Larry Swedroe: 11:23

here, first of all, in aggregate, it's virtually impossible for active managers to win, because all stocks have to be owned by somebody, and if one active manager outperforms, because they overweighted outperforming stocks, that must mean that other active managers underweighted it, because the passive investors in aggregate, own the market pro rata, right? So it's impossible. Now we know that the markets are not perfectly efficient. In the warmer study, he found about 80 basis points of stock picking skills now that I believe today would be a lot lower. Why do I say that? Because coming out of World War Two, 90% of individual stocks were owned by individual investors. So Warren Buffett's of the world and the bright fund managers had a lot of dummies they could exploit and outperform over time. What we obviously are going to see are you have two groups of investors who are trying to beat the market. Andrew, you have the ones with skill and the ones without skill, right? Which group of investors are likely to abandon the efforts of trying to beat the market because they see their results at the ones without skill, with ones without skill, right? So they drop out, which means the remaining competition must be getting easier or harder, harder, harder, because you don't have the dummies to exploit. And today it's only about 10% of the trading is done by the naive retail investors, so you don't have a lot of them to exploit on top of them. When I got out of college and was looking to become a security analyst. Very few of those people had degrees in finance, because I actually graduated with one of the first degrees in finance, because there was no finance theory until the late 60s and early 70s, William shop and others created the CAPM finance was taught maybe in an economics program or an accounting class, and they finally became a profession in the 70s and 80s, and you had MBAs in finance. So today, everyone who manages money virtually has an MBA or a PhD in finance or physics or more. They're rocket scientists, literally, I mean that, and they have access to far more databases, and, you know, high speed computers, and so the competition is incredibly harder, yeah, so I think it's getting much harder because the supply of victims has come down, and the people who you're trying to be Warren Buffett is no longer competing against the Larry swedros of the world. He's competing against the citadels like Ken Griffin and Renaissance technologies. That's who do you know, the vast majority of the trading. So here's what I would say. I still believe that there are likely some people with enough skill to generate gross alpha, just super smart and access the databases everything else. Clearly, some of these high frequency traders in the citadels are all they're doing it, but they're more doing it by shaving pennies off of each trade. And they do. You know, 100,000 trades a day, often, but if you get your cost low enough, then maybe you can generate alpha. So I've done, I haven't done this in about 10 years because the SEC stopped allowing it. I used to look at do a study of all the major fund families, one at a time, and took their biggest active funds, benchmarked them against a five factor model, and compared them then to the funds like dimensional fund advisor, which is systematic, transparent and Vanguard Index funds. And I found only one single fund family that managed to generate alpha once you adjust it for factors, and it was Vanguard's active funds. It wasn't statistically significant, their out performance, and it was very slight, but they're able to do it because their average cost and their active factors were in like the 20 or 30 basis points, not 80 100 or or more, right? So, yes, if you can get in other words, let's say at this active management does not fail because it's stupid. It fails because of costs. And the market is super efficient, but not perfectly. So, yeah, so there's nothing that prevents the active managers, say a Vanguard, from doing the same things that the dimensionals and aqrs of the world do, like, avoid buying stocks that are indices, but the research shows are bad, like Penny stocks, stocks and bankruptcy small cap growth stocks with high investment and no profits, and they can trade patiently instead of demanding liquidity, cutting their market impact. So if you do all those things, you got a much better chance. But even then, you're not likely to win by much. So I think investors are better off avoiding it. But if you're going to use active managers, you want to use fund families like Vanguard, that does two things. One, they're systematic. They don't stray. If you're buying a Value Fund, you won't find them buying growth stocks, so something like Wellington and they have low costs and low turnover, so they look like Warren Buffett, if you will.