Larry Swedroe: Active’s Surprising Survival

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Random Walker
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Larry Swedroe: Active’s Surprising Survival

Post by Random Walker » Mon Aug 20, 2018 8:08 am

https://www.etf.com/sections/index-inve ... g-survival

The trend is towards passive, it’s inexorable. But despite it’s decline, Active is stubbornly persistent. References to SPIVA, Larry’s Incredible Shrinking Alpha, Charles Ellis, Paul Samuelson.

Dave

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Alexa9
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Re: Larry Swedroe: Active’s Surprising Survival

Post by Alexa9 » Mon Aug 20, 2018 8:25 am

Some claim if most everyone goes passive, active will become more easy. I forget their rationale.

software
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Re: Larry Swedroe: Active’s Surprising Survival

Post by software » Mon Aug 20, 2018 8:30 am

Alexa9 wrote:
Mon Aug 20, 2018 8:25 am
Some claim if most everyone goes passive, active will become more easy. I forget their rationale.
It’s because active investors keep markets efficient. The more inefficiencies (I.e. stocks either over or under valued), the more opportunities for an active investor to profit.

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k66
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Re: Larry Swedroe: Active’s Surprising Survival

Post by k66 » Mon Aug 20, 2018 8:43 am

It's always worthwhile to read one of Larry's pieces.
software wrote:
Mon Aug 20, 2018 8:30 am
Alexa9 wrote:
Mon Aug 20, 2018 8:25 am
Some claim if most everyone goes passive, active will become more easy. I forget their rationale.
It’s because active investors keep markets efficient. The more inefficiencies (I.e. stocks either over or under valued), the more opportunities for an active investor to profit.
So as the pool of active managers retreats, does the bar that Active has to hurdle become lower again? As Larry described it, and it makes sense, there is an Active Paradox which implies that the more skill is imparted in the game, the more luck determines the eventual winner(s). If and when we see fewer Active managers in play, will skill be more evident and draw back investors from the Passive side?
LOSER of the Boglehead Contest 2015 | lang may yer lum reek

harmoniousmonk
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Re: Larry Swedroe: Active’s Surprising Survival

Post by harmoniousmonk » Mon Aug 20, 2018 8:46 am

k66 wrote:
Mon Aug 20, 2018 8:43 am
It's always worthwhile to read one of Larry's pieces.
software wrote:
Mon Aug 20, 2018 8:30 am
Alexa9 wrote:
Mon Aug 20, 2018 8:25 am
Some claim if most everyone goes passive, active will become more easy. I forget their rationale.
It’s because active investors keep markets efficient. The more inefficiencies (I.e. stocks either over or under valued), the more opportunities for an active investor to profit.
So as the pool of active managers retreats, does the bar that Active has to hurdle become lower again? As Larry described it, and it makes sense, there is an Active Paradox which implies that the more skill is imparted in the game, the more luck determines the eventual winner(s). If and when we see fewer Active managers in play, will skill be more evident and draw back investors from the Passive side?
No
In efficient markets, mediocrity is the norm. | Never confuse genius for luck and a bull market.

RadAudit
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Re: Larry Swedroe: Active’s Surprising Survival

Post by RadAudit » Mon Aug 20, 2018 8:46 am

Maybe active management is somewhat like second marriages - the triumph of hope over experience.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The Calvary isn't coming, kids. You are on your own.

Random Walker
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Re: Larry Swedroe: Active’s Surprising Survival

Post by Random Walker » Mon Aug 20, 2018 8:53 am

We can be quite certain that the active manager’s who are leaving the game aren’t the ones winning the game. That means as the population of active managers shrinks, the competition between the remaining ones gets tougher.

Dave

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jhfenton
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Re: Larry Swedroe: Active’s Surprising Survival

Post by jhfenton » Mon Aug 20, 2018 8:57 am

k66 wrote:
Mon Aug 20, 2018 8:43 am
So as the pool of active managers retreats, does the bar that Active has to hurdle become lower again? As Larry described it, and it makes sense, there is an Active Paradox which implies that the more skill is imparted in the game, the more luck determines the eventual winner(s). If and when we see fewer Active managers in play, will skill be more evident and draw back investors from the Passive side?
I believe there is some theoretical point at which that would be true, but we are so far from it that it is purely theoretical. As Random Walker said, with an increasingly skilled remnant, I believe the number of active managers required would be rather small. And with the allure and illusion of skill so strong, I doubt we will reach that point before AI takes over entirely. 8-)

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HomerJ
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Re: Larry Swedroe: Active’s Surprising Survival

Post by HomerJ » Mon Aug 20, 2018 10:32 am

harmoniousmonk wrote:
Mon Aug 20, 2018 8:46 am
k66 wrote:
Mon Aug 20, 2018 8:43 am
It's always worthwhile to read one of Larry's pieces.
software wrote:
Mon Aug 20, 2018 8:30 am
Alexa9 wrote:
Mon Aug 20, 2018 8:25 am
Some claim if most everyone goes passive, active will become more easy. I forget their rationale.
It’s because active investors keep markets efficient. The more inefficiencies (I.e. stocks either over or under valued), the more opportunities for an active investor to profit.
So as the pool of active managers retreats, does the bar that Active has to hurdle become lower again? As Larry described it, and it makes sense, there is an Active Paradox which implies that the more skill is imparted in the game, the more luck determines the eventual winner(s). If and when we see fewer Active managers in play, will skill be more evident and draw back investors from the Passive side?
No
Yes.

It's self-correcting.
The J stands for Jay

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HomerJ
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Re: Larry Swedroe: Active’s Surprising Survival

Post by HomerJ » Mon Aug 20, 2018 10:34 am

jhfenton wrote:
Mon Aug 20, 2018 8:57 am
k66 wrote:
Mon Aug 20, 2018 8:43 am
So as the pool of active managers retreats, does the bar that Active has to hurdle become lower again? As Larry described it, and it makes sense, there is an Active Paradox which implies that the more skill is imparted in the game, the more luck determines the eventual winner(s). If and when we see fewer Active managers in play, will skill be more evident and draw back investors from the Passive side?
I believe there is some theoretical point at which that would be true, but we are so far from it that it is purely theoretical. As Random Walker said, with an increasingly skilled remnant, I believe the number of active managers required would be rather small. And with the allure and illusion of skill so strong, I doubt we will reach that point before AI takes over entirely. 8-)
Agreed. We're not anywhere near that point yet. But the theory is still correct.

Active still is strong today because of advertising, and inertia, and the common (and reasonable, for most fields) belief that you "get what you pay for"
The J stands for Jay

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nedsaid
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Re: Larry Swedroe: Active’s Surprising Survival

Post by nedsaid » Mon Aug 20, 2018 11:16 am

Another reason for Active management's survival is factor investing. When you set a stock screen, you are picking stocks. What DFA and other factor asset managers are doing is in the continuum between Active and Passive. Factor investing is done in a more passive fashion with relatively low turnover. It isn't really active management but somewhat more than passive.
A fool and his money are good for business.

Dead Man Walking
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Re: Larry Swedroe: Active’s Surprising Survival

Post by Dead Man Walking » Mon Aug 20, 2018 9:31 pm

Active management may survive due to investment in active funds by investment advisors. I live in the sticks and every investment advisor in my area puts clients in active funds. Although many folks have smart phones, they don't have the confidence or intelligence to invest via the internet. They need a lot of hand holding when it comes to investing.

DMW

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