Mission Impossible: beating the market over long periods of time

Mission Impossible: beating the market over long periods of time

http://blog.empiricalfinancellc.com/2011/06/mission-impossible-beating-the-market-over-long-periods-of-time/

I’ve been thinking about “extreme” returns recently. After all, who wouldn’t mind earning a few extra bucks in the stock market?

We all hear about quantitative strategies that are supposed to earn us 20%, 25%, or even 30%+ returns over long periods by simply “maintaining discipline to the strategy.”

Here are some examples we have discussed on our blog and have seen in the media:

• Goodwill Gone Bad, 23%
  • http://blog.empiricalfinancellc.com/2011/04/goodwill-gone-bad/

• Asset Growth, 26%
  • http://blog.empiricalfinancellc.com/2011/03/the-asset-growth-effect-in-stock-returns/

• Magic Formula, 31% (or less depending on how you do the calculations)
• http://www.magicformulainvesting.com/welcome.html

This all sounds great, but it is intellectually dishonest to not highlight the logical conclusion of such high returns. And I definitely do not want this blog to convey the idea that earning 20%+ CAGR for many years is by any means easy, or possible. Perhaps this is possible on a very small capital base, but over time, the returns on pretty much ANY strategy will slowly revert to a fair rate of return (risk and return are in balance).

http://blog.empiricalfinancellc.com/2011/06/mission-impossible-beating-the-market-over-long-periods-of-time/

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