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The Paradox of Financial Research: Why Smart People Disagree
The deeper you go into financial research, the harder it becomes to hold unwavering conviction. For every rigorous paper supporting one strategy, there’s another—equally credible—challenging it. Highly intelligent, empirically-minded researchers often reach different conclusions, not because one is right and the other wrong, but because markets are complex, adaptive systems. There’s no single ‘optimal’ portfolio, only a range of plausible approaches shaped by assumptions, preferences, and behavioural realities. In the end, what matters most is not whether your chosen strategy is perfect, but whether it’s grounded in evidence and robust enough to stick with when doubt inevitably creeps in.
Discretionary Active Fund Managers or Crystal Ball Psychics?
The idea that discretionary active fund managers can consistently beat the market is fanciful. A stock’s price already reflects all known information—if profits were easy to find, they’d be gone in an instant. Prices only move on unexpected news, and no-one can reliably predict the future. Not active fund managers. Not economists. Not even the weatherman.
Relying on a discretionary active fund manager to forecast the economic fortunes of thousands of companies is like trusting a fortune-teller with your life savings. Instead, use financial science—robust, data-driven, and grounded in decades of research.
Good financial decisions aren’t about predicting the future—they’re about following a sound process today.
In investing, outcomes are noisy. Short-term performance often reflects randomness, not skill. Yet fund managers continue to pitch five-year track records as if they prove anything. They don’t.
As Ken French puts it, a five-year chart ‘tells you nothing’. The real skill lies in filtering out the noise—evaluating strategy, incentives, costs, and behavioural fit.
Don’t chase what worked recently. Stick with what works reliably.