Review of Inertia: Purposeful Inefficiencies in Financial Markets by Yuval Millo, Crawford Spence, and James J. Valentine (Columbia University Press, 2025).
In the 2023 novel The Counting House by Gary Sernovitz, an unnamed protagonist decides to resign as the manager of a top university’s endowment. He’s fallen into a pit of despair and anxiety after his investments have failed to perform for a third straight year. While the massive fund he oversees had grown incrementally over his tenure, he now has to admit that the gains turned out to be “less than we would have generated through a sixty/forty stock-bond passive portfolio.”
In other words, despite his vast expertise in esoteric financial instruments and investment strategies and all the fraught sales calls and interviews with prospective money managers, he would have been better off putting it all in index funds. Still, even as he writes and deletes and rewrites numerous versions of his resignation letter, he remains fixated on the idea that he’s done some good for a venerable if flawed institution of higher education.
Stock picking is on the decline. “The inevitable has arrived,” the investment research company Morningstar announced early last year. That January, more assets were controlled by “passively managed” funds than traditional “actively managed” ones — a historic first that had been a long time coming. Passive funds, or index funds, are pools of money that are invested according to the rules of an established index. Historically, because the picks are made “automatically,” index funds were considered a pretty unsexy way to invest, and for decades after they were first introduced to the public in 1976 they…
Auteur: Jonathan Agin
