It is just extraordinary that index tracking works so well or to put it another way, how badly active management works.
As an index tracker, I bought Yahoo at 470 times earnings and I artificially pushed up the price of XL by 5%. I blindly dumped stocks which were expelled from the indices irrespective of their real value.
If my investment decisions were so irrational, why on earth did the active managers not outperform me dramatically ?
When I play poker with opponents who play at random, I am a a consistent winner. When I played against people who were much better players than I was, I was a consistent loser.
Why can the well paid, rational, active managers who spend their time reading company reports and the Grant Interest Rate Observer, not consistently outperform the passive managers who spend their times reading novels ?
Brendan