Rip Van Winkle Indexing

[buffett] Executive Summary There’s no doubting the spectacular success of “passive” investing based on the market capitalization weights of companies. It is estimated that almost 20% of all managed fund assets are based on cap-weighted indices, up from less than 9% in 1998. It is based on the theory that in an efficient market, where equity prices reflect all known information about a company, there is no capacity for a talented analyst to outperform, and a portfolio that uses the most up-to-date prices should deliver the best results. On the other hand, even if the market is not efficient, then…