Warren Buffett’s recent annual letter to shareholders explains that the reason mutual and hedge funds cannot beat the market is due from the fact that:
- the MER, Management Expense Ratio, eats into the returns.
- the majority of mutual fund managers will not beat the index.
Therefore, you may get a manager who can beat the index from time to time, but if he/she beats the index every year, I call insider trading which is illegal. Therefore, he/she maybe investigated for securities fraud.
The one thing that is known is that to consistently make money buying and selling securities without a loss is statistically impossible. Therefore, anyone who mentions that he/she can beat the markets every time as a day trader without suffering a few losses here and there is hard to believe.
The purpose of stock trading is to win more than you lose. Therefore, you will lose some bets while winning others. If you are a long-term investor investing in stable corporations, the chances of winning every time increases.
If you look at RBC, in March of 2007, RBC was trading at $57/share. As of Mar 14, 2017, it is close to $100/share.
RBC trading range on Mar 14, 2017 is between $97.04 and $97.68.
Therefore, a day trader can profit from the volatility on a daily basis, or a long-term trader can profit from a buy and hold strategy.