The Fundamental Index - Chapter 1 Efficient Indexing for an Inefficient Market

For the next 2 years, I'll be flying to Vancouver and back every other weekend to complete my goal of earning my Executive MBA. On such flights, I like to pass the time by catching up on some reading that I never have the time to tackle when in the office (like I'm not going to have enough reading to do already). The book I'm leisurely reading right now is The Fundamental Index by Robert Arnott, Jason Hsu, and John West. Over the next number of weeks, I thought I'd share some of the key insights behind the growing following of fundamental index investing.

A little over 30 years ago, the idea of cap-weighted index investing took root based on the idea that first, markets were efficient, and second, active money managers, after cost, can't reliably beat market indexes. Regarding the latter, the reason for under-performing market indexes by active money managers is: they essentially own the same thing.

Regarding market efficiency, I think the last decade has put a lot of doubt in investors minds; and this is the point of chapter one and the basis behind why fundamental index investing is superior to cap-weighted indexing. Keep tuning in as I sum up the key points from the next 13 chapters. You won't want to miss any as there are lots of 'aha' moments.

GB