Everyone CAN Be Above Average!

This is how.

Index Fund Advocates

Index Fund advocates argue that half of investors necessarily do worse than average, by definition.

I will not debate the fine point about the number of investors. I will point out that, if everyone did the identically except for one underperformer, the average would lie between the two groups. Everyone except for the underperformer would be above average.

The mean (average) and the median (50% point) are seldom the same. But that is not my point.

Hidden Flaw

The hidden flaw in the indexers’ argument is their assumption that all investors have the same goal.

This is untrue.

Different investors have different goals. Different investors have different time frames. Different investors have different constraints as to how they reach their goals.

Some investors seek security. Others tolerate a nontrivial chance of a sharp, permanent loss in the hope of achieving spectacular success. Many just like to gamble.

Yes, Everyone Can Be Above Average!

They just need different objectives.

Everyone has his own definition of success. Everyone can succeed on his own terms. You do not have to have losers unless you force everybody to accept a common objective.

Have fun.

John Walter Russell
March 19, 2007