Hello again, Fung,

Tom and I have addressed this common fiction that investing in active management is a zero-sum game. I cannot remember which of the posts in this series in which we addressed the point; sorry thus, if you go to find it. But the short story is that the underlying assumption of MPT and of CAPM is that there is an underlying market portfolio for ALL assets, including things like your mother's silverware heirlooms. The market that includes all assets IS zero sum. Put another way, there is a hidden assumption in the zero-sum claim, that everyone has access to, and is selecting securities from the same 'market' portfolio. But given the impossibility of that assumption, in practice, it is entirely possible for an active manager to hold securities that competitor's do not. One simple example, is that when I was a portfolio manager the fund I managed ended up being the only holder of a convertible security as all others had cashed it in and the issuer actively bought them back in the market.

Yours, in service,

Jason