Of course it’s POSSIBLE – because people do it! That much is clear. The proof is there. However, most of the people who do perform relatively well (regardless of whether they under/out perform a benchmark) do so because of randomness and luck in spite of them believeing otherwise. You could be a very intelligent investor, and perform fine, but it could still be because of a number of things other than skill. It’s not just overconfidence – it’s that when people do well they think it’s because they “knew” something or were skilled. They’re just fooling themselves. The market, due to it’s nature, is going to spit out x number of winners no matter if they are blind monkeys or WEB. it’s very difficult to prove that it was skill, especially since in most cases it isn’t. Also, there are people who perform well who do so without much/any skill at all.

“Now, we’re not all Warren Buffett, but why shouldn’t a diligent person be able to pick five to ten above average businesses and beat the market? ”

Because picking “five or ten above average businesses” isn’t what it’s about. If only it were that simple. Look at it this way….MANY people can pick good businesses. So why aren’t those MANY diligent people outperforming? heheh. Obviously there’s much more to it than selection.

The proof is there for all to see. There are very few who over the long-term perform well, and of those most of them do it by pure luck. But in spite of those realities, most people think that THEY somehow are special or skilled investors. I see this every day in my business. Clients who are clueless think they are picking a number at the roulette wheel – and that they have some kind of insight into which number will come up! How many peopel can look int eh mirror and admit that they either are not skilled enough and/or do not have the right temperment for investing. Any? THAT is the point.

You talk a lot like a Berkshire Hathaway/Warren Buffett/Charlie Munger acolyte (it takes one to know one). I accept the argument that most people don’t have the temperment to out-perform the market. However, I would argue that it’s both entertaining to try and quite possible to beat the market most of the time.

Sure, it takes more time and effort, as Ben Graham talks about in “The Intelligent Investor”. It also pays to know about the pitfalls of over-confidence you mention, and how to read a balance sheet, what to look for in terms of integrity of management, and the characteristics of a great business.

Yes, most people should invest passively, but not all. If someone is keen on studying investing, has good temperment, and can control emotion, they should be able to out-perform the averages.

Buffett says most people should buy index funds, but he has also said that if he were able to buy every business in Omaha, he wouldn’t buy every one, but would pick and choose, and buy only a handful of the top businesses. Now, we’re not all Warren Buffett, but why shouldn’t a diligent person be able to pick five to ten above average businesses and beat the market? Doing this, it should be possible to avoid most of the market’s worst businesses.

lol.

Temperment is the key. As I frequently say…”wired”. It is a very rare individual who is wired for success in investing.

Otherwise, think about it, why wouldn’t MBA’s and CA’s do very well at investing. Surely they know how to crunch numbers and/or understand business.

Funnier: Even insiders of the public companies are bad at investing in their very own company! Gee, you’d think if anyone would have a grasp on how business will be it would be top level executives at said public company. Nope.

Most of these well-informed people do poorly when ti comes to investing. It’s not the information. It’s the “wiring” of the person.

The behavioral finance stuff gets to most of us. Fascinating stuff.

There’s a Mark Sellers’ speech at I believe a university in Boston (Harvard?) that I think your readers would benefit from. Search for the link, it’s available on the net. I have the pdf if you want me to e-mail it to you. Entitled “So You Want To Be The Next Warren Buffett? How’s Your Writing?”

It is so rare that I come across anyone even discussing this issue. I find that shocking. Everyone is concerned with buying, selling, stocks, symbols, strategies, fundamentals, technicals, etc., etc. I don’t think I’ve ever seen a discussion (except for one I started) on this extremely important topic.

The question isn’t “Can I….” – it’s “SHOULD I…..”.

As for myself, after all these years of investing – and despite doing quite well performance-wise – I have come to the most unsettling conclusion that I should not be doing it. See? Good performance is not enough. In fact, I think it was mainly luck not skill that has gotten me through all these years.

In my case, it’s not arrogance, but my lack of trust in others. As aware and honest as I am, it’s still very difficult accepting that I shouldn’t be managing my own money. Plus, I don’t know WHO to give my savings over to. Pretty funny quandry for a financial advisor, eh? I’m hoping for the markets to get hit hard, and then I will probably divide my money up between a few holding companies like BRK, Leucadia, et al.