The Statistics May Talk, But Investors Don't Listen

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 The Statistics May Talk, But Investors Don't Listen
By JONATHAN CLEMENTS The numbers don't lie. But investors, it seems, don't want to hear the truth. According to the statistics, most stock-fund managers fail to beat the market, Wall Street strategists often flunk at forecasting and investment newsletters offer mediocre advice. Yet investors keep buying actively managed funds, they keep listening to strategists and they keep subscribing to investment newsletters. What's going on here? There are a handful of explanations for this apparently bizarre behavior:


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FRONTLINE: the warning: watch the full program online | PBS

FRONTLINE: the warning: watch the full program online | PBS

This Time is Different

This Time is Different

Making Money When the Market Is Mistaken from 2005 till now

2005 article from NYT 




Behavioral finance theory has gained currency among academics and economists as an alternative to the efficient-market theory, the belief that investors are rational and that the price of an asset is fair and accurate and reflects all available information about it.

According to principles of behavioral finance people are illogical, yet predictable. 
"Adherents of this approach do not ignore the nuts and bolts of business - profits, sales, cash flow and so forth. But they contend that investors consistently err in evaluating such information, and that astute portfolio managers can profit from the ways that others make mistakes."

Mutual funds with names like "Undiscovered Managers Behavioral Value" were offered in 2001-2002 by J. P. Morgan followed a school of thought that there is good money to be made underestimating people's capacity to act rationally.

A Practical advice was offered by Mr. Tarca then the only Morningstar analyst following the funds:
"When companies have outperformed the market over three to five years, investors tend to extrapolate that performance out into the future," he said. "Investors become overconfident in their forecasting ability, they rush in to buy these glamour stocks, and they become overpriced."

But at the end "You really can't judge these on a short horizon," said Robert Shiller, an economics professor at Yale. So, how did they do after five rocky years till now? Latest news about those funds

High-Frequency Trading and Flash Orders

Latest Article from FT.com suggests that

"Much misinformation has been spread concerning high-frequency trading and related techniques."
and "There is also the misperception that high-frequency traders are speculators who move markets to extremes."
" Computers do the job even more quickly. The result is a more efficient electronic market that has marginalised the trading floor of the NYSE" and ultimately:

"Individual investors are the ultimate beneficiaries when their pension funds and mutual funds can transact large volumes of trades anonymously with great speed and at lower cost."

Who still believes it?

It's no surprise that the article comes under the pen of Burton Malkiel - Professor of Economics at Princeton University and the author of ‘A Random Walk down Wall Street’ and ‘The Elements of Investing’. 
But surprise was in that that
This piece was co-authored by George U Sauter, Chief Investment Officer of the Vanguard Group