Research Paper Discussions 1 The Losers Game By Charles D Ellis

TITLE: Research Paper Discussions 1 | “The Loser’s Game” by Charles D. Ellis CHANNEL: CFA Society India DATE: 2026-06-25 ---TRANSCRIPT--- So, let me first welcome everyone. Welcome everyone and thanks for taking out time on on a weekday evening. So, so as part of the research I do Casey Committee at CFA Society India. We have been discussing that how do we increase our rigor on the research side both as a society and as a committee. So, this is our one of our step towards that direction to bring in more rigor towards and more focus over over research India focused research and at least looking at certain seminal papers from an India angle and draw some practitioners insights on on on that. So, largely we are launching this to be a monthly initiative. A one-hour Zoom webinar series dedicated largely to dissect few influential papers on capital markets. Our goal would be to bridge the gap between global academic research and and what we practice in India. And maybe draw some actionable insights on the way. So, for our inaugural session, we would be discussing this amazing and seminal paper on by Charles D. Ellis, The Loser’s Game. And this is one of the most cited papers in the world of finance uh published originally in 1975. This paper actually revolutionized the investment philosophy by arguing that the investing game has shifted to making from a winner’s game, which is basically where the victory goes to the most skillful, to a loser’s game where the victory goes to one making the fewest mistakes. I will let Srinivas talk about uh the paper later on more about it in more in more detail. And the reason we are doing this and why this matters to us is that uh this paper was written in a global context and uh and we feel that now it it is increasingly being we can see its context being applicable in India also. So, as our markets mature and institutional participation rises, uh we have to understand how is India is also turning into this winners or a losers game. So, it’s just a just a way to us to understand how practitioners feels about feel about it. So, that’s why we are doing it uh just to set some house rules because it’s a open discussion. Uh we just want to have some uh basic house rules. Uh so, to avoid audio overlap in the recording, uh we will use uh the digital raise hand feature. And we will we will then ask people to uh the moderator or I will be actually doing that to ask people to speak up. And just to make sure that everybody is heard, we will we’ll make sure that participants’ initial response to a question or to a discussion is under 90 seconds uh so that everyone gets airtime and uh uh we would ask everyone to stay on mute uh uh largely to eliminate any ambient traffic or uh office noise. And one more request is that if someone has made a point, uh we would request that if you you can speak up you have a new dimension to add to it or a dissenting view uh rather than just to maybe agreeing to it or uh adding uh just so if there is a new point, uh we’ll be happy if you can speak up. And uh we we are looking to write a practitioners’ insight column over after our discussion on this. So, I would encourage that if you can bring in some of your practitioners insight, we’ll be more than happy to do more than happy if you if you do that. Uh that’s about it from from a moderator angle. I think I would hand it over to Srinivas to take it forward. He has done a quite a bit of heavy lifting on this paper and he’s the one who suggested it. So, yeah. Uh over to you, Srinivas.

Oh, thank you. Thank you so much, Shitesh, and welcome everyone. Uh so, Shitesh has started a number of initiatives this year. Uh this is the second initiative. I think Insights is the the newsletter that he’s writing that is his first initiative. There’s others also in the pipeline. Uh and I’m I’m very thankful to him to actually start this one. And the reason we selected this paper is I don’t know if Siddharth Gupta has joined the call uh or Monica Chopra as well. Uh we had a chance to work on this uh theme about 6 months back. And that will come in the presentation, as well. Uh but, you know, since we had done some work on the on this one, uh I thought that, you know, might as well take this up. So, the the name of the I mean, the paper is called The Loser’s Game. Uh but, and it’s really widely available. You don’t have to log in into FGA. I don’t even know if it is there on the FGA or not because it’s quite a old paper. Uh but, I would like to, you know, give a lot many counterpoints to what uh Charles Ellis is suggesting, as well as, you know, go inside the paper. I still don’t have the number of people who have actually read the paper. I would guess uh probably 10% or 5% or 10%. It’s not a long paper. Uh probably half an hour of digesting would be uh the time required. So I would for those who have not yet read the paper, I would urge folks to read it because it’s quite useful. Especially if you are investing actively in the markets, whether you are in the public markets or the private markets, it’s a must-read paper. So let me go to the next slide now. So this is for those who have not read it. The the data is is not very good from what Charles Ellis could see in the 1970s. And you know, as like he’s put it there like in over 10 years S&P returned just 1% but the institutional median return was zero. And you know, so the charge that he’s making is that the investment management business is built on the belief that professional managers can beat the market. That premise appears to be false. This was around the same time when you know, there was a moment in the US. I don’t have the data in front of me but as we had in India around the same time in the US as well people were showing active managers were showing their returns against price benchmarks, not total return benchmarks. And there’s a whole lot of history and litigation around that that resulted in in in AIMR coming up with the gift standards. So that came much later. That was in the late 90s but the total return was one aspect of this active management. And you can see why because those