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They don’t want to be what investor Mark Kritzman calls “wrong and alone.” 

A manager with one-third of assets in Chinese stocks won’t get fired if that market falls, since almost every other firm has similar exposure. Being wrong together gives every manager plausible deniability.

But a firm that holds little or nothing in Chinese stocks will be blamed by clients if China booms, since its funds will lag behind their competitors. Being wrong and alone is what gets asset managers fired.

So NOBODY KNOWS ANYTHING because most investment firms, whether they passively track a benchmark or actively pick stocks, have chosen to echo the weights of China in leading market indexes, no matter what happens.

WSJ 24 September 2021


Stock picking has a terrible track record, and it’s getting worse. That’s the thesis of Larry Swedroe and Andrew Berkin’s book, “The Incredible Shrinking Alpha"

If you go back 60 years or so, 90% of all stocks were bought by people like you and me. Today, that number may be 10%. And investors are increasingly putting their money into index funds that just mimic the overall market. 

Don’t we still need active management to pick stocks?  What happens if we all just become index investors?

 I think that the percentage of passive investing can get much higher, likely to 90%, and there would still be enough active traders to make the market efficient.

Wall Street is engaged in a propaganda war. Wall Street wants you to believe active management works so you’ll pay them the high fees. 

It is not in the business interest of the financial advice industry to recommend passive strategies. The financial press goes along with this because promoting the latest stock predictions from Wall Street gurus makes for a good story.



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