The Intelligence of Dumb Money

Aivazovsky – Shipwreck

Over the years I have interviewed and questioned many, many investment managers. Early on, I discovered a disturbing pattern.

One of my previous roles was to perform due diligence on investment managers hired to run a variety of segregated funds (aka variable annuities) and group investment products. I essentially acted as a gatekeeper to decide which managers my company would use. 

This was a sweet job! 

When you’re the ‘gatekeeper you get invited to a lot of ball games and fancy dinners. Of course, there was a lot more to the job than getting wined and dined.

On a quarterly basis, I met face to face with investment managers to better understand their philosophy, strategies and processes for managing money. I would also review their results.

Most meetings began with the investment manager walking me through their slide deck. Let me tell you, every single investment manager I met with was impressive. They all had great academic achievements, were articulate and had robust investment processes. Moreover, they possessed an unreal bank of knowledge about their portfolios and the markets. 

Early into the job, however, what I repeatedly saw troubled me. Actual performance results – i.e. what these investment managers were hired to deliver – were usually left to the last slide of the deck. Performance results were treated as a footnote to an engaging story. It was plainly obvious that these managers were trying to dazzle their audience with fantastic – but subjective – insights, hoping to skim over the hard, objective facts. 


Because the performance results were crap most of the time. More specifically, these investment managers were generally unable to outperform their benchmarks. 

It was a consistent letdown. I would spend 45 minutes engaged in some of the most intelligent conversation one could have, only to discover it was all meaningless bullshit. Repeatedly.

When Academic Theory Becomes Reality

Through my academic work, I learned that the majority of investment managers failed to outperform their benchmarks after accounting for fees. However, this fact was academic until I started my ‘gatekeeper’ job. After some time in that role, it became clear: These smart, expensive, well educated, fully resourced managers couldn’t do what they were meant to do. 

Today, I still enjoy intellectual conversations with people in the asset management business. I still listen to economists and portfolio managers discuss their outlooks. But I do so knowing there’s a good chance they’re wrong and that the information is of no practical use.

The asset management industry likes to make everyday individuals think investing is hard. This is partly because people want to trust their money with smart people. But it is also because asset managers don’t want individuals to think they could manage their own money. is here to tell you it is easier than the industry leads you to believe. I’m not saying you can beat the benchmarks. After all, if million dollar portfolio management teams can’t, the average person can’t either. But individuals shouldn’t pay for something they won’t receive. Instead, strive for market-average returns at the lowest possible cost. In the long run, this strategy may beat professionally managed funds.

As Warren Buffett once said: “By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals. Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.” (1993 Berkshire Hathaway Shareholder Letter)

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