Still, I'd like to recognize the benefit that my friends on the other side of the spectrum bring to the table. Yup - the day traders, the portfolio managers, all those poor sods who work hard to beat the average, or the investors who trust their money with them. I'm talking about people investing in your typical mutual fund, who scan Morning Star looking for 5-star funds; who read the balance sheets and quarterly results of S&P 500 companies; the people who believe they can beat the index, and are willing to lose a huge stake of their savings trying to be "above average". I'm talking about the fools who pay 2% and 3% and more in annual management fees; the day traders who pay hundreds of dollars a day in daily commissions to swap their assets with other day traders, enriching no-one but the banks and brokers.
All these people, through their sacrifice and futile quest, do bring an important benefit to the economy. To be more exact, they benefit me, and other passive investors.
You see, without all these pipe dreamers, there would be no efficient market. One of the premises of Index investing is that stocks are worth what they cost - there are no "winners" or "losers", since all the information available is already part of the stock price. But this is the case only because there are all these poor souls who spend days and nights buying and selling and making sure this is the case.
I wonder if a tipping point will arrive one day, when enough people invest passively to create inefficiencies in the market and real value for active trading. I think we're very far from this day. More-ever, we can rely on the enterprising, always optimistic, "I'm in control" spirit of the average highly-compensated executives and Wall Street sharks: there will always be people who think they're smarter than everyone else. Let's recognize these people for their sacrifice. Because it's their folly that makes passive investment work.
Keep on the good work, active investors! And thanks!
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