Hi Guys,
Baseball offense has been in retrograde for many years now. Batting averages have been in a decline as pitchers have become stronger and with more pitching depth. Strikeouts have increased. Talented relief pitchers now replace starters and contribute to making hitting more challenging. Overall, pitching skills have been in the ascendency.
Similarly, investment skills have been constantly increasing and more widely distributed. Individual investors used to dominate trading. Today, the dominant trading is done by professional money managers. These guys have a similar detailed financial education, and have huge research resources. Individual,investors are at a distinct disadvantage. In fact, with the competition so intense, the likelihood of archiving positive Alpha, positive excess rewards above a benchmark, is greatly reduced. These guys neutralize one another.
Here is a Link to an article that nicely summarizes the situation:
http://investonomiks.com/2017/02/18/why-are-active-managers-having-a-hard-time-outperforming-why-is-alpha-declining-and-disappearing/As the author observed, as less successful active managers drop out, thus increasing the average skill level of those remaining in the stock picking business, positive Alpha suffers. Positive Alpha opportunities decrease. These days it is much more difficult to gain meaningful Alpha over any extended timeframe. Even Buffett and Munger have fallen victim to these pressures.
Enjoy the reference.
Best Regards
