ACTIVE MANAGEMENT WORKS: WALL STREET INVESTING MYTHS
Myth #1: We can identify stocks that will go up in the future
Myth #2: We can predict the timing and duration of the market’s ups and downs
Myth #3: A manager’s track record is a strong indication of future performance
Crystal or Brass Balls?
For starters, if these three myths were true, why would Wall Street need your money? If these three myths were true why don’t those people who claim the ability to predict the future movement of individual stocks and markets simply invest their own money and become filthy rich? If these myths were true why are there over 8,000 mutual funds in existence? Being able to predict the future of the stock market would require only one really big really good mutual fund…it could be called the Great Wall Street Crystal Ball Fund… ticker symbol GWSCB.
Wall Street and the stock broakerage firms spend billions of advertising dollars to make you believe that they have the ability to predict the future. Of course, the truth, substantiated by decades of academic studies, is that no one can predict the future of any given stock or the movement of the market with consistency enough to “beat the market”.
It will be very difficult for you to have a successful life long investing experience if you believe the investing myths of Wall Street.
Please also see “The Investor’s Dilemma” under the “Truth” tab on this site.
The truth shall set you free and put you on a much more promising path to successful life long investing.
Myth #1: We can identify stocks that will go up in the future – stock picking
You can choose from two competing investment philosophies, Active or Passive. Active investing is based on predicting the future movement of stocks and picking those stocks, hence the term stock picking. Or, you can reject the idea that anyone can predict the future and simply accept the returns of the stock market by having small stakes in thousands of stocks…passively taking what the market gives freely and naturally.
Myth #2: We can predict the timing and duration of the market’s ups and downs – MARKET TIMING
A majority of investors have been led to believe that their investment manager is constantly analyzing the thousands of stock in the market and that the result of this analysis uncovers when the market will go up and when it will go down. Putting investors in the market when it is up and getting out when it is down is called market timing.
Myth #3: A manager’s track record is a strong indication of future performance – TRACK RECORD INVESTING
Many investors and investment managers rely on guides like Morningstar ratings or the past track record of mangers when selecting the mutual funds they buy. As the following data indicates…
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
Do you think that statement is plastered all over every investment advertisement you see because it is false?
You can place your trust in Wall Street’s Active management strategies or in the academic researchers passive investment strategies. These are facts to help you decide.
