Do financial experts make better investments?

Do financial experts make better investments?
Financial experts do not make better investment decisions than untrained peer investors, suggests a study co-authored by Andrei Simonov, associate professor of finance at Michigan State University. Credit: Michigan State University

Financial experts do not make higher returns on their own investments than untrained investors, according to research by a Michigan State University business scholar.

The first-of-its-kind study analyzed the private portfolios of mutual fund managers and found the managers were surprisingly unsuccessful at outperforming nonprofessional . The findings suggest average investors might be better served to handle their own portfolios rather than pay the often-high fees charged by mutual fund managers, said Andrei Simonov, associate professor of finance.

"The point is you have these very educated people who are supposed to know what they are doing, but they are just not that good, on average," said Simonov.

Simonov and Andriy Bodnaruk of the University of Notre Dame compared the portfolios of 84 mutual in Sweden against the portfolios of untrained investors who had similar incomes and backgrounds. The findings are applicable to the United States and most other countries in the global marketplace.

Simonov said the inability of financial experts to make better investment decisions than their untrained peers is likely due to a lack of talent and the fact that succeeding in the market is an extremely difficult task.

"I am not disputing that there is a very small fraction of managers who are extremely talented," Simonov said. "But there are very, very few of these superstars, and the average investor probably can't afford to invest with them anyway."

The study appears online in the Journal of Financial Intermediation.


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Citation: Do financial experts make better investments? (2014, October 28) retrieved 14 October 2019 from https://phys.org/news/2014-10-financial-experts-investments.html
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Oct 28, 2014
Where there is an actual working theory of a subject, it can be employed to maximize output. But there is absolutely no theory of economics! They pretend that it's some kind of complex, self motivating system. But the fact of the matter is that it is almost wholly under the control of those in positions of power. The business world displays innumerably many examples of maneuvering of the system.
Programmed obsolescence.
Market manipulation by contrived massive buts and sells of stock.
Dummy corporations.
"Creative bookkeeping".
Cars deliberately built with obtusely high trunk lids and imbecilically narrow rear windows to force the purchase of expensive rear view closed circuit television.
Arranging litigation to mandate purchase of junk products from helmets for biking to non availing insurance to digital televisions to mini fluorescent light bulbs.
That's why the Nobel Prize in "Economics" is a fraud.

Roj
Oct 29, 2014
"Simonov said the inability of financial experts to make better investment decisions than their untrained peers is likely due to a lack of talent and the fact that succeeding in the mutual fund market is an extremely difficult task."

Both Simonov and the financial experts he describes, have underestimated the talent of unregulated, institutional investors.

The talent that manipulated the mortgage-banking industry into a world recession was unprecedented, as is the institutional investment talent, and technology infrastructure, which exploits publicly traded markets, and the remaining population of regulated investors who operate on the tragic economic theory of a law-abiding players.

Oct 29, 2014
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Oct 29, 2014
"The point is you have these very educated people who are supposed to know what they are doing, but they are just not that good, on average," said Simonov.


This is because all existing mainstream theories of economics are flawed. The fiat currency system is flawed. Stock and Bond markets are essentially Barter with just some imaginary paper (or digital) money evaluated to each item.

Why is Gold worth XXXX amount (I don't even keep up any more) and you can buy like 160 bushels of corn with one ounce of Gold. Is gold really worth 160 bushels of corn? To who? I don't know. That's similar to a full grown cow. I can eat beef for months.

the value of the dollar compared to any one item is arbitrary, so diversifying a portfolio isn't guaranteed to help compared to everything else on the market.

It's easily possible for everything in your portfolio to tank, even if you are diversified, while everything else goes up on average.

Oct 29, 2014
In fact, the more you diversify, the less "skill" there is in your investments, since you are now at the mercy of the market average. You are just doing whatever the market as a whole does. This is a skill-less investment.

If the dollar were defined in terms of energy, say 10kwh per dollar, then it would have an intrinsic value, which in this case is the true currency of nature itself: Energy. I'd prefer to measure Electricity in terms of Momentum, since I trust the measure of Momentum more than I trust the measure of Energy, but current practice in science is we tend to measure "action" in terms of it's associated change in energy, therefore we measure fuel in terms of it's associated change in energy. In reality what is being delivered is a momentum potential, but that's another discussion.

Anyway, if we defined our currency in terms of ENERGY, not a yellow trinket, and not fiat, then markets would be more stable and predictable.

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