I am more convinced than ever that the best investment returns come to those that invest in a broadly diversified and unmanaged group of stocks. Some would say, “you are getting the average return of thousands of companies.” That is not true! Rather, you are benefiting from the collective wisdom of millions of market participants.
Evidence is overwhelming that the Free Market provides the very best investment returns over time. However, many people still resist this simple strategy. Why?? People wrongly think the market return is a mediocre return.
Richard Larrick and Jack B. Stoll suggest that most of us have bad intuitions about averaging. We assume that averaging means dumbing down or compromising. When people are faced with the choice of picking pieces of advice from a number of experts, they try to pick the best expert rather than simply average across the group. Another reason, surely, is our assumption that true intelligence resides only in individuals, so that finding the right person – the right [money manager], the right CEO – will make all the difference. In a sense, the crowd is blind to its own wisdom. Finally, we seek out experts because we get, as the writer Nassim Taleb asserts, “fooled by randomness.” If there are enough people out there making predictions (i.e. over 27,000 mutual fund managers), a few of them are going to compile an impressive record over time. That does not mean the record was a product of skill, nor does it mean the record will continue in the future.
The Wisdom of Crowds, James Burowiecke
You are able get the collective wisdom of millions, why settle for the limited ideas of a few? Markets are Efficient! Stop paying for self proclaimed experts that promise you something they have not and can not deliver. Free Market Portfolio Theory efficiently operates on a proven investing philosophy to capture the best return that the entire market has to offer prudent investors!
