There's quite a bit of evidence that even professionals don't show any ability to pick stocks or to predict market rollbacks. Most of the people we identify as skilled based on returns have probably just been lucky.
Interpretation
Even experts often lack the ability to predict market trends and may succeed due to chance rather than skill.
Eugene Fama's quote suggests that the stock market is highly unpredictable, and even seasoned professionals struggle to demonstrate consistent skill in picking winning stocks. He implies that the apparent success of those identified as skilled investors might be more attributable to luck than to a genuine understanding of the market's complexities.
In practice
This quote is perfect for a financial seminar discussing the unpredictability of investments.
The problem that people don't understand is that active managers, almost by definition, have to be poorly diversified. Otherwise, they're not really active. They have to make bets. What that means is there's a huge dispersion of outcomes that are totally consistent with just chance. There's no skill involved it. It's just good luck or bad luck.
After costs, only the top 3% of managers produce a return that indicates they have sufficient skill to just cover their costs, which means that going forward, and despite extraordinary past returns, even the top performers are expected to be only as good as a low-cost passive index fund. The other 97% can be expected to do worse.
Market timing doesn't work. If all the bubbles and all this mispricing really exist, how come so few people see it before it turns out that way?
If you are predisposed to be patient, disciplined and psychologically appreciate the idea of buying bargains, then you're likely to be good at it. If you have a need for action, if you want to be involved in the new and exciting technological breakthroughs of our time, that's great, but you're not a value investor, and you shouldn't be one.
Time is on your side when you own shares of superior companies.
The (stock) market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses.
Investing is the intersection of economics and psychology.
Everyone has the idea of owning good companies. The problem is that they have high prices in relations to assets and earnings, and that takes all of the fun out of the game.
Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of good business conditions. The purchasers view the good current earnings as equivalent to 'earning power' and assume that prosperity is equivalent to safety.
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