Paul Samuelson Investing Quotations

Anyone with special abilities earns a differential return on that flair, which we economists call a rent. Those few with extraordinary P.Q. (Performance Quotient) will not give away such rent to the Ford Foundation or the local bank trust department. They have too high an I.Q. for that.

Forsake search for needles that are so very small in haystacks that are so very large.

In every mutual fund prospectus, in every sales promotional folder, and in every mutual fund advertisement (albeit in print almost too small to read), the following warning appears: "Past performance is no guarantee of future results."

Still, I figure we shouldn't' discourage fans of actively managed funds. With all their buying and selling, active investors ensure the market is reasonably efficient. That makes it possible for the rest of us to do the sensible thing, which is to index. Want to join me in this parasitic behavior? To build a well-diversified portfolio, you might stash 70 percent of your stock portfolio into a Wilshire 5000-index fund and the remaining 30 percent in an international-index fund.

The debate can be put in the form of the question: Resolved, that the best of money managers cannot be demonstrated to be able to deliver the goods of superior portfolio-selection performance. Any jury that reviews the evidence, and there is a great deal of relevant evidence, must at least come out with the Scottish verdict: Superior investment performance is unproved.

Perhaps there really are managers who can outperform the market consistently - logic would suggest that they exist. But they are remarkably well-hidden.

The sad truth is that it is precisely those who disagree most with the hypothesis of efficient market pricing of stocks, those who pooh-pooh beta analysis and all that, who are least able to understand the analysis needed to test that hypothesis.

Suppose it was demonstrated that one out of twenty alcoholics could learn to become a moderate social drinker. The experienced clinician would answer, 'Even if true, act as if it were false, for you will never identify that one in twenty, and in the attempt five in twenty will be ruined.' Investors should forsake the search for such tiny needles in huge haystacks.