“If you believe that investing skill exists and can be identified in advance, then you will want to hire skilled professionals to manage your money. This creates lucrative employment for the skilled professionals, but also for a lot of other people. You don’t just need skilled managers to manage the money; you also need skilled consultants to find the managers, and skilled employees to hire the consultants and the managers. Business schools are needed to train the managers. A whole economic ecosystem exists, predicated on the notion that investing skill is a real thing that can be identified and measured.
This is no different from any other business, of course. If everyone thinks that dentistry is a science, there’ll be employment opportunities for dentists, and dental practice managers, and dental insurers, and dental schools, and so forth.
But unlike with dentistry, it is perfectly respectable, these days, to believe that investing skill is worthless or imaginary, and that you should just index. And if you believe that, you can have one guy run a $35 billion pension by just putting it into index funds and hanging up when consultants call.
Those are different approaches! Here’s a story about how Cambridge Associates, the investment consultant that is ‘one of the best-known purveyors of advice to endowments, foundations and the wealthy,’ laid off almost 50 people, as ‘the consulting model has faced pressure from increased competition that has driven down fees and from investors’ growing embrace of low-cost, passive index products.'”