who have read the paper, they will see see that you know, the outperformance that an active manager has to do you know, is quite a bit compared to the to the benchmark. And if you add dividends in then you know, you probably there’s no outperformance at all. So uh Now, if you come to India US versus India, you know, we it’s always good to look at who are the players. And India is slightly different. But in US, you know, the the big change that is that had happened was 70% was the institutional share of of people you know, in the market trading against each other. So these are big fish against big fish, big giants against big giants. So somebody’s loss is somebody else’s gain. It was a zero-sum game. Whereas in India, like there’s SEBI data as of June 2024, it’s very different. Institutional share is around 20%. I put a you know, conservative number of 25%. So there’s there’s a whole lot of retail investors and proprietary traders as well as promoters who are or HNIs who are there in the market. So who who may be the counterparties for for the institutional investors. Now, I would not like to call people in these terms like institutional investors, retail investors, and so on. We can just use this terminology as you know, amateurs versus experts. So in a in a simple game that’s what Charles Ellis says is in a simple game, like we all you know, most people who are introduced to that game, you know, they are amateurs. Like we all play cricket. You know, there’s other games. There are card games such as the game of bluff or challenge as it is called in many parts of Maharashtra. And there’s a rummy also. Like you know, these are so where does what is the difference between skill and luck? For an amateur, uh the main rule is that amateurs uh make mistakes. And uh experts hardly make it mistakes. So, that is one of the key uh learning from this paper. And not just paper, from your experience, uh all of us are have enough experience now, we will know that, you know, avoiding mistakes or as Buffett would say, avoiding losses, uh not to lose money, that’s uh the rule number one. Uh so, now the I wanted to set up a sorry, uh just a recap, like the first three, four slides are about the paper, and then I’ll go right into different dimensions that this paper elicited in my thinking. Uh but, I wanted to spend the first three, four slides on uh on the key learning from the paper, what it means for India, and, you know, the work with that we did I did with uh I had the opportunity to work with Monica, Siddharth Gupta, and uh I’m sorry, I mean, I I missed couple of more names uh who were really actively contributing uh towards uh towards this paper. But, eventually, when we saw that uh So, let me come to the paper and what the paper does. It’s uh There are many papers, but we chose this particular one, does passive ownership reduce uh price efficiency? Uh so, the reason to to choose the paper was it was uh the the setup was not that difficult. Of course, everything takes time. Uh but, what the authors really did was, among other things, they also uh you know, they checked for post earnings announcement drift. Now, what does that mean? Uh whenever there is earnings, uh you know, what is the drift because of earning surprise? Now, if the market is efficient, uh what will happen? If the market is efficient, you know, there is the you you will not have persistent returns, right? Now, what the authors did was they, you know, typically they did this against two different groups like passive ownership owned stocks and non-passive ownership owned stocks. And the way they set it up was, you know, the S&P 500 is, you know, the US market is much more liquid. They took the S&P 500 index and they also took stocks which mimicked in terms of volume and uh other aspects you know, traded value, volume uh and you know, market cap as as proxies for stocks inside the S&P 500. So, we tried to set up this scenario for India and we tried to see if uh you know, passive ownership uh affects uh you know, price efficiency. Uh so, for the finding for India are unfortunately, you know, mixed. We could not find a persistent, statistically significant trend that passive ownership does uh affect uh market efficiency. Uh now, this ties up with with the the previous slide where we saw that, you know, in India indeed like, you know, the there’s a lot of noise that is coming in. Uh people are buying stocks for different reasons and the number of institutions uh the proportion of institutions uh in the game are relatively less. That is, the number of experts in the game are less. Uh whole you know, a lot of amateurs are there in the market. Uh so, that’s what you know, the data is saying. So, by the way, like if anybody has a counter point to what I’m saying, I would uh this is hoping that this becomes a uh you know, a discussion, a debate uh if you will uh and uh you know, that will also shape our thinking. So, I hope uh you know, I it doesn’t become a monologue of me, you know, talking and uh and and uh uh we are not really mm discussing it together or deliberating it together. So what are the eight lessons from the loser’s game? So you know there are two kinds of games, right? Like there is a like we talked about the amateurs and and experts. So so the games that amateurs play and the games that experts play. And in a expert game, I don’t know how many of you have read Djokovic serve to win. You know the the complete mentality of expert is different. Leave aside uh uh leave aside how they are uh making or not making mistakes in their game. Their mentality is different. So for instance, in this game against uh uh one of the celebrities, I forgot forget forget who was the opponent. So he knew Djokovic knew that his opponent uh was had this uh whenever he had to serve an ace uh service a service that you know nobody could really take. Uh his opponent had this uh uh his bias that he would do something with his body language. Uh you know either uh pull up his sock or you know kind of straighten his shoes. So he minutely observed this and he used that as a tactic to anticipate what service what type of service this guy was going to do. So