The Love/Hate Cartoon
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This insight is why I read ET (well, one of the reasons why I read ET) - it not only explains the topic at hand, but forces me to think harder and deeper about things I think I understand well, like, in this case, passive investing:
“You don’t have to argue with someone explaining why it’s OK that their model predicts that 70% of outcomes are worse than the median. If you believe at all in the principles that underlie a belief in passive management, the zero-sum game is your rock. If someone can’t adequately explain why they are telling you a massive cross-section of financial markets is non-zero-sum, or if they can but can’t explain why the dimensions of that cross-section aren’t just a feature of persistent structural tendencies related to the definition of that cross-section, they simply don’t have information that is of any interest to you.”
My only somewhat counterpoint to the theme of the piece - the sell-side creates a cartoon of the buy-sides’ results for its own business advantage (which is fair and accurate) - is to also recognize that the opportunity to do so - to create active-management-results analysis - exists because the buy-side has no interest in creating honest, non-bias, industry-uniform standards to measure its performance* because of its own business interests.
I think it is very fair to say that everyone is getting a little bit of what they want here, which is the ability to prevent others from accurately assessing their performance / research. Thanks, Mark!
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