The Archive: You Bet!
The Memo by Howard Marks
Exploring the Nuances of Active Investing and Market Efficiency
Active investing in public companies involves uncertainty due to incomplete information, as well as the influence of luck and unpredictable external events on company performance. Skilled investors can better assess revenue potential, cycle position, asset prices, and safety margins. In contrast, index investing eliminates the need for hidden information, luck, and skill, as the goal is to match the index return using a well-programmed computer. The efficient market hypothesis suggests that assets are fairly priced, limiting opportunities for outperformance through skill. However, the level of market efficiency varies across markets, with some offering more opportunities for skillful investing (alpha markets) while others mainly depend on market movements (beta markets).
Remember Everything You Learn from Podcasts
