And you see it all the time in thread with people talking about how they are doing in stocks. You rarely see much from people saying they got burned because it's painful to talk about, but if you don't consider them you get the impression everybody else is making 30% annual returns on their scottrade account (they aren't!).
Sure I get that but in a stagnant economy index funds won't be the answer either.
My issue is that there are way too many differing interests/needs/emotions at play in the stock market for the EMH to hold true all the time. Maybe from the 1000 foot view and over time it evens out but there are dips for those who spot the opportunity. For example: I look at the drop in price of BP during the oil spill incident. If you take all of their assets - all of their owned oil/ng and sold it they would liquefy for far more than their stock price was worth. Emotions ran away with that one. I picked up the small trifling amount that I could at $28.50 and it has done well for me since then. I don't see our need for oil/ng to go anywhere anytime soon
I certainly don't advocate mutual funds as finding one with the same goals as you will be nearly impossible. They often have constraints as to where/when they can invest. They aren't playing for your retirement goals - they are playing to ratchet up their hot shot status to make a name for themselves or to get money into the fund and get their own rewards.
And I am by no means advocating short term trading. That
might be a viable option for people who make it their day job but seems to be quite risky and done at too microscopic of a level.
I believe the answer lies somewhere in the middle. I think it would be far better to look at well run endowment\pension funds for an example of what proper long term active management can do. (From my understanding) They look for long term growth potential + current under valuations within an area and then hold it for as long as it makes financial sense to do so making sure to avoid high correlation between holdings. The converse is that certain high profile fund managers (Mr Swensen) do advocate a wide range of index funds. Of course to add in complexity most 401ks do no provide access to the range of funds he recommends so someone might need to actually need to use post-tax (gasp!) dollars to invest.
Nothing like putting your retirement savings where your mouth is. We'll see how the next decade or so turns out but I know it can be done and have seen it done so I don't believe this is hubris but time will tell.
Out of curiosity, what can the average Joe do other than to diversify? It's been shown time and time again that timing the market or buying individual stocks, on average, nets a worse gain than a dollar cost average of various mutual funds (diversified). Again, I researched my ass off and still got hammered. I even read the book that told me to not become emotionally attached (don't fall in love with a stock) and yet, I did what the book said 90% of the people will do...I fell in love and "hoped" my way to a $59,000 loss.
Maybe I'm wrong in the next 10 years...maybe not. Again, I was the biggest proponent of 401k's and self retirement (wanted to get rid of SS in my younger years) but living through the decade of the 2000's has taught me that the average Joe (which I'm one of) has little chance of success in the markets and the big boys of the markets know it, especially in today's "high speed trading" world.
I was in the middle of typing out a reply but company came over so I'll have to get back to this
I do put 15% of my own money in plus get the matching so end up with 20% into it a year.
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