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Someone Will Come Out On Top of The Market Due To Chance |
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Consider famous mutual fund manager Bill Miller of Legg Mason Value Trust. For 15 calendar years his mutual fund beat the Standard & Poor's 500 Stocks Index before stumbling in 2006.
Miller was hailed as a genius and was highly paid. But was his performance un-usual? Not really. He competed with about 7,000 other mutual fund managers.
The odds that one of those managers would beat the market 15 years running was almost three in four, writes Leonard Mlodinow in "The Drunkard's Walk: How Randomness Rules Our Lives." It would have been stranger had Miller or someone else not put up such a streak, Mlodinow wrote.
Control freaks
Yet we make snap portfolio decisions all the time based on our perceptions of stock market patterns. Why? Probably because we feel a very human need to be in control. Believing the market has patterns that are predict-able makes us feel better, but may end up hurting our ability to make rational decisions.
©OSB Financial Services, INC. rights reserves. Information has been obtained form sources believed to be reliable, but its accuracy and completeness and the options based thereon, are not guaranteed. Always consult your a financial adviser and prospectus before making an investment
©2009, Kelly Ruggles Web site
Kelly C. Ruggles is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles is the author of "The Financial Playbook" for Retirement
Kelly C. Ruggles does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions
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