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The market is always shifting. People who deeply understand the companies in their portfolio will generally outperform the market at large by finding and exploi

The market is always shifting. People who deeply understand the companies in their portfolio will generally outperform the market at large by finding and exploiting mismatches in the market (i.e. active management). The question is how much people are willing to pay for active management. The more that investment moves towards index funds, the larger the gains to be made from active management. Higher demand for active management results in higher fees for actively managed funds, and investment capital goes back to index funds, and the cycle repeats. If people forget anything about index funds, it's that they're not guaranteed to go up, just like any other investment vehicle. It's a reasonable choice to make to put decades' worth of savings away for retirement, because the stock market trends positive over the long-term, but people are kind of looking at index funds right now as "if I put my money in index funds then I'll be set for retirement because they're 'de-facto guaranteed' to go up over the long-term" and well, that's a dangerous over-simplification.

ch4s3 9y ago
>People who deeply understand the companies in their portfolio will generally outperform the market at large by finding and exploiting mismatches in the market (i.e. active management) There is no evidence that I'm aware of suggesting that active management "generally' outperforms the market. In fact, most evidence points to the majority of active managers performing worse than the market in the long run.
- madengr 9y ago
  Agree. Once the management fees are considered, you don’t come out any better than an index fund. At least that’s the conclusion in A Random Walk Down Wall Street. Reminds me of John Stossel throwing darts into the newspaper stock section, and doing just as well as managed funds.
- pedrocr 9y ago
  In aggregate it's mathematically impossible for active management to outperform the market: https://web.stanford.edu/~wfsharpe/art/active/active.htm https://web.stanford.edu/~wfsharpe/art/active/active.htm For every smart active manager that beats the index someone else is on the other side of the bet losing.
  - ch4s3 9y ago
    That's pretty much my point.
    - pedrocr 9y ago
      I was reinforcing that it wasn't a matter of "evidence" it's just impossible.
  - rphlx 9y ago
    Note though that once the market is majority passive - which seems likely within the next decade - it actually is theoretically possible for active to slightly outperform passive.

ch4s3 9y ago

>People who deeply understand the companies in their portfolio will generally outperform the market at large by finding and exploiting mismatches in the market (i.e. active management) There is no evidence that I'm aware of suggesting that active management "generally' outperforms the market. In fact, most evidence points to the majority of active managers performing worse than the market in the long run.

madengr 9y ago
Agree. Once the management fees are considered, you don’t come out any better than an index fund. At least that’s the conclusion in A Random Walk Down Wall Street. Reminds me of John Stossel throwing darts into the newspaper stock section, and doing just as well as managed funds.
pedrocr 9y ago
In aggregate it's mathematically impossible for active management to outperform the market: https://web.stanford.edu/~wfsharpe/art/active/active.htm https://web.stanford.edu/~wfsharpe/art/active/active.htm For every smart active manager that beats the index someone else is on the other side of the bet losing.
- ch4s3 9y ago
  That's pretty much my point.
  - pedrocr 9y ago
    I was reinforcing that it wasn't a matter of "evidence" it's just impossible.
- rphlx 9y ago
  Note though that once the market is majority passive - which seems likely within the next decade - it actually is theoretically possible for active to slightly outperform passive.