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Schumpeter is great. on a related note, this gets back to an argument i had with another group a couple of weeks ago. it's another version of "lies, damn lies, and statistics" which seems to be all too common in finance. the indexers make a big deal about how their indexing strategy beats such a large percentage of actively managed funds and how the average actively managed fund result lags by 100-150 basis points per annum behind their indexing strategy. but what the indexers ignore is the fact that most managed open-end funds and trusts typically hold 5-10% cash, normally short dated paper with no credit risk. and if you think about it, short dated paper has probably yielded 1000-1500 basis points less annually than equities in the aggregate the past 20 years. so 5% of 1000 is 50 bp, and 10% of 1500 is 150 bp. when you adjust for risk, the actively managed results don't look so bad compared to the index.

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