and so forth. That’s the level at which experts are playing. So there are two kinds of games in the amateurish games and expert games. Uh the second one is you know the face change. What really uh happened was you know when whenever there was in whenever there were bulk of the market was you know by amateurs, experts could easily win hands down. This changed at least twice. The first time was in the 9 after the 1929 crash, it was and Charles Ellis has documented that as well. It was a winner’s game till the crash came and then there was a great depression and then after some time again it became you know, it was a winner’s game and then again it become a loser’s game. So, the strategy for loser’s game is avoid mistakes. We talked about this. I should have started with the premise and the premise that that is resting on institutional investing or any kind of investing is that that you know, there’s a belief that you can beat the market. And Ellis called this out. He said that this premise itself is false. Now, by way of example he’s given a math. It’s a simple math equation for those who have read it. You know, for to to net 20% out performance, you have to generate 142% of the market returns. It’s a very very big ask after trading cost. Now, remember you know, trading costs at in 1975 was very high. And we did some this thing for India. I mean, it’s not just because of the trading cost, but that number is about 30% range for out performance. And the the the next one is smart people wrong premise. So, that is the other learning. Now, my main point over here I’ll not go on these two, but my main point over here is so, Ellis does not really conclude that passive is the only answer, right? He’s just arguing that the game must be played differently. He keeps on talking about that point again and again giving different examples. And that is for me a very key takeaway from this from this paper and active has a huge role to play. I mean, we’ll go to the the the paradox. I I it’s a Stiglitz paradox. If you have no active there will be no passive. Okay, so that’s that’s also key thing to always remember. Now this is what we have got like this is the math that we talked about. I mean these are the two equations and it’s a simple this thing of what is a market return as you want what is a portfolio turnover the transaction cost management and custody fees and out performance pool. So for India it is 137% for US it is 140% but of course if 1975 this is 2026. So if you don’t mind if I can interject just to understand so are we saying here as in just to understand the context are we saying here that India has also become a losers market or is is that that is not the That is not the case that is not the case like you know India is different because of the way you know the proportion in which the market players are playing against each other. Okay. So and that comes out very well in the derivatives markets. All of us have seen those studies where 91 93% of people are losing their shirts. I mean these are amateurs and there are there are a few you know knowledgeable players who are who are winning. So in the in the cash market it’s likely it is very different because we won’t know who the losers are because it’s all very dispersed. So so Seema we have not been able to there’s one somebody has posted in the chat. Do you think losers game is applicable beyond investing? So the question just to maybe rephrase it is that if we is losers game applicable other than investing? Absolutely absolutely I’ll come to that slide. So, I mean the everything is a game, right? Like I mean if you go I don’t know I’m I’m not made mention a reference to the book called noise. I don’t know how many people have read it. It is one of the masterpieces by Daniel Kahneman before he before he left us. It’s a it’s a huge it’s a very fat book and there they have looked at some 14 or 15 different professions. You know, on on skill versus luck and noise and how do you avoid that? How how do you avoid noise in the profession that you are in? But let me go go directly into the paper. I realize that we are at 6:57. Not the paper but you know, the the things that I have to share the different dimensions. Yeah. So, So, so the the paradox of skill, right? So, it is there is you know, we are seeing this we are seeing seeing this at the poker table as we talked about and we talked we talked about other games as well. Two types of games amateurs and experts. But the key thing that we have to keep on reminding ourselves is that this even leaving aside who’s an amateur and who’s an expert. There is a lot of research. This is my binder. I don’t know how many of you have read his paper and the updated data he sends I think every year. Last year I saw his data on and there are stocks in India as well. So, who are the wealth creators? And globally, right? Less than well less than 5% of the stocks are really the wealth creators. So, it’s very hard to find out, you know, compounders or multi-baggers on a global basis. So, it’s not an easy game even if, you know, we assume that Uh, one is an institutional investor or a professional expert who wants to do it. And we get reminded by, you know, this this these these sources of alpha. Uh, I mean, it’s information and how you access that information. And the big thing is the behavioral uh bias, right? The the behavioral angle on how you treat the information. So, no matter what the technology is, no matter whether there’s active or passive or uh you know, whether it’s derivatives, uh for somebody to uh to be wealth accretive, uh the behavioral edge matters the most. So, how you see the information, how you see the signal matters the most. Now, this is something that came from Mauboussin’s Michael Mauboussin’s book. It’s a beautiful book called as the success equation. Now, if you see in this graph, uh it has got uh this this is the marathon full marathon running time, right? And the data is mapped from 1932 to 2008. I’m sure there’ll be an updation uh now, but the time the total time has collapsed for an expert runner, and we’re talking about Olympic winners. So, Olympic winners, the total the absolute time to