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“The ability to foresee that some things cannot be foreseen is a very necessary quality.”

Jean Jacques Rousseau (1712 – 1778) French philosopher and writer

Are all these experts simply wrong?

Paul Samuelson“A thousand money managers…expect to do 3% (annually) better than the mob. Hardly ten of one thousand perform in a way that convinces a jury of experts that a long-term edge over indexing is likely.”

Paul Samuelson, Phd.
Recipient of the 1970 Nobel Prize in Economic Science
From: Bogle on Mutual Funds, Forward, p. iv

Merton Miller“It’s okay to pick stocks. Just don’t take it seriously. I choose a few stocks myself, but I do it strictly for entertainment.”

Merton Miller, Phd.
Co-Recipient of the 1990 Nobel Prize in Economic Science
From: Fortune, “How the Really Smart Money Invests,” July 6, 1998, p.152

Benjamin Graham“I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when Graham and Dodd (Security Analysis) was first published; but the situation has changed…[Today] I doubt whether such extensive efforts will generate sufficiently superior selections to justify their cost…I’m on the side of the “efficient market” school of thought.”

Benjamin Graham
Widely described as the “father of securities analysis,” former President of the investment fund, Graham-Newman Corp., and was Professor of Finance at Columbia University. Warren Buffet wrote of Benjamin Graham, “More than any other man except my father, he influenced my life.” From: A 1976 interview with the Financial Analysts Journal

Daniel Kahneman“The idea that any single individual, without extra (inside) information or extra market power, can beat the market is extraordinarily unlikely. Yet, the market is full of people who think they can do it and full of other people who believe them.”

Daniel Kahneman, Ph.D.
Professor of Psychology at Princeton University. Recipient of the 2002 Nobel Prize in Economic Sciences and a leading researcher in the field of behavior finance.
From: Dow Jones Asset Management, November/December, 1998

William FouseQuestion: “So what good are active managers?”
Answer: “They’re entertainment…[however] they just penalize the portfolio.”

William Fouse
Retired Chief Investment Officer, Mellon Capital Management  From: Interview, Dow Jones Asset Management, March/April, 1997

Eugene Fama “I’d compare stock pickers to astrologers, but I don’t want to badmouth the astrologers.”

Eugene Fama, Ph.D.
Professor of Finance at the University Of Chicago. Recipient of the 2013 Nobel Prize in Economic Sciences.
From: Fortune, “How the Really Smart Money Invests,” July 6, 1998, p.149

Peter Lynch Fidelity fund manager“All the time and effort that people devote to picking the hot hand, the great manager, have in most cases led to no advantage.”

Peter Lynch
Manager of the Fidelity Magellan Fund, which had the best performance of all mutual funds during his thirteen-year tenure.
From: his 1993 book, Beating the Street*

Warren Buffett“The only value of stock forecasters is to make fortune tellers look good.”(1)

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees.”(2)

Warren Buffet
Chairman, Berkshire Hathaway, Inc. Widely cited as the most successful investment manager of the twentieth century.
(1) From: James Altucher, Trade Like Warren Buffett, Wiley (2005) p. 196
(2) From: Chairman’s letter, 1996 Berkshire Hathaway, Inc. annual report to shareholders

Peter Bernstein“Even for Warren Buffet, the (investing) world since the early 1980s has been an entirely different world from what it was during the 1960s and 1970s…the market is just plain tougher to beat, even for the best of the best.”

Peter L. Bernstein (January 22, 1919 – June 5, 2009)
Founding editor of The Journal of Portfolio Management. Recipient of the Financial Analysts Journal’s 1997 Graham, Dodd award for best research article and recipient of the Association for Investment Management and Research’s lifetime achievement award.
From: “Where, Oh Where Are the .400 Hitters of Yesteryear?,” Financial Analysts Journal, November/December 1998, P.13

Kenneth French“I have friends who make their living trying to identify mistakes in market prices…I believe someone is able to do it, but I don’t think it is efficient for me to try.”

Kenneth French, Ph.D.
Professor of Finance at the Tuck School of Business, Dartmouth College. Dow Jones Asset Management described French along with Eugene Fama, as a “two-man academic all-star team.”
From: Dow Jones Asset Management, January/February, 1998, p.24

Josef Lakonshok“Some money managers in the long run can add value. To find them is not a piece of cake, and you cannot go by past performance… There also is a big element of luck. Even if nobody knows anything, some guys are going to produce unbelievable numbers.”

Josef Lakonishok, Ph.D.
Professor of Finance at the University of Illinois. As an opponent of market efficiency, this is the academic (i.e. knowledgeable, unbiased) opposition opinion.
From: Interview, Dow Jones Asset Management, March/April, 1999*

Burton Makiel“Critics of indexing are willing to concede the superiority of indexing with respect to large-capitalization U.S. stocks…These critics argue that indexing might be a very bad idea for international markets…I completely disagree…None of the actively managed European (mutual) funds outperformed the European part of the EAFE index during the decade ending in 1997.”

Burton Malkiel, Ph.D.
Professor of Finance at Princeton University From: Keynote address at the Dow Jones Indexes Conference. June 1998

*Peter Lynch image from World Top Investors website

*Peter L. Bernstein image from Bloomberg.com

*Josef Lakonishok from Gies College of Business