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Comment by suddenclarity | Hacker News Reader

For people new to this or not reading the text, the key words are "list of internet companies" during the dot com bubble. The monkey throwing darts had very little to do with it.

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I highly recommend the book "A Random Walk Down Wall Street" for further insight on this topic[0]. It provides compelling evidence demonstrating that the majority of professional fund managers tend to underperform or match the results of random stock picking strategies.

[0] https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street

Thinking Fast And Slow by Daniel Kahneman among many other things explores the answers to "Given the same information presented to hedge fund managers, why does one buy and another sell" and concludes relying on extensive research the answer is: their performance can't be distinguished from rolling a dice. The book is very strongly recommended.

Nassim Taleb is merciless towards this kind of people in all of his books.

I'm wondering, as I read this over and over again about random picks performing as well or even better than professionals in the field, how come we never see rigorous scientifc studies about this for various timescales?

If we could really attribute this task to randomness wouldn't this save a lof of money to financial institutions considering how much the same people earn for these tasks?

This is what "whole market funds" or "S&P 500 funds" are all about. No stock picking, other than identifying some pre-existing known set of stocks, and just investing in them without discrimination or effort. They have become quite popular over the last 15 years as the "random walk down wall st" idea has spread within (US) culture.

I have read, and heard from multiple financial professionals, that these work best in low interest rate bull markets, and are more likely to underperform active management strategies in more turbulent and difficult financial environments, such as the one we are entering.

The phase you're looking for is tax loss harvesting. A good money manager on a good fund will be able to take advantage of that in a down market, leading you to greater riches when there's a bull market. You can do it yourself, but you can also pay a professional to do that work for you, hence the fees on a given fund.

> I'm wondering, as I read this over and over again about random picks performing as well or even better than professionals in the field, how come we never see rigorous scientifc studies about this for various timescales?

Erm, Kahnemann got a Nobel price in economy for his work with Amos Tversky over a decade which this was a part of. I am not sure what you need here, do you need a list of papers by Kahnemann and Tversky? With Terry Odean thrown in for good measure? I am not sure who the "we" are here who do not see these papers but they do exist.

It's more profitable to sell hope

People are willing to pay a premium for good marketing and an air of superiority.

interesting.. how would it explain bridgewater / ray dalio's track record etc?

the classic reply:

consider a stock picker who starts with 256 people, tells 128 of them that next week Tesla will go up and Twitter will go down. Whichever happens, take that 128 strong cohort, tell half of them that the next week, Ford goes up and Chrysler goes down.

Etc.

repeat for 8 weeks.

At the end, the stock picker has a true believer: someone who thinks they saw the stock picker successfully "know" for 8 weeks in a row which stocks would go up.

Change the numbers around a bit, don't run until the true believer pool size is one, and you've got ... the real world.

Even in a purely random model you'd have outliers that over the long term outperformed the market. You'd just expect that to be very rare.

From this, most people conclude that financial managers cannot outperform the market. Which is obviously false since there are a bunch of managers that have consistently beat the market for many decades.

The actual conclusion is that most financial managers are fakes, and laypersons cannot tell the legit from the fakes.

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