complete the race has collapsed. Now, along with that, not only has this time collapsed, but there is less dispersion between the first and the 20th place. So, the dispersion was very high, and you know, the dispersion is hardly less than 10 minutes as of 2008 between the first player and the 20th player. So, that’s how the marathon game has evolved. Uh you know, not game, but you know, the the the uh full marathon running, uh how competitive is it has become. So, not only have physical abilities improved, mental abilities have also improved, strategies have improved. So, people are trying to max out Uh humans have in short become machines in in achieving the goal that they want to achieve. So Srinivas just to maybe take something from here from an India angle. Are we are we seeing this in India in the sense alpha generating alpha is becoming difficult? Because we keep hearing large caps become difficult small and mid cap have still have some room. Is that something this paper also or maybe your study has corroborated or maybe denied. We have not looked at that particular piece like you know in the work that we have done but you will be able to speak on that more should it be from the vantage point that you are at and I’m sure you would have written on your nice website. I think it’s called CAGR, right? So you got lots of blogs. So do you want to spend a minute or so on what your thoughts are on this? No no so so so we we I think you From the point of view of just looking at numbers, I think we are seeing that alpha generation in terms of only large cap funds active large cap funds has become very difficult. Though there are obviously there are several studies they were also comes out. Though there are some benchmark issues with fever but still to a certain extent a lot of the reasons behind it is not only just the cost associated but also if they become over researched the the top top 100 stocks and on top of it the the very very strict SEBI guidelines restricting large cap funds to just the top 100 and defining that universe very tightly has also led to that index hugging kind of behavior so that that kind of alpha is dropped especially in the large cap. That’s what we see in the numbers. It may not be the reason of an amateur versus an expert player. It’s just that there are some technical there may be some technical reasons to it. So I think from a perspective of the other six 5,000 or five more than 5,000 listed space we see a very sharp drop beyond the top 100 200 in terms of being they they being under research coverage or being tracked by analysts. So so so there may be some play of of this I would say uh of expert versus amateur because a lot of a lot of experts are not even eyeing those stocks or working on those stocks. So there’s still still a way if some some expert goes and tries to win there I think there are chances to win. While I think on the opposite side on the large cap side if somebody doesn’t make mistakes I think he’ll he’ll probably have a better chance to win that game. While while I think pure play stock picking is much will be more rewarded more and we see that in numbers also that there’s still some alpha being generated by the mid and small cap funds in India but which which which may not be the case in terms in just in the large cap space. So yeah. Yeah no no got it got it. So yeah yeah I agree with you. I’ll I’ll come to that later and as you said SPIVA has its own problems. One second so so the the whole issue though is and the motivation behind the work that Siddharth Monica and I and a few others I think Shazi was there as well and couple of others were there and thank you for them. Thank you to them for for contributing to the work which did not see the light of the day. But what we thought was that you know there and there is research on this. See passive is is not the answer to to this, right? Now the the the the whole problem with passive is that you know there is lot many problems but the biggest one is about you know the price discovery and the the what is the purpose of markets? Right? The purpose of markets is capital allocation and capital formation. Now if that gets distorted, if price discovery gets distorted as you see in the US, right? Markets will move on micro flows, not fundamentals. And it will create mispricing. So we are we will go into an era which or or a zone where you know there will be new rules and we’ll you know the whole purpose of financial markets will get defeated especially the capital markets. Then there are the rise of the mega mega firms as well, right? So the weight in the index becomes a self-reinforcing advantage and that will distort the competition. The biggest one I thought is the governance vacuum with hundreds of stocks, right? Maybe thousands of stocks especially in the US. You know there’s something called as robo voting. How much can you vote? So you are going to you are going to ask you’re just going to be a rubber stamp of what is being told by a investment advisor advisory firm. Applying very little mind. As it is like just for covering 50 stocks in Nifty the number of pages that you have to digest is huge. One company is 500 pages, 600 pages. I’m not adding the earnings transcription and all of that information and the PowerPoints, but imagine, you know, having a portfolio of a fund manager who can who will be managing portfolios of maybe at least 100, 150, maybe 200 different names and then he or she having a educated opinion or the ESG analyst or, you know, somebody in the risk team coming out and saying, “No, there’s a problem over here and we need to engage with these firms or we take drastic actions or make call outs in terms of governance.” Uh, there is a reconstitution problem also. This is This is being done, I don’t know how many of you are on what they call as passive desks, uh, where, you know, or on the quant side of things, where you can predict really like what is the weight because all of these things are published, right? So, index constitution itself is published. Now, if you know how the index is going to be constituted, you know what firms are going to get into the index and what firms