Wall Street for Dummies Jan 17, 2025

As we start the new year, the financial media is bloated with articles opining on how the market will perform in 2025 and offering tips on which stocks will lead you to financial nirvana. For many years, the Omaha World Herald ran a stock market prediction contest, featuring a gaggle of local financial gurus, yours truly included. Back in the early 2000’s, I won three years in a row. So, what's the secret to my success? It can be summed up in the phrase, “Every once in a while, a blind squirrel finds an acorn.” My fellow broker types cranked through ginormous reams of financial, statistical and economic data to concoct their formulaic projections. When asked for my projection, I just rolled my eyes, cocked back my head and envisioned a random number, always bigger than the previous one. Not scientific, but occasionally effective. ?

At the risk of sounding like an egomaniac, let me state publicly that the Wall Street Journal concurs with my hypothesis that the market is random and unpredictable. Last year they ran a prediction contest with a slightly different twist. Instead of pitting Wall Street professionals against the market, they took a page from Burton Malkiel’s “A Random Walk Down Wall Street.” In his opus magnum, Malkiel had blindfolded monkeys throw darts at a page of stock market listings and compared their result against a panel of Wall Street’s finest stock pickers. At the end of the year, the WSJ results were tallied and the crème de la crème of Wall Street underperformed the random darts selection by 48%.

The Wall Street Journal article then went on to state that a plane Jane vanilla index fund contains all the needles in the haystack the Wall Street professionals were search for. Trusting fund managers to find and keep owning them would result in investor frustration. Last year 43% of actively managed mutual funds outperformed the S&P 500. Of that group only 3% outperformed the year before. As a partial explanation for this result, the author of the article said, and I quote, “Words never you will never hear a fund manager say; I just got lucky.”

To provide you with my perfectly random thoughts about 2025, I will start by quoting George Santana; “History never repeats itself. But it does rhyme.” In 2024 investors added closed to one trillion dollars to index funds. The funds that receive the biggest in flows where the funds that replicate the S&P 500. The second biggest was QQQ, which tracks the NASDAQ 100 index.

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