Vitaliy wrote:
> Martin wrote:
>>> To mitigate risk, invest in index funds. There were plenty of studies 
>>> done
>>> that over time, active trading is not able to outperform the market.
>>>
>> Depends on who you invest in. Motley Fool's Stock Advisor picks since
>> 2002 are up 47%. S&P 500 is down 0.73% over the same time period.
> 
> http://en.wikipedia.org/wiki/Index_funds#Economic_theory
> 
> "In particular the EMH says that economic profits cannot be wrung from stock 
> picking. This is not to say that a stock picker cannot achieve a superior 
> return, just that the excess return will not exceed the costs of winning it 
> (including salaries, information costs, and trading costs). The conclusion 
> is that most investors would be better off buying a cheap index fund."
> 
> VItaliy 
> 

That's a great hypothesis, it doesn't change the fact that if you had
invested money in the S&P at equal amounts at equal times as you bought
their recommended stocks, you would have lost money versus gaining about
 8% per year with their selections.

It's no more than the hypothesis it claims to be if it can't fill in the
blanks for "salaries, information costs, and trading costs." The Motley
Fool services are significantly cheaper than most newsletters or
certainly any broker. I buy stocks on sharebuilder for $4 each. When I
sell it's $9.95 so it costs $14 for the lifetime of that position. If I
invest $1000 into each position the cost is 1.4% + tax
If I use a broker it would be more like $39 to buy and $10 to sell so
closer to 5% which takes some of the wind out of it - and the broker
probably does less research into buying than I do.


-
Martin
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