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Simple But Not Easy: An Autobiographical and Biased Book About Investing by Richard Oldfield

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Chapter 5 – Indices and index-hugging

The investment management industry is in some ways puzzlingly unsatisfactory. The industry as a whole does nothing useful. This is not its fault. It is an inevitability. The average fund manager managing an equity portfolio is bound to produce an investment performance in line with (or, because of costs, a little lower than) the stock market. The only exceptions to this are in markets which are so undeveloped that fund management professionals are not the dominant influence on market activity. There are not now many of these left.

In any developed market it is axiomatic that in the long run half the managers will outperform the market index and half will underperform. This is because they are the main ...

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