I have to admit up front that if you’re reading this blog based on the title, you’re in for a bit of a surprise, and I hope you won’t feel too bad about being hoodwinked.
Articles with titles like this are almost obligatory in the financial press this time of year. If you’re reading this, you know why: They get people to read. Everyone wants an inside track on what’s going to be “hot” next year.
I remember first being introduced to the concept of market efficiency during business school. At the time, I was working for a large Wall Street firm in close proximity to the equity trading floor. As I thought about the precision with which market efficiency was being described in class and contrasted that with the controlled chaos of the trading desk, I couldn’t quite reconcile the two.
As the years have passed, I’ve had more opportunities to learn about financial theory, as well as observe how people make financial decisions in general, and investment decisions in particular. I still struggle with how markets can be efficient when people are involved!
There’s a good reason why regulators require financial firms to include, when mentioning the past returns or ratings of a mutual fund, the warning: “Past performance is not a guarantee of future results.”
The warning is true. History is an imperfect guide to the future, or historians would be fabulously wealthy investment sages.
But history does seem, if not to repeat, to rhyme from time to time. Read more »
In response to my most recent post, “Give ‘thoughtomation’ a try,” I received this helpful idea from a reader:
“Why don’t you post a spreadsheet with comparisons of saving early vs saving late in life? That is the most important thing young investors need to see.”
