Returns are used to quantify results, but you can't compare returns between a hedge fund or trading or market making operation - and a retail customer putting a

Returns are used to quantify results, but you can't compare returns between a hedge fund or trading or market making operation - and a retail customer putting away their retirement money. Two entirely different operations at work that result in an overall annual return for each. In buying a stock, you're buying exposure to a number of factors that affect the stock price: the company, the money flows into/out of that company's industry, and the flows in/out for stock market as a whole. In buying an index you get a more pure exposure to the stock market as a whole. When indexes do well, its only because money is flowing into it from other asset classes (or "money printing" by central banks). Whether we should accept Efficient market hyposisis as explanation of Indexes beating pros, is a little more complicated. Yes, its true everyone has access to the same information. In fact, it's illegal to trade on insider information. However, when Indexes beat pros, people are quick to say, 'yep.. Efficient market..', but Indexes have support that the individual stocks or baskets don't have. A pledged support by the Fed to print money to prop it up. Take Wells Fargo. Maligned in the news, down stock price, but still a powerful bank. Buying the stock - not a irrational decision. But, will the Federal Govt let them go down? They didn't AIG, but who knows. Now imagine the Index crashes, the Fed steps in. Indexes have the advantage here.