[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.00,0:00:03.65,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:14.90,0:00:17.58,Default,,0000,0000,0000,,[Man on TV] {\i1}You'll be under water!\NYou'll be losing money!{\i0}
Dialogue: 0,0:00:17.58,0:00:20.36,Default,,0000,0000,0000,,{\i1}In other words, the dividend gain\N is not worth the principal loss{\i0}
Dialogue: 0,0:00:20.36,0:00:22.100,Default,,0000,0000,0000,,{\i1}Whoa! I can't take the pain!{\i0}
Dialogue: 0,0:00:22.100,0:00:24.79,Default,,0000,0000,0000,,{\i1}That's when you want\Nto be a buyer.{\i0}
Dialogue: 0,0:00:24.100,0:00:29.53,Default,,0000,0000,0000,,[Alex] The world of investment advice\Nis a crowded and noisy place.
Dialogue: 0,0:00:29.53,0:00:33.54,Default,,0000,0000,0000,,The good news is,\Nyou can turn down the shouting.
Dialogue: 0,0:00:33.54,0:00:35.61,Default,,0000,0000,0000,,And you also don't have\Nto follow stock quotes
Dialogue: 0,0:00:35.61,0:00:38.76,Default,,0000,0000,0000,,minute-by-minute in order\Nto be a smart investor.
Dialogue: 0,0:00:39.17,0:00:41.72,Default,,0000,0000,0000,,In the next few videos,\Nwe're going to lay out some rules
Dialogue: 0,0:00:41.72,0:00:43.49,Default,,0000,0000,0000,,for smart investing.
Dialogue: 0,0:00:43.49,0:00:46.35,Default,,0000,0000,0000,,No, we're not going to tell you\Nhow to get rich quick,
Dialogue: 0,0:00:46.35,0:00:48.88,Default,,0000,0000,0000,,but we will give you\Nsome good advice
Dialogue: 0,0:00:48.88,0:00:52.23,Default,,0000,0000,0000,,for getting richer\Nslowly and steadily.
Dialogue: 0,0:00:52.75,0:00:56.35,Default,,0000,0000,0000,,Now let's start\Nwith Investment Rule #1:
Dialogue: 0,0:00:56.35,0:00:59.27,Default,,0000,0000,0000,,"Ignore the expert stock pickers."
Dialogue: 0,0:00:59.95,0:01:03.70,Default,,0000,0000,0000,,What if I told you that\Na blindfolded monkey throwing darts
Dialogue: 0,0:01:03.70,0:01:06.88,Default,,0000,0000,0000,,at the financial pages\Ncould select a basket of stocks
Dialogue: 0,0:01:06.88,0:01:10.15,Default,,0000,0000,0000,,that would do just as well\Nas one chosen by the experts?
Dialogue: 0,0:01:10.67,0:01:14.03,Default,,0000,0000,0000,,That was the controversial claim\Nmade in 1973
Dialogue: 0,0:01:14.03,0:01:17.16,Default,,0000,0000,0000,,by economist Burton Malkiel,\Nin his book,
Dialogue: 0,0:01:17.16,0:01:19.77,Default,,0000,0000,0000,,A Random Walk Down Wall Street.
Dialogue: 0,0:01:20.45,0:01:21.70,Default,,0000,0000,0000,,Years later,
Dialogue: 0,0:01:21.70,0:01:24.21,Default,,0000,0000,0000,,one of his undergraduate students\Nturned out to be
Dialogue: 0,0:01:24.21,0:01:26.08,Default,,0000,0000,0000,,journalist John Stossel.
Dialogue: 0,0:01:26.08,0:01:28.94,Default,,0000,0000,0000,,And Stossel --\Nhe set out to test this claim.
Dialogue: 0,0:01:29.49,0:01:31.39,Default,,0000,0000,0000,,Now, blindfolded,\Ndart-throwing monkeys --
Dialogue: 0,0:01:31.39,0:01:33.07,Default,,0000,0000,0000,,they're not easy to come by
Dialogue: 0,0:01:33.07,0:01:35.09,Default,,0000,0000,0000,,and the lawyer's\Na little bit worried,
Dialogue: 0,0:01:35.09,0:01:37.87,Default,,0000,0000,0000,,so Stossel threw the darts himself.
Dialogue: 0,0:01:39.28,0:01:41.67,Default,,0000,0000,0000,,[John] My darts landed\Non 30 companies.
