I think you just catalogued the definition of the bias that exists here as being based upon sweeping generalizations and ignorance:
"Something like 9/10 funds under perform the market as a whole, right?" - What does that mean? That 9 out of 10 mutual funds return less than the average improvement in the Dow? That means that 9 out of 10 funds would be weighting in the bottom 50% of all stocks?
"Analysts are almost all liars marketing themselves, I don't think they need a 'break'."
- When has it ever worked out for someone to say "All or nearly all people are X" when you're talking about a large group? It reflects very poorly on the author whenever they make sweeping generalizations like this.
"the profession of stock analyst is about equal to Snake Oil Salesman"
- Which is really just a step above name calling in the schoolyard. And a stock analyst is very different from a fund analyst but I doubt that really matters to you.
I have often suspected that one of the things that drives PG was this generalization that programmers by their very nature don't understand how business works and therefore don't need a seat at the business table. It's always better to be breaking down stereotypes rather than playing into them.
Ok, name a dependable public stock analyst, one who accurately portrays companies and makes good predictions. One of the better analysts I know of is Warren Buffet, but he doesn't share his analysis publicly, nor does he make his money based on publishing his analysis. He's also wrong sometimes, but his his right moves have far outweighed the wrong moves.
Most analysts are not Warren Buffet, or even close to it.
My favorite example: Costco. I love Costco, shop there all the time, the CEO is Mr. Fantastic as far as giant corporate CEOs are concerned in my book. Cashiers make too much money there, according to analysts. (Quoting from Wikipedia, but originally from the Houston Chronicle)
In an interview published in the Houston Chronicle on July 17, 2005, he told Steven Greenhouse that he was not interested in Wall Street analysts who took issue with his care for employees and customers rather than happier shareholders. Investors might want higher earnings, but Sinegal stated, “We want to build a company that will still be here 50 and 60 years from now." A favorite saying of his is “you have to take the shit with the sugar”. Investors who bought $10,000 of Costco stock in 1992 had $43,564 ten years later, a return of 354% (or 15.855% annually).
So it's not just "Computer Programmers" who are skeptical of stock analysts. I have a minor in Mathematics, I can compute earning ratios just as well as the analysts. I don't paint them with a broad brush because I know little about what they do, I paint them with a broad brush because I know A LOT about what they do.
And what they do is akin to "reading the bones", unless they have insider information, based on past performance. I mentioned Buffet before, but he only makes decisions when he's almost certain(and still stometimes wrong) he knows about he company he invests in. The talking head analysts I see have no such certainty requirement.
Totally agree, but Buffet's angle was that you play for the long haul, right? To me that's not what an "analyst" does. It what an "investor" does. Research research research.
He's not trying to figure out what exact earnings-per-share are going to be for companies every quarter. In fact, he was trying to discourage companies from giving earnings guidance.
Well, we know Buffet knows what a company's earnings are and has his private projections. One of the way he picks a stock is based on its earnings and potential earnings to price ratio, ie: is the stock "cheap". So, whether a stock is making $.32 or $.33 a quarter he doesn't say, but I bet he has his own estimates based on his research, but probably only on the companies he's interested in.
But yes, your point he isn't what we think of as a typical 'analyst' is correct.
er Warren Buffet learned from a guy called Benjamin Graham who's books are still in print and considered clasics the K&R or Kunth of investing if you will.
> What does that mean? That 9 out of 10 mutual funds return less than the average improvement in the Dow?
Yes, and this or something near it is a fact (http://business.time.com/2009/04/20/breaking-news-mutual-fun...). Although the underperformance typically comes from management fees, because we would expect mutual fund portfolios to average with the market. But then you have to pay the managers and analysts.
Generalizations are OK when they are true and backed up by scientific data.
The oft-cited statistic that mutual funds do not return as much as the dow ignore the concept of risk-adjusted returns. A mutual fund very well should return less than the dow if it takes upon lower risk. (However you might define risk, there are many definitions, volatility only being one.) The article presumes the goal of every investor is to maximize return vis a vis some arbitrary benchmark.
A stock-based mutual fund might actually be doing its job if it is simply not losing money when the dow surges since it's goal might be diversification via non-correlation by long-shorting the market.
There is of course some truth to the fact that mutual funds often do not earn their fees. But simply saying they cannot "beat the market" overlooks important questions about what those funds actually set out to do in the first place, and what their respective risk-taking philosophy was.
Of course, please perpetuate this nonsense, as it makes life easier for those of us who are investing relying upon it.
I have often suspected that one of the things that drives PG was this generalization that programmers by their very nature don't understand how business works and therefore don't need a seat at the business table. It's always better to be breaking down stereotypes rather than playing into them.