Market Efficiency, Indexing, and Low Cost Investing vs Active Management

Part of the reason I write is to articulate various frameworks and positions that are in my head. Many people ask me similar questions too, so hopefully I can just refer them to the blog in the future. That being said, I’m going to kick-off a multi-post series on the oft-misunderstood concepts of market efficiency, low-cost investing, index investing and passive management.

Despite the growing popularity of index investing (which I highlighted last week):

  • Active managers still manage the majority of assets under management (AUM).
  • Many investors’ think that they or someone they hire can beat the market.

On the flip side:

  • Many investors’ conflate market efficiency, indexing, low-cost investing, and a host of other concepts.
  • Many passive investors overstate the case for market efficiency and/or index funds.
  • Some investors have a blind faith in market efficiency and/or passive management.

Adding to (or abetting) the confusion is a financial services industry that markets and promotes a wide range of approaches. It can be difficult to find unbiased answers and construct a framework without researching these topics yourself. My goal for the next few posts is to provide some answers in a concise way.

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Disclosures & Disclaimers page for a full disclaimer.