Dialogue: 0,0:01:41.67,0:01:44.00,Default,,0000,0000,0000,,How would they do\Ncompared to the stocks
Dialogue: 0,0:01:44.00,0:01:47.08,Default,,0000,0000,0000,,recommended\Nby managed mutual funds?
Dialogue: 0,0:01:47.08,0:01:49.42,Default,,0000,0000,0000,,Oops! Better!
Dialogue: 0,0:01:50.20,0:01:52.75,Default,,0000,0000,0000,,[Alex] Sure, Stossel\Ngot lucky on his throws
Dialogue: 0,0:01:52.75,0:01:54.80,Default,,0000,0000,0000,,and he reaped high returns.
Dialogue: 0,0:01:54.80,0:01:57.89,Default,,0000,0000,0000,,But the lesson here\Nturns out to be correct.
Dialogue: 0,0:01:57.89,0:02:01.78,Default,,0000,0000,0000,,Random picking does just as well\Nas the professionals.
Dialogue: 0,0:02:02.30,0:02:04.37,Default,,0000,0000,0000,,Let's take a closer look.
Dialogue: 0,0:02:04.37,0:02:06.43,Default,,0000,0000,0000,,Most people invest\Nin the stock market
Dialogue: 0,0:02:06.43,0:02:08.19,Default,,0000,0000,0000,,by buying a mutual fund,
Dialogue: 0,0:02:08.19,0:02:10.81,Default,,0000,0000,0000,,a portfolio of assets\Nlike stocks and bonds,
Dialogue: 0,0:02:10.81,0:02:12.57,Default,,0000,0000,0000,,managed by professionals.
Dialogue: 0,0:02:12.57,0:02:14.90,Default,,0000,0000,0000,,There's thousands of mutual funds.
Dialogue: 0,0:02:15.25,0:02:17.99,Default,,0000,0000,0000,,Some of them are actively managed.
Dialogue: 0,0:02:17.99,0:02:21.66,Default,,0000,0000,0000,,They have experts picking stocks\Nand charging fees.
Dialogue: 0,0:02:22.71,0:02:27.08,Default,,0000,0000,0000,,The other type of mutual fund\Nis called a passive mutual fund.
Dialogue: 0,0:02:27.08,0:02:30.78,Default,,0000,0000,0000,,Passive funds don't try\Nto pick winners or avoid losers.
Dialogue: 0,0:02:30.78,0:02:33.79,Default,,0000,0000,0000,,They simply invest\Nin a big basket of stocks
Dialogue: 0,0:02:33.79,0:02:35.89,Default,,0000,0000,0000,,such as the S&P 500.
Dialogue: 0,0:02:36.89,0:02:40.14,Default,,0000,0000,0000,,Now this chart shows\Nthe percent of mutual funds
Dialogue: 0,0:02:40.14,0:02:43.88,Default,,0000,0000,0000,,that were outperformed\Nby the S&P 500.
Dialogue: 0,0:02:43.88,0:02:49.67,Default,,0000,0000,0000,,You can see that in most years,\Nthe S&P 500 beat a majority
Dialogue: 0,0:02:49.67,0:02:52.61,Default,,0000,0000,0000,,of the actively managed\Nmutual funds.
Dialogue: 0,0:02:53.10,0:02:55.45,Default,,0000,0000,0000,,Okay, so perhaps\Nyou're thinking, "I got it.
Dialogue: 0,0:02:55.45,0:02:58.33,Default,,0000,0000,0000,,Most mutual funds\Ndon't beat the market,
Dialogue: 0,0:02:58.33,0:03:02.09,Default,,0000,0000,0000,,but what if I invest in the ones \Nthat do beat the market?”
Dialogue: 0,0:03:02.09,0:03:06.21,Default,,0000,0000,0000,,The problem with this strategy is\Nthat the funds that beat the market
Dialogue: 0,0:03:06.21,0:03:08.45,Default,,0000,0000,0000,,are different every year.
Dialogue: 0,0:03:09.05,0:03:13.72,Default,,0000,0000,0000,,In other words, past performance\Ndoes not predict future performance.
Dialogue: 0,0:03:14.20,0:03:15.98,Default,,0000,0000,0000,,The funds that\Nbeat the market this year --
Dialogue: 0,0:03:15.98,0:03:17.70,Default,,0000,0000,0000,,they probably got lucky.
Dialogue: 0,0:03:17.70,0:03:20.89,Default,,0000,0000,0000,,And they're unlikely\Nto beat the market next year.
