Cracking the zero-sum game theory

Vanguard's Jeffrey Molitor on why the zero sum game theory is difficult for managers to overcome

The concept of a zero-sum game starts with the understanding that at any one time, the holdings of all investors in a particular market make up that market. As a result, if one investor's position outperforms the total market over a period, an equal and opposite proportion of other investors' positions must therefore underperform. Another way of stating this is that the asset weighted performance of all investors, both positive and negative, will equal the overall performance of the market. The total of all investors' returns can be represented as a bell curve, with the market retu...