If you had to guess how much money we (as Americans) spend trying to "beat" the stock market, what would you come up with?
$100B sound about right? (and yes, that is a "B").
More striking, the number is 1980 was $7B. So in 27 years, the number has grown by over 14x.
Since I am a nerd, I did the math - that is basically a 10.4% CAGR in money spent to beat the market, and from 1980 to the end of 2007, the market went up 14.9x (or about 10.8% CAGR).
So I am not an economist by any means, but basically as a whole, the market went up by 10.8% every year and American's increased spend at 10.4% each year to try to beat it. So good money chasing a bad idea.
Still don't believe me? Well maybe Warren Buffet can convince you better:
Everyone expects to be above average. And those helpers - bless their hearts - will certainly encourage their clients in this belief. But, as a class, the helper-aided group must be below average. The reason is simple: 1) Investors, overall, will necessarily earn an average return, minus costs they incur; 2) Passive and index investors, through their very inactivity, will earn that average minus costs that are very low; 3) With that group earning average returns, so must the remaining group - the active investors. But this group will incur high transaction, management, and advisory costs. Therefore, the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group - the "know-nothings" - must win.Again, the best way (if you are a long term investor) is to keep a large portion of your money in an broad-based equity fund and let it work for you over the long haul.
So ends my Econ class of the week.
