I am a firm believer that capital markets are efficient. This means I believe it is very hard to consistently pick stocks and/or time the market. I acknowledge there have been and will be investors and money managers that are able to beat the stock market. Unfortunately, it is more difficult to determine if the outperformance of an investor or money manager is due to ability or random luck.
Think of it this way. If I want to sell a share of Microsoft, there is someone on the other end willing to buy that share of Microsoft. Who is right? For whatever reason, each person on either end of the transaction thinks they are getting a good deal. Each has an opinion of whether or not Microsoft will appreciate or decline in value.
Here’s another question to ask. Assume a money manager is clairvoyant and able to predict the future. Human beings tend to be greedy, why would anyone want to share that human capital with others? Most in the investment industry are simply selling their opinions on what they think will happen in the future.
Similarly, newspaper and magazine reports are mostly based on opinion. How else do you explain the following image which illustrates how reporters from The Washington Post and The Wall Street Journal reacted to the jobs report from December 2012? Both reports ran on January 5, 2013. Who is right?