...and ask your finance and economics professors: "If you don't believe that 'experts' can beat the market, then would you be in favor of letting the investment club manage the university's endowment? I mean, why should we be paying all these unnecessary fees and salaries, if all these studies you guys publish are true?"
I'm so sick of hearing academics claim that, "Nobody is skilled at beating the market, it's all a coin flipping contest, and we have the 'proof' to back it up." I suspect they wouldn't be in favor of letting the student-run investment club manage the endowment because they don't even buy their own bullshit.
Interesting. My university lets an investment club play around with 1 million. Sure, professionals might not beat the market, but professional investors can also make sure you don't lose tremendous amounts of money. Return of capital is greater than return on capital.
Having said that, I agree that EMH is garbage. Government policies and irrational behavior by any citizens of a country lead to market distortion, thus opening the opportunity for abnormal returns.
Can echo this... our school has approx 4MM (lost a bit during the tough years) and they consistently outperform their benchmark... I think it's a solid idea to have investment clubs run real money...
Most university's do. My point is, what they let the investment club play around with, is always a drop in the bucket compared to the endowment that's managed by hedge funds, mutual funds, etc.
tiger cubs c.learly show that emh is in the gutter.... heck, my school's investment club's return outperformed the market every single day of past 6 months.. i mean if undergrad students can do it..
Can someone explain the tiger cubs argument to me? I hear it mentioned on WSO from time-to-time, but I don't get the reference...
@TransferHopeful: Your school's "investment fund" simply trails the TSX. Judging by their bizarre methods of investing, it's mere co-iincidence that they've been marginally beating the TSX.
Can someone list money managers that beat the market on a risk adjusted basis 9 out of any 10 year period - managing a stock only portfolio?
-I haven't been able to find this info and think it would be useful to all
Define risk...
By risk we can start with the basic definition of risk - the standard deviation of the portfolio. However, that penalizes positive returns so its kinda iffy. Or we can use something a little more esoteric like the Ulcer index. I dont really care which risk index is used I was wondering if any money managers consistently generate positive alpha. To most a 5% excess return over the market with a portfolio variance of 40% is not the same as an 5% excess return with a portfolio variance of 15%.
I'm just trying to point out that risk is hard to measure/quantify.
we did ask my school that, and our investment club HAS been playing around with a (small) portion of the schools endowment for the past 11 years now...
Samuelson helped start Commodities Corp. One of the guys who came up with EMH didn't even believe in it. The Tiger Cubs argument is that a very large group of investors, following the methodology pioneered at Julian Robertson's Tiger Fund, have been able to outperform the market which would indicate that this outperformance isn't just due to survivorship bias because of their large number and concentration.
Believing in EMH doesn't necessarily preclude active management.. especially if your income needs are different from what the market (eg S&P500) can provide.. endowments typically try to have a low beta portfolio and a much greater alternative investments allocation.. you don't want to stop giving out financial aid just because the stock market is in a rut.. And the tiger club thing is more to help student's get jobs than anything..
The real irony is Fama & French's factor model - this was presented as evidence to show that the market was efficient after controlling for other factors (SMB UMD etc) but is used by a whole bunch of quant funds to 'beat the market'..
Pure momentum trading (buying the top 10 stock gainers over the last month and rebalancing every month) beats indices long term. A lot of the guys who know how to beat the market aren't going to publish - why would they? Academics are for people who want a salary, not someone who can live off trading.
Net of fees? Sounds like an expensive strategy (but admittedly, I'm not very knowledgeable about that).
Totally agree.
I feel that academics will claim the Tiger Cub argument is weak. I think they'll say it's just another random trend...
I think "legends of the turtles experiment" is suited as a far better example of beating the market. http://www.investopedia.com/articles/trading/08/turtle-trading.asp
Regarding academics, I don't think all of them are full of shit when it comes to EMH and Random Walk. Keynes, despite being an academic, formed the Absolute return fund at Cambridge.
Cool story, thanks for that.
Right, but those same academics will claim that 1929, 1974, 1987, 2000 and 2008 were six sigma events. If these things are so rare, why do they happen so often? How can anyone call a group of 70+ funds that tend to outperform the market using the same basic methodology random?
Those academics will die poor, miserable and intellectually dishonest. The Tiger Cubs will hire those academic's kids to do their landscaping.
I think a better comment to make is this: If you're so sure the EMH is true, why not have the entire endowment allocated to non-managed ETFs that track the market? If the returns the market provides will be better in the long run than any manager could produce, it would see to me this would ensure the best returns over the life of the endowment (read: forever).
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