Dialogue: 0,0:03:21.29,0:03:26.57,Default,,0000,0000,0000,,In fact, one study looked\Nat the 25% best-performing funds.
Dialogue: 0,0:03:27.45,0:03:30.72,Default,,0000,0000,0000,,How many of these funds\Nwere still top performers
Dialogue: 0,0:03:30.72,0:03:32.74,Default,,0000,0000,0000,,just two years later?
Dialogue: 0,0:03:33.44,0:03:35.50,Default,,0000,0000,0000,,Less than 4%.
Dialogue: 0,0:03:35.50,0:03:41.21,Default,,0000,0000,0000,,And after five years, only 1%\Nof the initial top performers
Dialogue: 0,0:03:41.21,0:03:43.27,Default,,0000,0000,0000,,remained in the top quarter.
Dialogue: 0,0:03:43.93,0:03:46.40,Default,,0000,0000,0000,,So funds which are great this year --
Dialogue: 0,0:03:46.40,0:03:48.42,Default,,0000,0000,0000,,they're probably not going\Nto be so great in the future.
Dialogue: 0,0:03:48.42,0:03:50.44,Default,,0000,0000,0000,,They probably just got lucky.
Dialogue: 0,0:03:50.44,0:03:53.41,Default,,0000,0000,0000,,Okay, what about\Nthose very, very few funds
Dialogue: 0,0:03:53.41,0:03:56.32,Default,,0000,0000,0000,,that do beat the market\Nover many years?
Dialogue: 0,0:03:56.66,0:03:58.29,Default,,0000,0000,0000,,Hasn't Warren Buffett, for example --
Dialogue: 0,0:03:58.29,0:04:00.51,Default,,0000,0000,0000,,the world's\Nmost successful investor --
Dialogue: 0,0:04:00.51,0:04:04.63,Default,,0000,0000,0000,,hasn't he shown that\Nyou can beat the market? Maybe.
Dialogue: 0,0:04:05.02,0:04:08.03,Default,,0000,0000,0000,,There's no denying --\NBuffett's a very smart guy;
Dialogue: 0,0:04:08.03,0:04:10.31,Default,,0000,0000,0000,,he's made some very good choices.
Dialogue: 0,0:04:10.81,0:04:13.66,Default,,0000,0000,0000,,But it's actually harder\Nto distinguish luck from skill
Dialogue: 0,0:04:13.66,0:04:15.19,Default,,0000,0000,0000,,than you might imagine.
Dialogue: 0,0:04:15.55,0:04:16.90,Default,,0000,0000,0000,,Let me explain.
Dialogue: 0,0:04:16.90,0:04:20.98,Default,,0000,0000,0000,,Imagine that we started\Nwith a thousand so-called experts,
Dialogue: 0,0:04:20.98,0:04:24.18,Default,,0000,0000,0000,,except all the experts do\Nis flip a coin.
Dialogue: 0,0:04:24.77,0:04:28.43,Default,,0000,0000,0000,,Those who flip heads say the market\Nis going to go up this year.
Dialogue: 0,0:04:28.43,0:04:32.30,Default,,0000,0000,0000,,Those who flip tails, say the market\Nis going to go down this year.
Dialogue: 0,0:04:33.00,0:04:36.18,Default,,0000,0000,0000,,At the end of the year,\N500 are going to be right --
Dialogue: 0,0:04:36.51,0:04:37.93,Default,,0000,0000,0000,,purely by chance.
Dialogue: 0,0:04:38.35,0:04:41.89,Default,,0000,0000,0000,,Now suppose that those 500\Nthen flip the coin again,
Dialogue: 0,0:04:41.89,0:04:44.03,Default,,0000,0000,0000,,and they make a new prediction.
Dialogue: 0,0:04:44.03,0:04:48.58,Default,,0000,0000,0000,,At the end of the second year,\N250 of these so-called experts --
Dialogue: 0,0:04:48.58,0:04:50.79,Default,,0000,0000,0000,,they'll have been right\Ntwo years in a row.
Dialogue: 0,0:04:50.79,0:04:52.84,Default,,0000,0000,0000,,Again, purely by chance.
Dialogue: 0,0:04:53.21,0:04:55.40,Default,,0000,0000,0000,,Now keep going with this logic.
