Valuation-Informed Indexing #67 — It’s Arrogance to Think You Cannot Beat the Market

I’ve posted Entry #67 to my weekly Valuation-Informed Indexing column at the Value Walk site. It’s called It’s Arrogance to Think You Cannot Beat the Market.

Juicy Excerpt: The market is us. When we say that it’s not possible to beat the market, we are saying that it is not possible to beat us. We are so gosh-darned smart that no one can ever think it possible to pull one over on us. We are the market and we are always right.

That’s humility?


That’s  a shocking and repulsive arrogance.


  1. Arty says


    I don’t see it as “beating the market”. I am using the market and making a choice. I see it as taking what the market (price) presents me and then making an informed, rational, decision on my allocation by taking valuations into account. This does not make me arrogant, humble, or even correct; my choice, even if a “good” one, might not pay-off for many years—might indeed lag the market for some time. But I just take what it gives me and make my play.

    And, while the current S&P is one version of “the market” price. Those who mind valuations are using a modified metric to measure fair value. For me, it isn’t so much beating as using. I’m just using it differently than many others.

    But you are on to something else, I think. You are right about the manipulative use of the catch phrase. The term “you can’t beat the market” is so often used to mean so many different things that are just plain wrong (often involving some cultish dogma or marketing play).

    Advisors also like to use the term to suggest that if you do make some non-popular choice (measured by whatever is being argued at the moment) that you are suddenly in competition with thousands of brainiacs—over every microscopic choice you can make—who are actually better at the game than you are.

    Now there are many reasons this too is not so. One big reason is that the brainiac managers can’t afford to lag the market else they get replaced. And using a valuations informed approach (say, PE/10) necessarily means that the optimal timing isn’t likely to be perfect. And there are other reasons too that can hamper the big money managers.

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