Mark Perry shares a nice analysis on investing from CBS MoneyWatch.

There are lots of good numbers that tell the story in the above link. Here is one (perhaps the least interesting but most important):

“Over long periods of time, the S&P 500 has consistently outperformed something like 94-97% of actively managed mutual funds,”

One of the problems is that people – pros or not – refuse to recognize how bad they are. They refuse to account for all expenses (like trading fees, taxes, and cost-to-carry/opportunity cost) and refuse to acknowledge all losses (like trading fees or marking-to-market assets that have underperformed but have not been sold because they’re sure they will rebound some day).

Another problem is that it’s really hard to understand that what you might think is skill might just be luck. The odds aren’t that bad that if you pick 10 stocks that all move randomly either up or down, that you’ll end up with a majority (or even a totality) of up-movers. You’ll think you’re a great stock picker. But really, without a control in place, you’re just lucky. Nassim Taleb discusses this at length in his wonderful book The Black Swan. 

If you’re an individual investor that believes you can beat the market, contact me. I have money to give you. If you will show me your past portfolios with ALL details included, then I will consider giving you money to invest along with a management fee that we negotiate.

-JD Cross