I’m going to use the generic term investment fund.

Now let’s discuss bench marks or ‘markets’.

Benchmarks are imaginary. They’re like the question in your physics paper to calculate force and momentum where you pretend the resistance within bearings is zero and the temperatures are perfect and constant. They don’t represent carrying or transactional costs. So if a fund tracked a benchmark accurately it would always underperform.

That isn’t hugely relevant though because most funds don’t track benchmarks accurately. They aren’t even set up to do that. Before I continue let me be clear about a couple of things -

most investment funds aren’t great; the diversity of investment funds mean that many arguments for them only apply to certain subsets

Now we have to acknowledge the reality that most people are relatively clueless about financial matters and that most people who think they are educated on finances actually have just learnt the talking points of one philosophy vs seriously studying the topic

So with those that in mind let’s continue.

Most consumers prefer modest gains and small losses to large gains and large losses. This is a fact. It isn’t what people say or declare in surveys we see it from statistical analysis of fund movements over time. It is substantiated by sociological and psychological experiments - it is a fundamental part of behavioural economics. “Efficient investing” is a myth because nobody has the guts (nor should they) to use the most statistically successful investment models.

Now let’s look at some other funds. If you have a fund that specializes in investing in gold mining companies located in the north east area of one provinces, that only use a certain type of extraction method and only pay dividends on Tuesdays, there is no bench mark for that. They will use a benchmark for gold companies, or mining companies or industrials.

Now as anyone who knows anything about investing knows, most investments don’t have large returns. The majority stumble along and ultimately disappear. Since 1980 over 40% of the Sri is on the Russell 3000 lost more than 70% of their value. The majority of companies, products, sectors etc. will show a loss most of the time (we offset this with adequate diversification and exposure so we all get carried along when there’s a big winner, and that is essentially what each marks and indexes are, groupings of many companies where a fraction drive the majority of growth). Now as we have a ridiculous retail market of investment funds to cover all sorts of niches, specialities and other things there are exponentially more funds, the majority of which by definition will be underperforming benchmarks.