Comparing unequal equal

Comparing unequal equal has been a curious practice of our uncertain times.

 Outperforming the market is a common fallacy, or outperforming the peers; either of this needs some careful scrutiny it deserves. Let us deal with the first one.

 Eugene Fama, the winner of the Economics Nobel Prize, recently reemphasized the treatise that the market is the sum total of all the available information; if an outperformer has an information that is far superior than the sum total of the market information, this information could only be acquired at a very high cost, which in other words would bring the return back to naught. The most detailed study by Barras, Scaillet and Wermers shows that only 0.6% (statistically indistinguishable from zero) showed signs of beating the market over long periods. But after deducting all management fees, these funds made paltry gains over the average gains in the market. This is all the more reasons why ETFs became a better choice.

 There is however a rider that HFT (high Frequency Trading) changed the complexion, but only for some time as in no time that became the standard (better covered in the book “Flashboys”, so brilliantly).

 If your peers in the same industry are always doing far worse than you on a consistent basis, you are no more part of the same group, as by definition peer means being equal. Comparing unequal equal has been a curious practice of our uncertain times.

 No one compares Google with its rival or Facebook, as there is no one. They are peerless. How many examples do we have, well many, but we hardly notice them as these companies do not get traded in the market, their superior performance do not ignite the market or their worst days do not create a deluge. I am talking of the Cargill, Koch or IKEA, the last by the way is non-profit, but continues to grow mysteriously with opacity. They are as much flexible as much rigid, in their ability to cut costs and be frugal, while making their employees happier (as IKEA declares openly).

 When you are peerless, you excel, and you stay peerless; none of these privately held companies ever had any desire to go public. They never had to deal with quarterly filings, buying back stocks, or worry about the market. They kept on doing what they knew best and never had to compare with peers.

 Comparing with peers, by the way comes when, may be, times are bad, when market is bad overall. When the market is doing wonders who cares for peers, anyway.