May 19, 2016

The S&P 500 is the World’s Largest Momentum Strategy

In many ways the stock market makes no sense. You would assume that half of all stocks would outperform a market index while the other half would underperform. Then all you would have to do is pick from the top half and avoid the bottom half, make massive amounts of money and go buy an island somewhere.

Unfortunately, the stock market doesn’t follow a normal bell-shaped curve. Active investing may be a zero-sum game, but picking individual stocks is not. It doesn’t work out that half of all stocks outperform and half of all stocks underperform. There are huge tails when you look at the extreme over- and under-performers in the market.


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