HOGWARTS FINANCE?

Richard Ennis, Hogwarts Finance (October 26, 2023). Available at SSRN: https://ssrn.com/abstract=4614451

CIOs and consultant-advisors oversee about $10 trillion of institutional assets in the US. They have underperformed passive management by one to two percentage points a year since the Global Financial Crisis of 2008 (GFC).

1 They rely heavily on expensive alternative investments; and the more they have in alternatives, the worse they do.

2 Large institutions use scores of managers, making them high-cost closet indexers. Inefficiency abounds.

What is lacking in institutional fund management today? Intellectual rigor, for one thing. The professionals are ignoring their canon. Lawyers coming before the bar are expected to know the law. Physicians, conspicuously, in my experience, attempt to adhere to the best medical science. Engineers do not improvise when designing bridges. But the people managing institutional assets behave not like they attended the Booth, Säid or Wharton schools to study finance but Hogwarts School of Witchcraft and Wizardry

The biggest, smartest, most influential people on Wall Street STILL can’t beat the market on a regular basis. It’s because they’re guessing about what tomorrow brings, and hoping that everyone will follow along and drive their guesses higher.

We’re ALL in the same boat, from Hedge Funds, to Asset Managers, to Stcok Pickers, to Insurance companies, we are ALL making our soup with the same ingredients. This is WHY no one can consistently outperform the indexes over time.

Repeating the same act while expecting a different result is the definition of insanity.

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STOP GUESSING! STOP PLAYING THEIR SAME OLD GAME!

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