Here he is doing the Lord’s work

Think about this for a minute. It may seem very natural to you that people who pay large fees to a company to manage their wealth should expect that company to earn them a higher return than they would earn if they just stuck their money in a low-fee index fund.

But does this expectation make sense in the long run? Suppose you gave $1M of your money to a hedge fund with an awesome brilliant manager who was incredibly talented at picking bonds that were going to go up in price. Soon your money doubles to $2M, then to $4M, even as the average bond price goes up only a little bit. You keep your money invested with the same manager (paying the same high fee), assuming that he will continue to double your money in the same amount of time, again and again. But as the manager accumulates a bigger and bigger share of the total bond market, it becomes harder for him to beat the market average.

To see this, just imagine if your hedge fund manager did so well that pretty soon he was managing the wealth of every bond investor. In that case, it will be impossible for him to beat the market, because he is the market, literally. So it makes no sense to expect the same excess return (i.e. the same percentage points of market-beating performance) year after year.

This runs true for many things.

For example, the question is not whether or not health care costs will bankrupt the economy. That is nonsense. The question is whether the economy will become health care and whether that’s a good thing or a bad thing. whether we desire this outcome or not. [I, at least, should honor my own requests]

I also want to note that the meat of Noah’s post began with the phrase

Think about this for a minute