One thing I didn't investigate, but might check next, is how turnover effects play into all this. 🧵
https://twitter.com/s_r_constantin/status/1369504461345984518
So, let's say the conclusion of my post is correct, and most professional investors "under-research" (in the sense that they'd get better returns if they did more research.)
Is this a *societal* problem?
To answer that, we have to understand turnover.
Is this a *societal* problem?
To answer that, we have to understand turnover.
You could tell a story where "too many investors making dumb investment decisions" is a societal problem because it causes malinvestment.
Perhaps there are opportunities to do productive things with money, that languish unfunded because all the money goes to dumb stuff.
Perhaps there are opportunities to do productive things with money, that languish unfunded because all the money goes to dumb stuff.
But "most investors suck" doesn't necessarily imply that there's pervasive malinvestment overall. Maybe bad investment firms go out of business quickly, and their resources get funneled to more productive uses.
Or, on the contrary, we could have a messed-up dynamic where bad investors are nonetheless so popular that their cash flows keep increasing, so they can keep funneling constant or increasing amounts of $ to unproductive uses.
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