Fortunately, Mr. Fama's work on efficient markets did a favor for the small investor: it spawned low - cost index funds that
replicate market averages.
«Why waste your time trying to select and manage a portfolio of individual stocks when you can
replicate the market average returns (and beat the majority of professional money managers) through an exceptionally underrated and underused investment fund called an index fund?»
Not exact matches
The results below are specific to methods we actually use, but I expect that they could be broadly
replicated using any basic combination of valuations (say, Shiller PEs), and
market action (say, moving
averages or breadth measures).
Based upon the above, and assuming 2014 may
replicate the
average performance of the 2000 and 2008 bear
markets, the Dow Index could conceivably decline to about 12300 by yearend (2014).
A portfolio strategy whereby the fund manager does not
replicate the
market exactly but sticks fairly close to the
market weightings by industry sector, country or region or by the
average market capitalization.
This type of mutual fund
replicates the performance of a broad
market index such as the S&P 500 or Dow Jones Industrial
Average (DJIA).
Although these
average returns may not accurately represent the holdings in VTSMX or your
replicated portfolio and the
average returns statistics for each
market cap may represent slightly different holdings than those of the Vanguard funds, these nuances don't pose a problem in this example because I'm using the same benchmark to estimate the returns on VTSMX and the
replicated portfolio.