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I believe what it's referring to is that traders are paid regardless of how well the funds do. Actively managed funds have fees of say 3~7% of the portfolio that are paid regardless of how well it performs and this is the bet that Warren Buffet made and won (index funds performing better than hedge funds in the long run when fees are accounted for).

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I would definitely agree with that claim, then. It seemed to me like he was making a far stronger claim, but it's very possible I'm wrong.

I was making a stronger claim. With bounded personal risk (i.e. the money lost is their clients, not their own), and unbounded potential for profit (i.e. a percentage of any profits), money managers have an incentive to make riskier bets.

The "norm" (average) for money managers can be achieved by having half the money managers lose money to the other half. This works well for them, because when they win they win, and when they lose someone else pays. Money managers can go big or go home, and keep trying, because in the long run they're not eating the losses.

But people betting their own money on the same strategies actually lose their own money when they lose.

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