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Did you watch the Daily Journal Corp video with Munger on Youtube?

In it he gave an example about poor math skills and explained that if you get a 5% return and pay a 2% fee, in time, you don't give up 40% of your gains, you give up 90% of your gains. He said that most noble value managers are quitting the game as returns are decreasing.

Nerdwallet ran a more rosy scenario based on 7% gains and 1.02% fees (vs .09% fees).

We compared the actively managed mid-cap fund with a lower-fee alternative, an ETF that offers similar exposure to midsize companies. The main difference between the two funds is that the ETF has a 0.09% expense ratio — 0.93% less than what the actively managed fund charges in management fees.

We used the same assumptions: a $25,000 initial investment, $10,000 added annually and a 7% average annual return over 40 years. As you can see, the 0.93% difference in fees adds up over time:

By choosing the lower-cost ETF, the millennial investor retires with $533,000 more in his account ($2.30 million versus $1.77 million) and instead of losing 25% of the portfolio’s value to fees, the damage is limited to just 2.5%.

So, what say you? Can managers under $100M still thump the indexes well enough to deserve their 25%? And what percentage out-performance do you think it takes? I'll pull out my spreadsheet but am interested in people's take on the situation.

Is it getting harder to beat the indexes? Is it fleeting? Do a couple big years make managers worthwhile? How much out-performance do they need?

I remember HR writing something about how surprising it is that people will continue to pay 2 and 20 even without out-performance. I am paraphrasing and will try to dig up the thread so as to not put erroneous words into his mouth.
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