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We address four myths or popular delusions in the investment industry:
- Short-termism is rampant and deleterious: We hear this argument made a lot but often without concrete evidence, so we critically examine some of the claims to see if they hold up;
- Dividends play a large role in equity returns over time: We show that price appreciation is the only source of investment return that increases accumulated capital;
- Investing in money-losing companies is a bad idea: This is too simplistic, as some money-losing companies may still have attractive economics; and
- The rise of indexing has made it easier to be an active manager: If the investors who have turned to indexing tend to be less skillful, the remaining investors are left competing against stronger competition, making it harder to generate alpha.
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