IFA.tv - Step 3: Stock Pickers - Podcast Series

[anon69]

If market participants are rational, how does the underperforming active management industry manage to survive?

[IndexFundsAdvisors]

@anon69 The allure of quick riches and/or gambling is stronger than the recognition and accepting of the facts. It is the same reason that Las Vegas still gets gamblers. As P.T. Barnum said, "There's a sucker born every minute."

[anon69]

@IndexFundsAdvisors Right, but the fact that greed can overwhelm the recognition of facts means that market prices are set in part by suckers, who thus influence the prices of assets held by passive investors! This is not a criticism of index funds but a necessary logical paradox.