I recently read Investment Gurus, by Peter Tanous. This is one of the most informative and interesting books on investing I've ever read. In the book Mr. Tanous interviews a number of investment professionals who have compiled incredible records over extended periods of time. To balance the opinions raised, he also interviews several academicians who contend the markets are efficient and the most predictable road to investment success is through the use of low cost index funds. One of the interviewees makes a compelling argument that to beat the market averages an investor has to do substantial digging to gain any advantage. The cost of the digging negates the higher returns obtained. It was also pointed out by several of the academicians that studies show no correlation between past and future performance. In other words, those who had exceptional returns in the past, only have a 50 percent chance of repeating this in the future. It should be noted that high (expense ratios) cost funds have a tendency to perform poorly no matter what timeframe you look at.
An interesting side note: The manager of the Brandywine fund was one of the professionals interviewed because his long-term record was exceptional prior to the publishing of the book. If you check the performance of the Brandywine fund recently and it has only been an average performer trailing the S&P 500 substantially over the last year. Maybe there is something to this idea of market efficiency.
One of the active managers with an exceptional record, Laura Sloate, mentioned a couple of stocks during the interview which she felt were bargains and would rise. One was Marvel Entertainment. Ms. Sloate didn't feel it could go much lower than its price then of around $10 a share. Last time I looked Marvel was trading at less than $1 per share. Maybe she did just happen to get lucky in the past. But perhaps she has a good sell discipline which allowed her to get out of the stock before the big fall.
One of the academic interview!ees, Rex Sinquefield, made a interesting quip. He called stock market newsletters "investment pornography," due to their dubious worth. I must say that I have to agree with him. Ninety percent of investment newsletters aren't worth the paper they're printed on.
All in all, I came away reinforced in my belief that individual investors should have the majority of their funds going into index funds, preferably on a dollar cost averaging basis. If you feel compelled to "play" the market, do it with money you can afford to lose and keep track of your returns, or lack thereof. This way you'll discover the futility in trading your way to riches and not suffer as much in the process.