When Charles Ellis wrote his now famous paper The Loser’s Game in 1975, he was in the midst of watching a huge shift taking place in the world of investment management. He was seeing the erosion of the competitive advantages that had set the top-performing active managers apart.

Speaking at an event organised by Satrix in Cape Town, Ellis recalled how the Rockefeller family office in which he had worked in the early 1960s was one of the first to have direct access to real-time stock prices through a newly patented desktop machine. Before that, the only way to get current prices was to call a broker.

In-depth research was also rare. Only a few companies were starting to produce the kind of comprehensive analyst reports that are commonplace today. In fact, investment management wasn’t even much of a recognised profession. Harvard Business School, where Ellis had studied, offered no investment courses.

This was the environment in which a new breed of active managers found that they could exploit the inefficiencies in the system to generate meaningful outperformance.

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