Money For the Rest of Us

As indexing grows, active stock pickers are underperforming the market by increasingly large margins, even as their skill improves. In this episode, we explore why this is happening and consider whether active managers can outperform again. Finally, we explain how to position your portfolio using index funds and ETFs without overweighting the S&P 500 Index.Topics include:Why active fund managers keep underperformingMichael Mauboussin's paradox of skill in investingHow much of the stock market do index funds own?William Sharpe's arithmetic of active managementWhy index funds still have to tradeActive vs. passive: stock pickers are lagging more than everHow index fund flows hurt active managers (Unterberg study)Example: how $100 of fund flows moves stock pricesWho buys the stocks active managers sell?Do fund managers sell their best ideas during outflows?Who sells shares to index funds? Companies and insidersWill active management outperform again?Will retiring baby boomers crash the stock market? 19:38 How to invest when index funds drive stock pricesInsiders Guide Email NewsletterGet our free Investors' Checklist when you sign up for the free Money for the Rest of Us email newsletterShow NotesEpisode 567 transcriptEpisode slidesSharpening the Arithmetic of Active Management by Lasse Heje Pedersen—SSRNWe Now Know Who Really Benefited from the Index Revolution by Aaron Brown—BloombergThe Investing Mind by Michael J. Mauboussin—Harriman HouseWho Clears the Market When Passive Investors Trade? by Marco Sammon and John J. Shim—SSRNPassive Flows, Active Woes: Passive Investing and the Decline of Active Mutual Fund Alpha by Hannah Unterberg—SSRNBoomer Retirement: Headwinds for U.S. Equity Markets? by Zheng Liu and Mark M. Spiegel—Federal Reserve Bank of San FranciscoIs Boomer Retirement Still Weighing Down U.S. Equity Markets? by Zheng Liu and Mark M. Spiegel—Federal Reserve Bank of San FranciscoSponsorsGet the free guide from NetSuite: Aligning for the Agentic Era: How AI Is Changing Everyday WorkDelete Me – Use code David20 to get 20% offSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

In this off-week bonus episode of Money for the Rest of Us, we look at the possibility that current U.S. stock valuations are justified and the market is not overvalued.Topics covered include:Two ways to measure P/E ratios and which is more accurateHow record profit margins are affecting P/E ratiosHow concentration risk is at an all-time high for U.S. stocksHow the stock market's direction will depend on whether profit margins expand, contract, or stay the same.Where to invest to reduce an overconcentration in U.S. stocks. Episode SlidesEpisode TranscriptSlides, transcript, and show notes also at: https://moneyfortherestofus.com/.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

We analyze long-term stock returns when investing at market peaks and bottoms, and when stocks are cheap or expensive.We also share what we think stocks will return over the next decade and why.Finally, we simulate the investment outcomes for someone who invests $50 per week.Episode SlidesEpisode TranscriptSponsorsGet the free guide from NetSuite: Aligning for the Agentic Era: How AI Is Changing Everyday WorkDelete Me – Use code David20 to get 20% offOur Premium ProductsAsset CampMoney for the Rest of Us PlusSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

I provide a short update on Money for the Rest of Us and introduce our listener survey. All survey participants will get access to an exclusive podcast episode on my worst investing mistakes and what I learned.Take the Money for the Rest of Us Listener SurveySee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

In this episode, we explore why the income we earn isn't the same as the return. We show how option income strategies work, what their historical returns have been, what drives the return, and what reasonable return expectations are.We show why option income strategies have a positive expected return while sports betting has a negative expected return.Finally, we look at other areas where we confuse income with the total return.SponsorsMoney for the Rest of Us Retirement Investing CohortDelete Me – Use code David20 to get 20% offOur Premium ProductsAsset CampMoney for the Rest of Us PlusShow NotesEpisode slide deckVariance Risk Premia by Peter Carr and Liuren Wu—NYUCross section of option returns and idiosyncratic stock volatility by Jie Cao and Bing Han—The Journal of Financial EconomicsThe Price of Correlation Risk: Evidence from Equity Options by Joost Driessen, Pascal J. Maenhout, Grigory Vilkov—SSRNCross-section of option returns and volatility by Amit Goyal and Alessio Saretto—The Journal of Financial EconomicsThe Art of Put Selling: A 10 Year Study by John Marshall, Krag Gregory, Katherine Fogertey—Goldman SachsLow Stress BetsRelated Episodes557: Don’t Fall in the Dividend Trap549: Why Catastrophe Bonds Are Yielding 12%, and Should You Invest?544: Sports Betting Is Not InvestingArticle: Tail Events and Tail RiskSee Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.