ARE WE ABLE TO BEAT THE MARKET? SEEKING FOR ALPHA.

Nobel Prize co-winner, Eugene Fama, the guru of the efficient-market hypothesis, says it is impossible. Personally I am on the other side. I favor the idea of inefficient market theory, but I am always opened to different ideas. Fama proved that not consistently achieve returns in excess of average market returns on a risk-adjusted basis. He started to study the movements of the markets forty years ago and showed how difficult is to beat the market. His recommendation is better to invest in a broad portfolio of shares or buy index CFD’s.

Let’s say he is right. What we have to do in this case as investor? We have to throw the towel and put our money into the index funds and wait and wait.

The New Yorker made an interview with Fama and asked about the recent crises. How looks like his interpretaiton in the efficient market hypothesis (EMH). He responded the following: "I think it did quite well in this episode. Prices started to decline in advance of when people recognized that it was a recession and then continued to decline. There was nothing unusual about that. That was exactly what you would expect if markets were efficient." And added the followings. „I think most bubbles are 20/20 hindsight.”

In the modern times booms are so many, they occur more often. But he only advises put your money in index funds and hope for the best. However, the index returns haven’t been pretty good in the last decade. Since 1999 the major US indexes has been only ranging and delivered only close to zero performance. If you adjust that for the inflation, the results are even worse. Here is below the chart about the „lost decade” which proves the buy and hold strategy has not worked if you were unlucky enough and invested in 1999.

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The BFM Assets Team.