The idea is that in the “old days” there was little information available to the little guy, and professionals supposedly had a huge advantage. But, with the instantaneous spread of information on the internet, professionals no longer have an edge.
For the claim about the past to be true, money managers had to be buying when stock prices were low, and selling when they were high. After all, the only way to outperform in the stock market is to sell stock for more than you pay for it.
I came across a 30-year old quote from Warren Buffet showing that money managers in the past weren’t doing their job very well for at least one time period:
“An irresistible footnote: in 1971, pension fund managers invested a record 122% of net funds available in equities – at full prices they couldn’t buy enough of them. In 1974, after the bottom had fallen out, they committed a then record low of 21% to stocks.”These pension fund managers made a huge error of record buying at high prices followed by record selling at low prices. Buffett continues:
“In 1978 pension managers, a group that logically should maintain the longest of investment perspectives, put only 9% of net available funds into equities – breaking the record low figure set in 1974 and tied in 1977.”The evidence says that during this period, pension fund managers behaved like momentum investors following the herd. So, I’m sceptical that professional money managers as a group ever provided value.