are likely to be let out of the index. And, uh, if you are able to guess that, then you’re also able to guess, uh, in terms of like what is the index impact and people can trade in different types of fashion. Uh, uh, then there is a false diversification also. The main problem is, you know, the self-reinforcing loop, right? The passive inflows raise index prices, active managers underperform, and, you know, you get disincentivized to cover anything and more and more capital moves into passive. So, these are some of the ills that are there and, uh, we have to be watchful, uh, and as as a profession, as, uh, somebody who stands for the investment profession, the CFA society community, uh, I hope we keep reminding ourselves on what the other side look like. So, so capital markets are for, you know, I mentioned about the Gross Diglitz paradox. If all investors index prices would never reflect information. Active management is a mechanism that makes passive management coherent. Uh and essentially passive is is a is a mathematical phenomenon and outcome. Uh and you know, we cannot make the uh an outcome as the uh the cause or the driver for capital markets or capital formation itself. So, I just to maybe come in here and I would urge again the participants to maybe if they have any views, please raise your hands and you we can you can or you can say if you have a counter view or if if you want to share any insights from your uh as from your practitioners inside, we we are happy to hear that. Uh I think it’s an open discussion. Uh please please participate. Yeah. No, no, so we should we should, you know, at least from the people who are there, right? And people I know like Bikash. Uh he is very good grasp of the needs of uh you know, investors and you know, what fund managers are are providing. We can go to Bikash. We can go to I can see Bikash over here. Uh there is Vidhu as well. There’s Jasdev. Uh I don’t know who who else is there. I know. Uh but people should I mean Suraj, do chip in whenever you get the chance. Uh Soham is there. Uh I think he’s an analyst. Sujit is there. So, Yeah, so Yeah, uh Suraj has put out a question in the chat room to the larger audience and for us all to discuss. Uh wouldn’t large amount of passive investing be a potential source of winning? Given liquidity flows flows drives market directionally like a big tide. Yeah, so yeah, you’re right Suraj Suraj sir, that’s what people are doing, right? So, the liquidity flow is what what these the arbitrageurs or the cons they aim at, right? So, they guess what the liquidity flow is going to be in the index, the inflow and outflow and they bet on it. And they are the first the first movers who try to take advantage out of that. Now, these are again now these are experts, right? These are in a way insiders. Imagine a retail investor or, you know, a wealth advisor without the tools, without the programming know-how of how to do these things. They will not be there to gain from that quote-unquote winning. The the and, you know, just just to, you know, spend one more minute on this. I mean, who is winning here? So, if the winning is just by making money, is that really meaning? And, you know, we go back to the, you know, the the purpose of the capital markets where and the the the the ills that we talked about, if capital is not going to deserving companies who need it more, but it is being concentrated on few big winners because there is momentum in what they have been doing, then, you know, there is a misallocation of capital, if you see what I mean. Maybe that’s an opportunity for active investors and, you know, patience would be the name of the game, but active investors would have to be much much more patient for a small company which was never there in the index to be a part of the index so that somehow at some point in time passive flows will, you know, the tide will the high tides will carry it carry it to to to to its peaks. So, yeah, we we have Vikas is I think he wants to say something. Please, Vikas. yeah, go ahead, Vikas. Hi sir, hi sir, hi great initiative. Thank you so much for starting this. And very insightful discussion also on this topic. While we all know what the I mean it is proved also that the how we can outperform without losing mass, but my question is simple. When we present it to the investors they would like to see the winners or the reasons why the portfolio is doing better. If we’ll discuss the other way around the chances of not getting a positive outcome with the investors is very high. So how do convert it from a conversation maybe discussion point of view with the investors or maybe how to take it forward with them to implement on the ground actually. Great question. I get reminded because you from one of our you know very talented you know wealth advisors and very successful wealth advisors. I get reminded by his quote. I forget the name. We do you have his name like we invited him the French guy? You know who’s uh based in the US. But he was there at our wealth management conference. The name will come to me or let me Google him at least. So he’s he was the editor of the portfolio management journal and the wealth management journal as well and a charter holder of course. So he used to say that you know there are different types of investors. There are some types of investors who and to the audience that we’re talking about within retail investing. It goes to the long-termism thing and I know it’s a difficult narrative. Because that you know to tell people that you know keep be patient and you know this is not really winning and you know one quarter or two quarter does not matter. But this the what this guy was telling us was that uh what the most successful wealth advisory firms are those who are there with the who whose clients understand the more core philosophy of this firm which is long-term investing. And when the tides go out, right? Whenever and low tides keep on happening in low tides, you know, people will will run away from short-termism. People who are advising on you know, gains like you know, buy this flipping from one portfolio to another. There are many studies that people