- Another Puzzle: The Growth in Actively Managed Mutual Funds shows that many investors consistently choose mutual funds that beat the market, later termed the "smart money" effect.
- Profitability of Momentum Strategies: An Evaluation of Alternative Explanations is a recent paper on an anomaly termed "stock return momentum": briefly, a portfolio that buys recently-rising stocks while shorting recently-falling ones is consistently profitable (ignoring transaction costs, I think).
- Does Stock Return Momentum Explain the "Smart Money" Effect? answers the question posed in its title in the affirmative.
So, what did I conclude? I'm now fairly convinced that a smart person that devotes a lot of time to research can beat the market, in the long term. I'm also pretty convinced that I don't want to spend that kind of time on investing, and even if I did, I may be too risk-averse to be successful. So, for the most part, I'm sticking to index funds.
Vaguely related: this Business Week article on adjustable-rate mortgages is worth a read. Looks like a lot of people made bad decisions with these things.