Hi Jason & Thomas, another great piece, well done! Always learn something from your post.

I believe Baupost is a great case study for this discussion (I'm a big fan of Seth Klarman anyway). They have been very successful in active management and they can somehow be related to all of your points.

1) Essentially, their funds are managed by "analysts". If research and security selection are not the most important aspect of portfolio management, what is?
2) Absolute-return benchmarking and comparing the after-results to market return (as you pointed out) make more sense, and Baupost does it in style. Watching the variance between your return and index return everyday/week/month is not only a waste of time, it also distorts strategy and encourage short-term thinking. (The style-box thing is not even worth discussing here)
3) Focusing on high-conviction stocks is obviously the most sensible thing to do, but strange enough that not many people actually doing it. Again, Baupost does it in style. Diworsification is the popular way to go for most funds.
4) Baupost is closed for inflows. Size is the enemy of performance, and Baupost knows it well. Ironically, most funds feel "unsafe" for holding big cash position, unlike Baupost.
5) It really surprises me that so many capital providers are willing to dish out non-performance-based-fee mandates to active managers. If performance is not the measurement of compensation, what is? Yet, many of them are willing to pay a percentage fee over the AUM regardless of results.
6) I have not heard of any successful closet-indexing manager in my life (they are many rich closet-indexing managers though).