will lose out eventually. But people who which those who hold on, they’ll make a lot of money. So that’s a core argument. I’m not expert. Maybe you know, I’ll have to learn from you because you on how to how to create that into a dialogue into persuasive conversation. Maybe it’s a simulation game. Maybe it you know it is in simulation game as in you know, show people as to what happens if they keep on betting on portfolios that are going going to give short-term gains. But that’s one way to to to do it. Just to maybe I do agree. I mean that is true. Yes, sir. Yeah. Yes, it is. You are saying something. Yeah, I was just maybe taking forward that point to just to understand further. So I think we as in Are are we trying to say that uh if if you when we are communicating to our clients uh is sometimes the the ask is that you outperform by selecting stocks or maybe do a proper selection. While the maybe the win is coming from more from avoiding maybe diversification and asset allocation. Is that what you what you are saying because you Yeah, partly correct. I mean see look at the recent advice. Every time when you find is doing good or any stock I mean stock is doing good. Everybody will try to guess you know on that. But when you try to highlight the consistency and over the performance over a long term and all they value it less compared to the recent performance. I mean the consistency shows that it’s a loser game. But people I mean tend to get biased towards the recent performance that is a kind of I believe it is the winner’s game kind of thought process. Now how to convert the findings that whatever we have done in terms of taking forward with our investors to convince that no what you are saying is wrong maybe. Maybe a behavioral point of side I’m trying to highlight how to take it forward. Yeah. Yeah. No, I’ll I’ll you know so the behavioral point of I think it’s it’s an important point. Maybe we should have a separate session on that or you know we could look at Kshitij if you if you think it’s right. We could look at papers on this on how this is being done. So one of the answers because I was moderating that session and I’m actively looking for the name of the person because he’s written a lot on this as well. There are so so he had he had mentioned that you know goal-based investing is one way to look at things. So and I I’ll be remiss I mean last weekend you know a very senior politician from my town. I stay in this small town called Khopoli. He he had come to me and he was saying I just need your help on you know on on managing my wealth. I said I’m not a professional wealth advisor and I will it will be wrong if I give you any advice at all and it will be illegal not just wrong. So so he was so we the discussion weird around you know why do we need to make wealth? Why do the purpose of wealth itself? So if the if wealth does not have a goal what use is that wealth? Like you know otherwise we are falling into that familiar trap that was key to me to me to say something so if that is the motivation of that wealth you know it’s self defeating and it’s endless. You know we will be it’s a loser’s game because you know a winner’s game would be in this context would be to look at the objectives of the wealth and that’s what he had written his seminal work was to do goal based investing and how does goal based investing actually fit into portfolio optimization? Yeah so so because you know I mean we’ll have to have a we’ll do a separate talk on this that’s okay yeah yes. Yeah yeah we should we should move on actually true. Yeah we do. Thank you. And also you know I have a suggestion it’s thank you first of all for this presentation. What I can see and all of us can see is that you know under this simple sounding idea of active versus passive there are many many questions to be answered right and there are lots of deep insights to be uncovered and things like that. So and you once you start asking you know you are you’re asking governance issues you’re asking about capital going to companies just because they happen to be big this that and so on so we I think we need to do a and you quoted many papers in uh, of for each of these things. Now, if we, if we are to do a systematic job of understanding this, you know, I was looking at it from the point of view of our professional learning journey, right? Mhm. Uh, and in India, we may even have different questions like what happens when foreign portfolio flows are strong? What happens then foreign portfolio flows are less strong? Like is active investing better in one case and not better in the other case? Okay, so uh, there are all kinds of questions that can be answered and what we are are doing right now is just skimming the surface and uh, finding for ourselves that there are lots and lots of interesting questions that like many many PhDs can be done on the questions that you are posing here, right? Yes. so I’m just thinking aloud that but this is an important question that we need to keep on our uh, you know, agenda agenda and keep working on it systematically and keep revisiting from time to time to time as we develop new insights. So, one way of doing it is that we start off with a prospective space. That is that you say you lay out all the interesting questions that you can think of now and a you know, of whatever you call a literature survey, this is how it’s been answered elsewhere, etc. etc. You have a small special interest group uh, which is tracking this and then we you come back to it every 6 months or whatever it is to see okay, what new has come out. Now, we I think we really need to have connections with the academic world both in India as well as abroad and feed these questions to them because you know, the the the PhD guides uh, in many of these places, they are constantly looking for interesting topics to give to their PhD students and so on. So, it’s quite a rich rich area uh, but there are there are several things that we can do with it. I mean, this when when you first propose that you will we will take this this paper and let’s discuss this paper. I quickly realized that this is this is such a gold mine, okay, of