Dialogue: 0,0:04:55.40,0:04:57.36,Default,,0000,0000,0000,,At the end of 5 years,
Dialogue: 0,0:04:57.36,0:05:01.24,Default,,0000,0000,0000,,just 32 of the original 1000 --
Dialogue: 0,0:05:01.24,0:05:05.78,Default,,0000,0000,0000,,they will have been right\Nabout the market 5 years in a row.
Dialogue: 0,0:05:05.78,0:05:08.93,Default,,0000,0000,0000,,Now these 32 -- they'll probably\Nbe labeled market geniuses.
Dialogue: 0,0:05:08.93,0:05:10.37,Default,,0000,0000,0000,,They'll show up on television.
Dialogue: 0,0:05:10.37,0:05:12.68,Default,,0000,0000,0000,,Their services will be\Nin high demand.
Dialogue: 0,0:05:12.68,0:05:14.72,Default,,0000,0000,0000,,Perhaps some of them\Nwill write books about
Dialogue: 0,0:05:14.72,0:05:17.46,Default,,0000,0000,0000,,how to predict the stock market\Nand get rich quick.
Dialogue: 0,0:05:18.02,0:05:21.17,Default,,0000,0000,0000,,What the laws of probability\Ntell us, however,
Dialogue: 0,0:05:21.17,0:05:24.56,Default,,0000,0000,0000,,is that out of the initial\N1000 experts,
Dialogue: 0,0:05:24.56,0:05:28.47,Default,,0000,0000,0000,,about 32 were going\Nto predict the market correctly
Dialogue: 0,0:05:28.47,0:05:31.96,Default,,0000,0000,0000,,no matter what the market did.
Dialogue: 0,0:05:32.90,0:05:37.20,Default,,0000,0000,0000,,So are some market geniuses\Ntruly skillful? Sure.
Dialogue: 0,0:05:37.98,0:05:40.46,Default,,0000,0000,0000,,But it also helps to be lucky.
Dialogue: 0,0:05:40.46,0:05:43.28,Default,,0000,0000,0000,,And it's sometimes not obvious\Nwhich is more important.
Dialogue: 0,0:05:43.58,0:05:44.78,Default,,0000,0000,0000,,In recent years, in fact,
Dialogue: 0,0:05:44.78,0:05:47.48,Default,,0000,0000,0000,,Buffett's investments\Nhaven't done all that well.
Dialogue: 0,0:05:48.10,0:05:50.58,Default,,0000,0000,0000,,So lesson number one is\Nignore the people
Dialogue: 0,0:05:50.58,0:05:52.41,Default,,0000,0000,0000,,who shout stock tips at you.
Dialogue: 0,0:05:52.41,0:05:55.43,Default,,0000,0000,0000,,[Man on TV] {\i1}Dividends funded by debt\Nand not excess free cash flow{\i0}
Dialogue: 0,0:05:55.43,0:05:58.36,Default,,0000,0000,0000,,{\i1}are just too risky\Nto own from now on!{\i0}
Dialogue: 0,0:05:58.36,0:06:00.10,Default,,0000,0000,0000,,[Alex] And definitely\Ndon't pay big bucks
Dialogue: 0,0:06:00.10,0:06:02.03,Default,,0000,0000,0000,,for professional money managers.
Dialogue: 0,0:06:02.03,0:06:03.67,Default,,0000,0000,0000,,But what if you have\Nsome information
Dialogue: 0,0:06:03.67,0:06:06.07,Default,,0000,0000,0000,,about what looks\Nlike a great investment?
Dialogue: 0,0:06:06.07,0:06:08.03,Default,,0000,0000,0000,,Can you beat the market?
Dialogue: 0,0:06:08.03,0:06:11.32,Default,,0000,0000,0000,,Well we're going to cover that \Nand the Efficient Market Hypothesis
Dialogue: 0,0:06:11.32,0:06:12.66,Default,,0000,0000,0000,,in the next video.
Dialogue: 0,0:06:12.87,0:06:14.55,Default,,0000,0000,0000,,[Narrator] Check out\Nour practice questions
Dialogue: 0,0:06:14.55,0:06:16.38,Default,,0000,0000,0000,,to test your money skills.
Dialogue: 0,0:06:17.06,0:06:20.25,Default,,0000,0000,0000,,Next up, Tyler will show you\Nhow a tragic space shuttle explosion
Dialogue: 0,0:06:20.25,0:06:23.48,Default,,0000,0000,0000,,can teach us about investing.\NClick to learn more.
Dialogue: 0,0:06:23.60,0:06:26.47,Default,,0000,0000,0000,,♪ [music] ♪