwich Associates, an international consulting firm, and he is a consultant to large institutional investors, government organizations and high-net-worth families.