The Long-Term Case for Equities

ogy in Cambridge (MA 02139). n the first issue of the Journal of Portfolio Management (Samuelson [1974]), I interpreted the evidence to speak largely in favor of markets being I efficient: The ball was said to be in the court of those who allege that activist judgment can improve on broad &versification-cum-lean expense ratios. Microefficiency in the pricing of stocks, bonds, futures, and derivatives, I argued, was not a mysterious dogma like the manifest impossibility of creating a perpetual motion machine. A few stars with superior information and clever ability to squeeze excess risk-corrected returns from those data could earn high rents; but investors will find it hard to identifjr the stars from the merely lucky; and after competition makes you pay top dollar for superior advice, most investors can eke out for themselves only skimpy excess returns. To commemorate this Journal’s fifteen years of success (Samuelson [1989]), I reviewed the cogency and accruing empirical verisimilitude of that agnostic questioning of activistic judgmental investing. By and large, the ball that was put in the court of the wouldbe judgment-mongerers never did get returned with point-winning velocity. The jury of history did not find systematic inefficiency that exercisers of judgment could use to achieve excess risk-corrected returns. We can expect the debate to go on. And that tells you something about the approximate microefficiency of the organized markets where widely owned securities are traded.