The financial markets are close to being efficient because there are smart people who are paid well to exploit inefficiencies. Hedge fund managers who went to colleges with high SAT scores (and who presumably have higher scores and IQs themselves) earn higher returns:
Pretty much the only thing hedge fund managers are exploiting are their investors, it seems.
http://www.automaticfinances.com/monkey-stock-picking/The long-story short is that, except in a very rare occasion, I’m not knowledgeable enough to beat the market over an extended period of time with my investment choices. And neither are you.
If you’re paying someone to do the job for you, you’re likely not even beating the indexes they’re benchmarking against — and then you have to pay them fees.
Since the beginning of 2010, the {hedge fund} industry has registered net inflows of nearly $150bn from investors. Yet in the same period the average hedge fund has returned just 7.5 per cent – compared with 9.3 per cent for global equities and nearly 15 per cent for global bonds.
Certainly, plenty of hedge fund titans took home billion-dollar paydays last year despite the fact they lagged the big gains in stocks.
