Which Investment Generalizations Should You Treat as Fact?

People always say that investing is more of an art than a science. This is true because there’s always an exception to every rule. Caveats abound when dealing with such a small sample size in a complex adaptive system such as the financial markets. So instead of concrete truths, investors are forced to deal in generalizations. Here are some popular ones along with the caveats:

Most active mutual funds are terrible, but not all of them.

Most short-term news is noise and can be ignored, but sometimes it matters to the markets.

Index funds outperform the majority of active funds, but not all the time.

Most hedge funds are terrible, but not all of them.

The market is not efficient, but it’s mostly efficient most of the time.

Many market outcomes have a lot to do with luck, but there is skill in the markets as well.

Most liquid alt strategies will end up being too expensive to achieve their stated goals, but not all of them.

You get what you don’t pay for, but truly good financial advice can be worth it.

Picking stocks is hard, but there are some people that can do it.

Beating the market continues to get harder, but it’s still possible for some.

Most traders get crushed by transaction costs and taxes, but not all of them.

The question you have to ask yourself is this: Will I benefit as an investor if I choose to assume that certain generalizations should be taken as fact? And if I choose to ignore these generalizations, do I have the skill, know-how or time to be able to prove them wrong and take the other side?

These are the questions that make the markets interesting. The correct answers say much more about how much you know about yourself than how much you know about the markets.

Further Reading:
Questions Most Investors Don’t Ask Themselves
Lies Investors Tell Themselves

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