interesting questions to ask and answers to get. And then, if once we are on that journey, we will get better at talking to our clients and talking to other market participants with more knowledge and authority than what we are able to do. Right now, there’s a lot of speculation, okay? And there is a lot of people think that they know, but that knowledge is based more more more of ideology than, you know, actual real research-based data-based knowledge. Right, right. Yeah, no no that’s we’ll yeah, thank you. Thank you, it’s very insightful. Madhav is saying that flows can dictate performance and spread between active and passive performance. How has this played out in other markets? And if outflow in India trend can have an impact in level of active performance. I understand it’s only one piece of the puzzle, but pockets of opportunity or like you said, divergence between fundamental and impact will always remain. So, that’s Madhav that you know, that could be a area of study in how how this has played out in other markets. We’ve looked at India and I mean, predominantly the use the most research papers come for the US markets. And what we are trying to do in India is just to see if we can replicate some of those things. So, let me you know, go through you know, some of the other slides. I mean, one or two slides I thought maybe of interest before we run out of time. One second. How do I close this? Maybe these should be two hour sessions and not one hour sessions. Yeah, maybe. Yeah, maybe. Maybe. Yeah, I think that is that is a good idea, yeah. I don’t think two hours you will be able to Yeah, yes, yes. So, yeah, no, so I mean ignore the SPIVA data because you know there’s lots of noise in that as I should have mentioned. But one of the behavioral things, right? Like we realize like ELSS no longer has got importance. But ELSS is as a category has had the, you know, is among the best out-performers like across any major categories. I mean, take all of this data with a pinch of salt, but you know, the because that is because of the holding period. So, wherever the holding period increases, you know, the chances of winning are very high. We all know about the coffee can portfolio and the dead man’s portfolio, right? I mean, that’s where people really, really make money. Is SPIVA public data? It is public data, but you know, it is heavily criticized. Uh-huh. Uh, now, you know, there is, you know, things are already changing with AI and, you know, but you know, I would rather I would flip it around and I would say that with AI active managers can actually hit a gold mine. Because uh, you know, what are who are active managers? I mean, uh, the bulk of the people who can remain the staying power, there’s a huge survivorship bias in the active management field. And if you if you can remain in this field, that means you got, unfortunately though it is that, you know, you’ll have more capital, that’s why you are around, but you’ll have access to, you know, good AI tools that would not only increase your breadth and depth of information, but it will give you insights which you would never be able to uncover without the use of these tools. So, so alternative data or using all types of AI during in in in in in research as well as in portfolio management can help. Sorry, Tanmay has got a Tanmay, please. Oh, yes. And hi, this is Tanmay. You know, this argument about AI, one thing I’d like to counter on that is that it will actually take the, you know, power from the hand of a bigger fund manager to even the smaller PMS guy who doesn’t have access to bigger Bloombergs and other data’s because the, you know, all these AI LLMs are very cheap to start with. So, which will actually reduce the further the, you know, active returns that have been coming in Indian markets because because we are allocators I’ve worked for Khazanah Nasional. It’s a Malaysian sovereign fund. You know, we see US and we realize that long only it’s a it’s a it’s a zero-sum game as it’s been written in the paper. So, it is not there in India maybe to some extent, but soon it will also follow. As Indian market become more liquid because the problem with India in ETFs is the tracking error of ETF is very is huge. It’s 150 bips. If you have I have to track MSCI India, the tracking error is 150 bips. And, you know, as and when the ETF market become more liquid and more diversified as the way US market is, I think India is also going to go towards this, you know, more passive flows. Because as a allocator, the money will go where the returns are. One. Secondly, I agree with one of the participants’ point where they said that, you know, still there is some alpha, but the point is as a allocator, I don’t see consistent alpha. One manager may be making alpha one year, second he’s not making alpha. So, as a allocator, when I do my manager selection, I will not be able to find a manager which can consistently make alpha, right? So, then it is increasingly becoming a zero-sum game. So, this is my limited point here. No, you’re absolutely right. I mean, I would Let me rephrase what I mentioned about AI. You’re absolutely right. Uh any technology, you know, levels uh uh the the the game, right? It It brings uh unprecedented power to people who uh don’t even have access. Now, of course, there is the the bars for using that power are there. So, for instance, you at a minimum, you need to have a PC or you need to be a literate and so on and so forth. Uh literate as in uh as in understanding the technology. Uh but uh to to to Tanmay’s point, right? People who The cost of LLMs, by the way, it’s still not that uh it has not fallen as much as it can and it will. Uh but surely, as uh you know, many people have said like, you know, there’s uh this movie will be coming to a theater near you. Uh so, be patient and it’ll There’s a race to zero that is going on. Uh the big point is uh is is actually the patience in teaching yourself how AI has to be used or will to will be used. So, that is the big point, Tanmay. Uh uh that is what I meant by staying power. And of course, like if you want to do it in a secure way, like if you want to do it individually, uh it’s