A question that sports fans often ponder is how the heroes of previous generations compare to the stars of today. For instance, was Ian Botham a better all-rounder than Ben Stokes, or Viv Richards a better batsman than Virat Kohli? Would Kevin Keegan or Kenny Dalglish at their peak of their powers have managed to outclass a modern-day defender like William Saliba or Rúben Dias?
Such comparisons are very hard to make. Why? Because elite-level cricket and football have changed dramatically. For a start, both demand higher levels of fitness than they did in the 1970s. Modern cricket bats enable players to hit the ball harder, and improvements in groundskeeping mean that pitches are more predictable and consistent than they used to be. Football is played at a much higher speed than 50 years ago, when skill was more important than relentless pace, and there’s a much greater emphasis on tactical systems.
In all probability, even the top players of yesteryear would struggle today — not because they were any less good but because they were playing a different game.
Like football and cricket, the financial markets have undergone huge changes over the last half a century. Although beating the market has never been easy, it was a more realistic proposition in the 1970s than it is today. Savvy investors, even amateur ones, had a reasonable chance of doing it. Today, hardly anyone beats the market in the long run, and that includes the professionals.
So what changed? Why have strategies that may have worked 50 years ago become so ineffective?
In his new book Rethinking Investing, Charles Ellis highlights six fundamental changes the markets have undergone since he began working in asset management in the late 1960s. The combined effect of these changes, he argues, has changed investing completely.
1. Most trading today is done by institutional investors
In the 1970s, about 90% of trading was done by individual amateur investors. The rest was done by institutions, like insurance companies, which generally invested conservatively. Today more than 90% of trades are placed by professional institutional investors, particularly hedge fund managers. These investors are full-time, highly trained and highly motivated professionals, with instantaneous access to information. For all these reasons, Ellis explains, they are very hard to beat.
2. Markets are far more complex and interconnected
The financial markets are far bigger today than they were 50 years ago. They are also far more complex and interconnected. Each market is just one part of the global financial system. What happens in stock markets also affects the bond markets, and vice versa. Stock and bond prices are also interconnected with residential and commercial property markets, the international oil market, the futures markets and the rest of the huge derivatives market. So it’s harder than ever before for market outsiders to see the bigger picture, let alone make any sense of it.
3. Institutional investors have access to far more expert analysis
A third change Ellis identifies is that institutional investors today have extraordinary access to expert analysts, who evaluate every major company around the world and compete intensively with each other for the big business of institutional investors by seeking out and evaluating new information. There has also been an increase in specialist analysis in areas such as technology and healthcare.
As a result of these three developments, Ellis explains, it has become extremely hard for amateur traders to outperform the professionals.
Does that then mean that ordinary investors should pay professionals to try to beat the market on their behalf? The answer, says Ellis, is No. Why? Well, three more major changes the author highlights have made it almost as difficult for active money managers to beat the market themselves.
4. The volume of trading has increased dramatically
The advent of electronic trading and, more recently, high-frequency trading, have been truly game-changing. 50 years ago, there were about three million trades placed every day on the New York Stock Exchange. That figure has increased by more than 300 times to nearly one billion daily trades, and other major stock exchanges have seen similar increases. This exponential rise in trading volumes has made markets more efficient by improving liquidity, reducing bid-ask spreads, and enabling faster price adjustments to new information.
5. New information is made available to all investors simultaneously
In the 1970s, active managers had a major advantage over other investors: superior access to information. They were allowed to hold private meetings with senior company executives, to quiz them on the latest developments, and they were generally given candid, informative answers. This often enabled them to buy ahead of good news and sell ahead of bad news. But regulators around the world have gradually introduced new rules to level the playing field. All publicly owned companies are now required to ensure that any useful investment information made available to any investor is deliberately made available to all investors simultaneously.
6. All active managers have access to the same, or similar, technology
The sixth and final development Ellis identifies is the rise in the use of technology. Professional investors today have vast computing power at their disposal, enabling them to gather information instantaneously from around the world, to share that information with experts and get immediate responses. Increasingly they’re using artificial intelligence to screen data and make projections of future probabilities.
“While individual investment managers may be thrilled by the novelty and the power of their own firm's technology,” Ellis writes, “the larger reality is that almost all competitors already have or will soon get equal technology. Rather than providing a competitive advantage, technology is over and over again a great equalizer.”
Price discovery is constantly improving
What Charles Ellis is saying, in other words, is that beating the market has become much harder for everyone — not just ordinary investors but professionals as well.
“As more professional buyers and more sellers,” he writes, “with more and better information and better technology — do more transactions with more skill as they compete with each other, the market they operate in gets better and better at the central purpose of every market: accurate price discovery.”
As markets become ever more efficient, he goes on, “there are fewer and smaller opportunities for active managers to identify overpriced stocks to sell or under price stocks to buy skilfully enough to cover all their fees and costs of operation.” What’s more, he says, the same improvements in price discovery seen in equity markets have also changed the bond markets.
In summary, he writes: “Competition among institutional investors has produced a Darwinian process of sorting out, so only the most capable and successful institutional investors have survived. This means that the average skill of the average institutional investor has been rising to higher and higher levels. Excellence is matched by excellence — and so, ironically, gets cancelled out.”
This is 2025, not 1975
The question, then, that investors need to ask themselves is this: Is my investment style several decades out of date? Am I still trying to beat the market through active stock selection or market timing? That may have worked, for some investors, in the Kevin Keegan and Ian Botham era, but it hardly ever works today.
The evidence is clear that, although they may get lucky from time to time, ordinary investors who try to take on the professionals at their own game will almost certainly lose in the long run.
Trying to identify, in advance, an active fund manager who will outperform on a properly cost- and risk-adjusted basis, is also a very tall order. Again, there’s always a possibility of striking gold, but you’ll almost certainly achieve better results by following the advice of Charles Ellis and investing instead in broad-based, low-cost index funds.
Rethinking Investing: A Very Short Guide to Very Long-Term Investing, by Charles D. Ellis, is published by Wiley on 4th February 2025
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