The Myth of The Monkey
Professional asset managers are pilloried in the popular press, compared to dart boards and even to monkeys, and the literature often suggests they provide no economic value or are even a deadweight loss to the economy. But judging by compensation and the high number of people willing to undertake the work involved in entering the profession, this is still a desirable industry. It’s common to hear that asset management is a zero sum game. As this article shows, however, asset managers provide material economic benefit by producing liquidity and information, which zero sum arguments generally ignore. I also discuss the fallacy that market efficiency is defined by the average manager’s return being equal to (or less than) zero. Because this article addresses an issue crucial to the practice of asset valuation—why the industry should even exist—and because a seriously flawed but oft-repeated critique of the asset management profession has crept into the public consciousness, it develops its argument through a non-technical thought experiment, so industry observers cannot miss it.
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