fine. But if you want to do it in a secure way for your own clients, you have to invest in cloud infrastructure. You have to be compliant with uh the regulations and so on and so forth. So, uh at the same So, it’s non-trivial as well. But I take your point. It’s a it’s a leveling field, and you know, it could actually uh make the market more efficient. Now, uh the the question is out there, you know, how fast that will trickle down, how fast people will gain the skills uh skills how fast will they be, you know, adept at uh how one is how portfolio managers and research analysts are adept at using Excel. So, that is the essential journey or the learning curve. If people become adept at using natural language processing to use AI, to tame AI to be a servant, you know, they, you know, it will be like a Excel-like tool. So, so, yeah, so, let me Let me quickly go to the closing of this, you know, mainly for, you know, for what it means for wealth managers, RIAs, and retail investors. So, you know, I mean, I I I understand Vikas’s point and you know, what we have to keep on telling people is, you know, both for retail and the wealth wealth side of things, you know, it’s a staying power, you know, how long-term gratification. Investing is perhaps one of the few fields where, you know, you get rewarded in an outsized manner for being there for the long term. The more short-term you are, the more likely, you know, it is going to bring bring untold amounts of stress and and also, you know, actual losses. Uh so, you can find out, you know, the the buckets that you want to be in for the right Where do you want to be active? And, you know, you can, for example, you want to avoid F&O unless you really understand the Greeks, you understand the maths, you understand how it is being played. And, you know, if if you don’t, then you know, you don’t want to take a bet and and then lose out. And then having these horizons and, you know, I would highly recommend goal-based investing because there’s mathematical theory on that. I will try to share it with this audience the papers that that I’m not able to recollect at the moment, but there’s a mathematical theory for this on how gold base investing and portfolio management are actually, you know, beneficial for a long-term investors. So, Srinivas, just to maybe Yes. where maybe I think the what even because was saying, I think and you also stated to a certain extent. So, even in the sense if we accept this hypothesis that I think to a large extent doing nothing or maybe being invested for a longer term is often better than doing something. Uh how do we how do we just sometimes for wealth managers or for for what maybe because what because was saying is that how do we justify the charges or the fees as an advisor to an Indian client who is constantly looking for intervention as an maybe that journey has to be done and then I’m I’m just thinking aloud here in the sense obviously this is one of the things that maybe saying long has actually helped people more. Uh but are we how do we even This is a question for the broader audience. Maybe some wealth manager here has an insight on that front. But yeah, I think uh uh just wanted to float that question here as an we know that staying is long staying long is helpful to the client. Yeah, no you’re right. So, Ajendra Kothari, a good friend of mine and you know, a fellow charter holder. I saw him registered. I I wish you were here and you know, we could because his his philosophy is based on that. The way he, you know, doesn’t I’ve attended his financial literacy sessions and uh these are these are phenomenal the way he conducts them. So, Well, know, so he’s got these stories on on the long-termism stories and he urges his people to actually stay invested. It’s not easy. He was telling me like, you know, I have to face so many WhatsApp messages and so on and so forth. And this was few years back. There’s one more lady, her name will come to me. I attended her session in Pune. It was for CFA Society members and she was saying she takes she’s a wealth advisor and slash distributor and she’s she told she was telling the audience, I just don’t take people who believe in in short-term profits as my as my investors. So, that’s Nobody I think getting them into start of the relationship is difficult. But anyway, I think we let’s take few questions. I think some people have put in some comments. Yes. Yes. Uh so so I think Sujit is saying due to fundamental differences between public and private markets, there are likely scenarios in which LSS this thesis may be violated. Uh example, Sequoia is structurally controlling access to the best investment opportunities in the first place. Uh quite different from a public equity manager where the securities are known. Any literature experiences seen by the audience in this respect? So You know, you’re absolutely right. I mean, see literature is at least academic slash practitioner literature, Sujita. Kahneman has said he’s gone on record and a few other uh people in his category, they’ve gone on record saying that, you know, private markets is where you make outsize alpha. And this is where there’s informationally liquidity, you know, there are all kinds of barriers for people to come in. So so you’re you’re right. I mean, that that could be that could be an area where, you know, maybe there has to be more research, more advocacy as well from our side. By the way, I got the name of the person because his name is John Brunel. Uh, we do rings a bell for you? Yeah, John Brunel. I was a big Yes, yes, yes. So, just look him up and you know, his his I think his thing is there on YouTube. His talk is there on YouTube and there are pointed questions that the ones that you asked because like how do you treat with how do you treat such clients? He was immensely successful. He written books on this as well and of course papers. He was the editor of the Journal of Portfolio Management and a practitioner, a wealth advisor. Sure, sir. Okay, then on that note have a nice evening. Thank you again. Thank you. Thank you all. Thank you. Thank you all. Thank you everyone. Bye. Thank you everyone for joining.