Riddle me this, Batman...

[garfangle]

Reconcile this:

The majority of professional fund managers don't beat their benchmarks AND the vast majority of amateur investors lose money.

If neither the average professional nor the novice can consistently make risk-adjusted alpha returns, then how does the investment industry extract tens of billions in revenue from its customers each year?

Are we that dumb to pay them enormous salaries and bonuses for mediocre or worse advice and investment returns?

 

[TheBestGuruEver]

1. most people don't want to understand investments

2. 401k are usually matching and you just pick funds, etc....

3. i have no idea what even my fund manager makes. should i? maybe.

4. sheep mentality

sure, i guess most should only go into SPY for x percentage and other low cost funds.

it's designed to confuse some, paralyze most, and reward few.

haha

 

[ByLoSellHi]

Quote from garfangle:

Reconcile this:

The majority of professional fund managers don't beat their benchmarks AND the vast majority of amateur investors lose money.

If neither the average professional nor the novice can consistently make risk-adjusted alpha returns, then how does the investment industry extract tens of billions in revenue from its customers each year?

Are we that dumb to pay them enormous salaries and bonuses for mediocre or worse advice and investment returns?

Because the structure of compensation is corrupted.

If fund managers do poorly, they are guaranteed a set amount (a floor).

If fund managers do well, they are guaranteed a floor + a disproportionate amount that is quite inefficient for the investor.

The best book I've read on how fees absolutely murder both short and long term returns (to the point of making a gross outperforming fund, when you're lucky enough to find one, lag the index averages) is written by David Swensen.

 

[nazzdack]

Quote from garfangle:
.....then how does the investment industry extract tens of billions in revenue from its customers each year?
.....Are people that dumb.........

1) Complacency is a big part of it.
2) Too many retail investors have given up control of their investments to "professionals".
3) Investors are more "tolerant" of fees and "excessive compensation" during bull markets.
4) Fees have increased greatly over the past decade to the point where returns are being impinged.
5) Portfolio turnover keeps increasing too which creates "hard" commission dollars for brokers and "soft dollars" for institutional investors "under the table" from their brokers.