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This is going to change because too much money in indexes means not enough capital is chasing winners, and is instead enjoying the rising tide. That is okay and

This is going to change because too much money in indexes means not enough capital is chasing winners, and is instead enjoying the rising tide. That is okay and it is sustainable. But it still means that the upside for the ones who do chase winners and who succeed in placing correct bets on great companies will be more and more massive. Because the delta in capital from the index to the cream of the crop will be way larger in absolute terms as the indexes grow in size, and the winners will continue to prop up a huge rising tide of continued innovation. I’d be worried if nobody could beat the market. 7% to 15% beating the market seems reasonable to me. The market is an incredible abstraction and it works, and it’s also still great and reassuring to know that there’s still an echelon of actively managed funds that beat the market.

cft 3y ago
That's a very good insight. The success of the index funds is nothing but an indicator of the inflation from the top, that has not trickled down to Main Street until recently. In a stable solid monetary regime, capital is forced to pick individual stocks, as opposed to riding the inflation wave.
Gatsky 3y ago
Agree, ~7% seems ok? The funny thing about the profession of active fund management is that there is a ‘scoreboard’. Almost no other profession can or would score itself like this. If they did, I doubt more than 7% would beat a suitable benchmark for hairdressers, plumbers, doctors etc. This ‘score’ has other useful properties. A successful fund manager has to operate under difficult and changeable conditions for long periods of time. They can’t get there just by default or by being lucky. Knowing which people can do this very challenging task means the advice they give about investing, managing your own psychology and life in general is imbued with a legitimacy that is difficult to find elsewhere.
- cool_dude85 3y ago
  >They can’t get there just by default or by being lucky. Why do you say that? If I ran a League of Coinflip Guessers with 10,000 entrants, someone would still win the league, and probably with an astonishing score too. Why not the same with stock returns? You have 10k managers it stands to reason some of them will by pure chance beat whatever metric you set.
  - Gatsky 3y ago
    I guess the analogy would be if every year the same people keep finishing in the top quartile in your coin league, at the same time as failing to make the expected losses dictated by chance.

cft 3y ago

That's a very good insight. The success of the index funds is nothing but an indicator of the inflation from the top, that has not trickled down to Main Street until recently. In a stable solid monetary regime, capital is forced to pick individual stocks, as opposed to riding the inflation wave.

Gatsky 3y ago

Agree, ~7% seems ok? The funny thing about the profession of active fund management is that there is a ‘scoreboard’. Almost no other profession can or would score itself like this. If they did, I doubt more than 7% would beat a suitable benchmark for hairdressers, plumbers, doctors etc. This ‘score’ has other useful properties. A successful fund manager has to operate under difficult and changeable conditions for long periods of time. They can’t get there just by default or by being lucky. Knowing which people can do this very challenging task means the advice they give about investing, managing your own psychology and life in general is imbued with a legitimacy that is difficult to find elsewhere.

cool_dude85 3y ago
>They can’t get there just by default or by being lucky. Why do you say that? If I ran a League of Coinflip Guessers with 10,000 entrants, someone would still win the league, and probably with an astonishing score too. Why not the same with stock returns? You have 10k managers it stands to reason some of them will by pure chance beat whatever metric you set.
- Gatsky 3y ago
  I guess the analogy would be if every year the same people keep finishing in the top quartile in your coin league, at the same time as failing to make the expected losses dictated by chance.