Dividend Based Investing

Why do (most) investment managers underperform?

Warren Buffett, Letters to Partners, 1965, page 65

In the great majority of cases the lack of performance exceeding or even matching an unmanaged in index in no way reflects lack of either intellectual capacity or integrity. I think it is much more the product of:

(1) group decisions — my perhaps jaundiced view is that it is close to impossible for outstanding investment management to come from a group of any size with all parties really participating in decisions;

(2) a desire to conform to the policies and (to an extent) the portfolios of other large well-regarded organizations;

(3) an institutional framework whereby average is “safe” and the personal rewards for independent action are in no way commensurate with the general risk attached to such action;

(4) an adherence to certain diversification practices which are irrational; and finally and importantly,

(5) inertia.

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