"Mutual fund managers are trapped in this rather deadly vicious circle: the more successful they are, the more money flows into their mutual fund. Then, it is more difficult for them to beat the market averages or even to match their own past performance"
About this Quote
Success, in Chernow's telling, is a booby trap: the very proof that a mutual fund manager is "good" becomes the mechanism that makes continued greatness improbable. The line reads like a calm autopsy of a system that markets talent as scalable, then punishes anyone who believes it.
The intent is to puncture a comforting investor myth: that outperformance is a personal attribute you can buy into and compound indefinitely. Chernow frames the industry as a "deadly vicious circle" not because managers suddenly lose skill, but because markets are not weightless. When a fund is small, it can slip into overlooked corners, move quickly, and take positions that are meaningful to performance. When it swells with new money, every trade becomes harder to place without moving prices, fees and frictions bite, and the portfolio drifts toward the same mega-cap names everyone else owns. Scale turns edge into index.
The subtext is less about individual hubris than structural incentives. Fund companies want inflows; star managers become brands; marketing weaponizes short-term track records. Investors, chasing yesterday's winners, supply the fuel that makes tomorrow's underperformance more likely. Even the phrasing "match their own past performance" nods to regression to the mean: the market doesn't just compete with you, it normalizes you.
Contextually, this sits in a post-1970s world where indexing and efficient-market thinking made active management's promises harder to defend. Chernow isn't sneering at finance so much as describing a grim physics: alpha, if it exists, often has a size limit.
The intent is to puncture a comforting investor myth: that outperformance is a personal attribute you can buy into and compound indefinitely. Chernow frames the industry as a "deadly vicious circle" not because managers suddenly lose skill, but because markets are not weightless. When a fund is small, it can slip into overlooked corners, move quickly, and take positions that are meaningful to performance. When it swells with new money, every trade becomes harder to place without moving prices, fees and frictions bite, and the portfolio drifts toward the same mega-cap names everyone else owns. Scale turns edge into index.
The subtext is less about individual hubris than structural incentives. Fund companies want inflows; star managers become brands; marketing weaponizes short-term track records. Investors, chasing yesterday's winners, supply the fuel that makes tomorrow's underperformance more likely. Even the phrasing "match their own past performance" nods to regression to the mean: the market doesn't just compete with you, it normalizes you.
Contextually, this sits in a post-1970s world where indexing and efficient-market thinking made active management's promises harder to defend. Chernow isn't sneering at finance so much as describing a grim physics: alpha, if it exists, often has a size limit.
Quote Details
| Topic | Investment |
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