In our last blog, "Ignoring the Siren Song of Daily Market Pricing," we examined how price- setting occurs in capital markets, and why investors should avoid reacting to breaking news. Now let's look at why using a professional "pinch hitter" to try to beat the market is also ill-advised. In the words of Morningstar strategist Samuel Lee, managers who have persistently outperformed their benchmarks are "rarer than rare."
As we explained in "Jelly Beans and Investing Wisdom," independently thinking groups (such as capital markets) are better at arriving at accurate answers than even the smartest individuals in the group. Thus, even experts in analyzing business, economic, geopolitical or any other market-related information face the same challenges you do in predicting market behavior. For these experts, beating the collective group intelligence remains a prohibitively tall hurdle, especially when their fees are factored in.