Michael Lewis in Portfolio Magazine
It has been way too long since my last post. Somehow launching Cake, talking to everybody about our story and most important, interacting with Cake members has kept me busy. Surprising, I know. You will see me talking about many interesting things that are happening at Cake over the next few weeks. So stay tuned!
In the meantime, there is a great piece by one of my favorite writers, Michael Lewis, in this month’s Portfolio Magazine that readers of this blog will certainly enjoy. Michael combines his unique blend of statistics, pop culture, and irreverence to shine a light on another of Wall Street’s sacred cows- the professional money manager industry.
A representative excerpt from the article that suggests "professional" investment managers don’t know anymore than you or I:
One day, someone may
look back and ask: At the end of the 20th century and the beginning of the 21st,
how did so many take up financial careers on Wall Street that were of such
little social value? …what if the problem (is)…the belief that the
best way to invest capital is to hand it to an expert? As a group, professional
money managers control more than 90 percent of the U.S. stock market. By
definition, the money they invest yields returns equal to those of the market as
a whole, minus whatever fees investors pay them for their services. This simple
math, you might think, would lead investors to pay professional money managers
less and less. Instead, they pay them more and more. Twenty-five years ago, the
most successful among them took home a few million dollars a year; in 2006, more
than 100 money managers made more than $100 million, and a handful made more
than $1 billion. A vast industry of stockbrokers, financial planners, and
investment advisers skims a fortune for themselves off the top in exchange for
passing their clients’ money on to people who, as a group, cannot possibly
outperform the market.
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Posted by: Steve Carpenter
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