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People seek out active managers because it's not a fiction that there are successful ones. They're simply difficult to identify before they become celebrities,
by dsacco 10y ago
People seek out active managers because it's not a fiction that there are successful ones. They're simply difficult to identify before they become celebrities, at which point they're too expensive for all except institutional investors. Unfortunately, the relative few spur the hunt for the supermajority, who are mediocre.
Keep in mind two other facts. First, this piece is published by the Index Fund Advisors, which implies a fundamental bias against active management (and that's not necessarily bad! Index funds are almost inarguably superior for almost everyone). Second, Eugene Fama's Efficient Market Hypothesis does not have widespread support in its strong form. In the years since his thesis, even Fama has walked back to a more reasonable position that allows for people to beat the market. The weaker form of the hypothesis allows for successful managers, just comparatively few of them.
- ryandrake 10y agoThere are successful coin flippers too, who can flip heads 10 times in a row! Just have to get a room full of few thousand coin flippers and when you find the guy who does 10 in a row, ask him how he became so skilled.
- dsacco 10y agoThe tired coin flipping trope is just dismissive and does nothing to seriously argue against the possibility of people consistently beating the market. Even Warren Buffett, the champion of index funds, has argued against the coin flipping analogy. I've had this discussion several times before, so in lieu of rehashing it I'll just put this here: https://news.ycombinator.com/item?id=13451161#13452516 https://news.ycombinator.com/item?id=13451161#13452516 Empirically map your coin flipping analogy to a probabilistic model of the likelihood of beating the market and then we can reasonably talk about it. There are real arguments to be made, but saying "coin flipping!" does nothing to seriously engage with the debate.
- SirLJ 10y agoThe problem with the big funds are that they remaking money from their fees... e.g they do not have incentive to look for alpha... best strategy for them is preserve capital and live off the 2% fees
- yoasif_ 10y agoYou'd have a point if the competition charged fees on a percentage of "alpha" generated -- but they don't, they largely charge more fees than index funds, irrespective of whether they outperform.