hi, thanks for the article. Company is on my radar for some time now, but one of the biggest fears I have here is active vs passive management. This year passively managed index funds have overtaken actively managed funds’ ownership of the US stock market for the first time. There was a nice Financial Times article about it (cant find it now, sorry), generally actively managed funds are crushed by passive managed index funds. Money goes to cheaper alternatives, where 0.5 % fees are considered huge and avoided. The trend is clear. What in 10 years? Won't all the passive investing, technology, AI, cheaper brokers mean further deterioration of fees and AUM? And AUM and fees from management is THE life of this business. Don't we see an equivalent of fax-machine business of late 90s, where everyone was happy to have fax-machine in the office, and 10-15 years later it became obsolete? Not sure, really. ALl great, stellar balance sheet, margines etc, but this trend...

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That's certainly a well discussed point, but I see a couple of issue with that concern:

1 - I find that often concerns about long term macro trends are over-represented in companies stories, to the detriment of the accuracy of the valuation. Even if this is true, and passive indexes eclipse actively managed funds, there is nothing preventing the company from adapting and offering such products to its clients.

2 - I simply don't think it's true that indexes will always outperform actively managed funds.

Ultimately the efficiency of the market relies on the existence of various independent actors that constantly seek to exploit any inefficiencies that come up. If everyone is in passive indexes, those inefficiencies will appear more and more often, resulting in actively managed funds having an advantage over passive ones, and subsequently outperforming them.

I see this Active vs Passive as a bit of a pendulum, where the out-performance and subsequent "chasing" of one of those will result in the other gaining an advantage and subsequently outperforming.

I may certainly be wrong though! And so it's a good thing the business has no debt, and I purchased it at an attractive price, where even if the business declines I will still make a decent return.



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