In 1709, English poet Alexander Pope warned "a little knowledge is a dangerous thing." This observation describes the plight of the active investor. Armed with advice from media pundits, many active investors discover too late how little they know. They think active investing is the only way to make serious money. However, that conclusion is debunked by the wealth of knowledge produced by Nobel Laureates.
Whom Should You Trust?
In traditional 12-Step Programs, the second step is to acknowledge the presence of a higher power. Nobel Laureates serve as the higher power for investors. They provide us with Nobel Prize-winning research and hundreds of peer-reviewed published papers that collectively discredit the myth that active investors can consistently beat the market. Instead, their research supports the argument that a globally diversified, low-cost strategy maximizes returns at given levels of risk.
In the painting titled, Whom Should You Trust?, the dilemma of investors is depicted. On one side is the slick salesman of Wall Street products. Tugging on the other side is an academic who provides unbiased research that does not require the facade of a polished advertising campaign. The investors are caught in the middle, torn between the forces of salesmanship and empirical evidence. Hopefully, they will listen to the evidence.