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Those Abiding Mysteries
Posted by: gurufocus (IP Logged)
Date: July 8, 2007 10:57AM
One of the pleasures conveyed by the investing world is that there are a good many mysteries--possibly eternal mysteries. So there are always things for us financial writers to write about, always questions to ask any very smart people we interview.
Some of these mysteries will never be resolved because there are no judges -- no Supreme Court to determine whether any new proposed solution (the butler did it?) is persuasive.
Among these mysteries:
Do any market-timing strategies work? What about something mechanical, like your just lightening up when the S&P 500's average p/e ratio becomes unusually high and loading up when it becomes unusually low?
Why have value stocks outperformed growth stocks over the years? Is it just because Mr. Market, as Ben Graham asserted, becomes alternately too pessimistic and too optimistic?
How “efficient” is the stock market? (While I always call it the “absurd” Efficient Market Hypothesis, a case can be made, I believe, that current stock prices are usually what most investors consider to be reasonable, even though they really may not be.)
Have successful investors -- Buffett, Lynch, Bill Miller -- just been lucky? (Actually, I think this isn't a mystery at all and the resounding answer is: Goodness gracious, no.)
What is the “edge” that successful investors have? (Assuming that it isn't just their being lucky.) My guess is that there are various advantages that people like Buffett have, and a key one is: more knowledge.)
Will the new Fundamental indexes outperform capitalization-weighted indexes?
Why do closed-end funds usually trade at a discount to their intrinsic value?
Does the stock market follow a random walk? (I think this has been answered persuasively: No. As Richard Thaler has pointed out, when the market goes up a lot, it goes down a lot -- and vice versa)
Readers are invited to submit their own favorite abiding mysteries. And, of course, their own solutions.
by Warren Boroson