If it's not gambling, how come so few professionals are capable of beating the market over the long term? Remember Bill Miller of Legg Mason Value Trust?
I and others here beat the market long term. Does that make us from the most elite investors? Hardly.
Mutual funds managers (among others) have bad track record because of many issues. When they're buying millions of shares, they incur high trading costs. They also manage to raise the cost price for themselves as their large purchases affect the market price. Since they can't buy all their shares in one purchase, by the time they're done the stock could have gone up a lot.
Open market funds, which the typical fund is, has additional problems. Any person investing in the fund can pull their money out any day. Investors are also always adding. Now the fund manager has to raise cash for investors withdrawals, so he sells stocks. More trading costs. The investors buying in can bring in large amounts of money. Now the funds profitability gets weighed down whenever they're holding cash. So they buy all the best stocks they can find. But after a short while, those are either too expensive or their position in those stocks are too large. Now the fund manager has to find any stocks that can make money, even if the stock isn't as likely to rise as high as the original purchases.
It makes a lot of sense why most managers can't beat the market. And it makes a lot of sense for the passive investor to just buy the entire S&P. But for the rest of us, with gods help we have consistently beat the market. It is outright naive to think that investing in a valuable business at a cheap price is gambling.
