Graham Bentley: The underlying economics of investment advice

Passive investing allows promoters to ‘fail conventionally'

clock • 4 min read

Continuing his series on active and passive investing, Graham Bentley considers the possibility some fees charged for investment advice might constitute ‘money for nothing'.

Over the last few months I have been batting on in this column about the loftily termed ‘Selectivist/Passivist' schism in asset management. We have considered what alpha is, how factors influence returns, active share as a measure of selectivity and the evidencing of skill versus luck. In this article, I want to consider the economics of investment advice. It can be argued that an equity market's returns (its ‘beta') are driven by forecast cashflows, and the discount rate - in other words, getting the net present value of those flows. For close to 35 years, global investment returns have...

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