A lot of investors are going to lose money this year because of VOO/ETF propaganda

I'm aware of some of the discourse here in this subreddit, and I actually don't see convincing academic evidence that ETF investing maximizes the long-term outcome for retail investors. Specifically I want to address a few common arguments ETF evangelists make:

- Active mutual funds underperforms passive ETFs (Malkiel 1973)
- Buy-and-Hold Strategies are superior for long-term performance based on a lookback period of 20-30 years
- 96% of stocks underperform t-bills over their life times (Bessembinder 2017)

The first problem with these studies (or any academic literature) addressing this is that their population of **active managers aren't truly active**. **"Benchmark-hugging"** is a common phenomena where large managers (Vanguard/Fidelity) only deviate a few percentage points in tracking risk with their own benchmarks. **Career risk** is commonly associated with this type of strategy. Given both of these factors, it should be common to see underperformance net-of-fees.

Secondly, index outperformance is inherently a *momentum based* strategy. By their own admission, passive enthusiasts conclude that only a handful of companies are responsible for outperformance in an index. But this creates another problem. Any bubble environment, passive index investors are **forced to participate**. There's no hedging of risk, rebalancing, or de-risking away from companies that could be most vulnerable when institutions are forced to unwind.

I'd like to make a quick point on the study regarding that *96% of companies fail to beat t-bills*. I think proponents of passive investing who reference that specific study fail to account for both the cyclical factors and company life cycle factors slowly disrupted by innovation. Their position also assumes that they randomly pick companies like a dartboard would without considering that a truly active manager might concentrate their positions in **durable** companies with **pricing power** that are **quality cash flows** or consider multiple scenarios in the immediate future. **No long-short manager behaves as robotically as the study implies.** They are always constantly thinking about their companies and adjusting positions in a way that achieve desired performance.

Enthusiasts also like to attack the underperformance of hedge funds and enhance their argument that raw index returns are superior. The problem with this angle is that it **fails to consider risk-adjusted returns** and capital preservation. Returns are path dependent. **Experiencing a 50% drawdown requires 100% subsequent performance to break-even**. A key characteristic to wealth compounding and preservation is survival. ETF proponents fail to convince me that raw return growth without accounting for tail risk in real-time is the superior alternative.

The final point that I believe ETF evangelism fails is regime awareness. I have not seen a convincing argument or rebuttal to explain away the **negative real returns** observed in some periods like 1929-1953, 1970s-1980s, the japan bubble burst, and 2000-2010. I would like to believe that there are obvious factors for active managers to reposition for risk given signs of either higher deflation, inflation, growth, etc. A lot of the passive argument assumes these events happen in a vaccuum with no warning signs, therefore you shouldn't time the market and stay the course with 100% equities. When these regimes scenarios manifest into real life main street challenges, you are competing for liquidity at the worst possible times and none of the studies account for retail job loss, medical, etc.

**True active management (that's free from benchmark or career risk) is superior in my opinion.** By not minimizing agency and fully understanding your positions (whether concentrated, hedged, etc.), I think leads to better outcomes for investors who know what they are doing. Warren Buffett and Charlie Munger frequently reference this (with the caveat that people that don't know finance should consider index investing). But I don't think that means to blindly assume no risk of financial ruin with passive investing. And I do concede that it is either 1.) limited or 2.) difficult to find a truly outperforming active manager.

In the backstop of higher oil prices, lower job growth, overstretched valuations, increased geopolitical risk, and a volatility in monetary supply, I think investors this year are in for a rude awakening. And not only that, but they will experience the actual cost of so blindly believing passive investing dogma. Feel free to pushback as I know this is a very minority opinion here