Stock-picking is devilishly hard. Keeps me humble! HPQ anyone? :)

Markets are basically weak form efficient, which is that they aggregate the opinions and views about the future of those traders who trade in them.

However, this creates a natural inefficiency about time frames. Most fund investors have one year time frames, and most day traders are much shorter, so there is large inefficiencies due to a lack of large investors with long time frames. These are prime conditions for the buy and hold strategy ala Buffet, Graham etc. There remains the opportunity for (reasonably well informed) retail investors to beat the market by having a long enough time horizon.

Passive investing is essentially a variant of buy and hold. However, ETF’s have become too popular, and they are crowding the trade. In the UK, for example, share prices get bloated or hammered just by being promoted into the indices. As soon as ETF’s have become big enough to affect the market, they are creating an inefficiency, and inefficiency means they are creating the ability for active investors to add value, just be researching shares that are not inside the ETF bubble.

ETF’s were a great idea when they were small, they were benefiting from the efficiency of the market. Now they are the dumb money, which is distorting the market, and creating the ability for fund managers to outperform the index.

Look at, for example, the Horizon Asset Management Hedge Fund letters, comparing similar companies that are more and less popular among ETF builders. The less popular offer around 2% better return.

And as a PS to Felix my bank manages 150millionish for customers and we’re almost big enough to afford a Bloomberg subscription at a cool $1,750/month!

Yeah, I spose so. But who can forget when Grant famously wrote in his December 2006 newsletter that CDS protection on CDOs was way too cheap? As Lewis reported in The Big Short (p. 178):

“In Jim Grant’s [Dec. 06] essay, Steve Eisman found independent confirmation of his theory of the financial world. ‘When I read it,’ said Eisman, ‘I thought, Oh my God, this is like owning a gold mine.’ ”

Of course Grant has been wildly wrong on very many other predictions. But he sure is fun to read.

Two major reasons why it is a predominately male hobby. First, men have traditionally managed finances in families, and there aren’t many people younger than 40 with enough money saved to be worth the trouble. Second, women (even today!) are socialized to seek certainty and avoid risks — and there is never any certainty in the stock market. (If you think an investment is a sure thing, you are being taken for a sucker.)

But I agree with you, it is idiotic to spend money on stock-picking publications (unless for amusement only). Even counter-productive, since you introduce an asymmetry in the information processed. Hard to weigh alternatives evenly if one was featured on your stock-picking list and another was not.

Ultimately, for me, the reward isn’t a dream of becoming wealthy — it is peace of mind. As everybody does, I began as a naive mutual fund investor (i.e. “stupid money”). Got taken to the cleaners by Janus Funds, as they promised sound value-driven management and delivered massive losses in the dot.com bubble. Oops! Started taking it seriously in 2004 when I took a retirement account rollover. Finished rotating out of mutual funds in early 2007 when I was aghast as some of the commentary I was reading. (This particular fund manager was advocating home builders and big banks at the time. Again, THAT is your “stupid money”.)

Five year cumulative returns of just under 50% aren’t going to make me rich, but that isn’t the goal. I just don’t want to lose what I’ve worked so hard to save. I don’t always call them right — but I’ve never done as poorly as the people I was previously paying to lose my money.

What price, peace of mind?

ah hahhhh. sounds to me like SA is trying to sell early access to information which they think will move markets…