The Market

Many have believed for the last few decades that the market is there to "give." I put my money in, it "gives" me a good return or a solid retirement. Just by putting it in, I secure myself against any risks of not reaching my goals. Why is this? Well, I know that past performance is not indicative of future results, but if the last 10 years gave people 18 percent, why won't the next 10 do the same?

This thinking was all too common and absolutely ludicrous. The market is fickle and it will always be the master of us all. If I see a strategy that claims to "know" anything, I immediately head for the hills. The best statement is that "this strategy will fail once in 1000 years." Think about that. We don't even have 1000 years of data at which to look. Where does that even come from? What does it mean? They say that statistics can be made to say anything, but some of the earliest I have seen are from the late 1800's. What are these 1000 year scenarios based on?

I know, I know...one can do "scenario analysis" and figure out probabilities according to certain assumptions and ascribe those to chances in a given year and then translate that to a figure in 1000 years. Yes, yes, yes. Great idea. One must only read the annual letters of Warren Buffett to see how it should be done. Honesty. Fallibility. Uncertainty. Humility. It's all there, and we all know it doesn't have to be. If you like statistics think of this: over the long term 85% of active managers fall short of the market. That's Charles Ellis for you. Sense hubris in an investment manager? Get the hell out!