Tuesday, November 18, 2014

Do the portfolios of finance professionals underperform?

Apparently, using data from "the yelp of investing", it has been discovered that finance professionals underperform advertising and tech professionals when it comes to investing.

At first blush, this finding seems consistent with yet another failure for finance.  But I think the truth is somewhat less exciting.  I am guessing that finance professionals are far more diversified and more conservative in their investments.   A point that is raised in the article.

Further on there is discussion of a research paper that finds that finance experts don't beat regular folks when it comes to mutual funds.  Again, I don't think that there is much surprise here for the simple reason that markets are efficient.  Being an expert in finance doesn't make you able to predict the future.

Ironically, being an expert in finance does tell you that you shouldn't pay big fees to experts in finance to run your money.   You should index.