Sunday, November 25, 2007

Great article on advisors and fund managers

An article by Michael Lewis that will make most employees of most financial firms squirm. The most interesting firm in the story is Dimensional Fund Advisors.

2 comments:

  1. Mr.Blaine Lourd & his experiences as a financial advisor as featured in this article can all be seen in the movie - BOILER ROOM. It's a visual description of what's being said in this article.

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  2. Ajay, I think the article is nice when compared to mutual funds because honestly mutual funds have no incentive to perform (after they've collected the money all they have to do is rake in the management fees which are NOT linked to performance)

    DFA by itself should not exist - because if markets are indeed efficient they are no better than the index in which case a low cost index fund should be better no?

    Note that DFA has done well only since 1999. It lagged the S&P 500 between 1995-98, 1989-92 etc. So it isn't like their funds have always beaten the market.

    If one is ok with that,one should then consider the hedge fund managers who have consistently beaten the market EVERY year for 10 years or more. Ed Seykota, Peter Lynch etc. did it in their time and so do a number of others today.

    That someone has beaten the markets consistently itself can be enough proof against the Efficient Markets Theory but don't take my word for it...there are theoretical, statistical, and holy-moly-this -is-a-load-of-bull types of proofs available against the EMT.

    They say a majority of funds fail to beat the market so you should index. A majority of entrepreneurs fail. Enough said.

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