| > While I'm not of these meme investors who thinks Buffett is "washed up", I confess that I've increasingly wondered if it's just sorta over. In some sense, it's not his fault. I also think that value investing has been 'automated away' to a certain extent such that him doing it (with staff help) no longer can compete with other market players. > Berkshire has grown so large that it has significant scale problems. This topic has actually been studied: (mutual) fund performance of top performing funds can be based on a manager's skill, but after a certain point that skill reaches the end of the runway. The more skilled the manager, the larger the AUM they can still get returns for, but at some point it's just too much. > For an average fund in the cross-section, we estimate a drop in alpha of 20 basis points if the fund doubles its size over one year. We also find a non-negligible impact of the size of the fund industry, although its magnitude is significantly smaller than the impact of individual fund scale. We reconcile our findings with existing empirical studies. Taken as a whole, our results lend considerable support to theoretical models that build on the premise of decreasing return to scale for active portfolio management. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2872385 Discussed in the Rational Reminder podcast: * https://rationalreminder.ca/podcast/136 (~15m30) * https://www.youtube.com/watch?v=LhluPwDaNAQ&t=18m30s Something to consider for anyone piling into (e.g.) ARK: * https://awealthofcommonsense.com/2020/12/a-short-history-of-... |