Investing legend Charles Ellis: Most stock pickers are playing a 'loser's game'

Link to my MarketWatch column: Link

By Michael Sincere July 29, 2026

'Active managers who beat the market typically beat it by a little. But those who fall short, fall short by a lot.' — Charles Ellis

Charles D. Ellis has spent six decades trying to convince Wall Street of an uncomfortable truth: Most professional money managers cannot beat the market, and picking the ones who can is largely a losing game.

Ellis built that argument over three decades as founder of Greenwich Associates, which advised many of the world's largest financial institutions. The financial press has called him "Wall Street's Wisest Man."

Ellis chaired the investment committee at Yale University for decades, working with David Swensen, who was Yale's longtime chief investment officer. Ellis taught investing at both Harvard Business School and Yale. He served for years on the Vanguard Group board alongside its founder, John Bogle. Ellis's classic 1998 book, "Winning the Loser's Game: Timeless Strategies for Successful Investing," now in its eighth edition, has sold more than 1 million copies.

Ellis's 24th book, "Great American Investments: A History of the Bold Initiatives that Shaped a Nation," tells the stories behind 14 major U.S. government investments, from the Louisiana Purchase to the GI Bill to the founding of NASA, and the political fights that nearly kept several of them from happening.

"I looked for stories that nearly everyone today would agree were good decisions, even though many disagreed at the time," Ellis says. "Every one of these 14 stories is its own small adventure in how America makes decisions democratically. It is never easy."

In this recent interview, edited for length and clarity, Ellis uncovers key lessons from his long career in investment management. Among them: why indexing beats even the most talented stock pickers; the biggest mistake individual investors are making right now, and what a young investor can learn from a lifetime spent studying markets.

An active manager might charge 1% of assets, which sounds cheap. But at a normal 7% return, that 1% fee actually works out to about 15% of your returns. — Charles Ellis

MarketWatch: Your seminal 1975 Financial Analysts Journal article, "The Loser's Game," argued that most professional money managers cannot beat the market. What convinced you that was true?

Ellis: I was working at a research-driven stock brokerage, and every client I spoke with was certain they could beat the market. They were all competing against each other for the same edge. Around that same time, Jack Bogle was trying to launch the first index fund and could not get any backing on Wall Street. It launched as a load fund, an 8% sales charge just to get in, guaranteed never to beat the market. People thought only a fool would buy that.

The data proved us both right. Over a 20-year period, roughly 85% of actively managed mutual funds fail to beat the market. There is no reliable way to predict which managers will land in the winning 15%, other than looking at who charges the lowest fees. Active managers who beat the market typically beat it by a little, but those who fall short fall short by a lot, because a manager who is behind and worried about being shut down takes bigger risks to catch up.

MarketWatch: What separates a bold investment from a reckless one?

Ellis: The biggest advantage anyone has is time. Six months does not count as long-term. Real long-term means 40, 50, even 60 years. People start investing in their 20s and often are investing in their 80s. If you think about your children and grandchildren, it stretches even further.

I use the analogy of climate versus weather. I live in New Haven, Conn., where some days hit nearly 100 degrees and some days are close to zero degrees. Look at the daily weather; it seems chaotic. But ask anyone in New Haven about the climate, and they will tell you it is a wonderful place to live. Look at the stock market day to day and it jumps around constantly. Look at it decade to decade, and it is close to a straight line.

MarketWatch: Why is it so psychologically difficult for people to stay invested for the long term?

Ellis: Because we are human beings. We are wired to think too well of ourselves. Roughly 80% of people believe they are better drivers than average, better dancers than average, better at almost everything than average. Young men are especially prone to this, particularly when it comes to investing.

The best resource on this is Daniel Kahneman's "Thinking, Fast and Slow," drawing on decades of research with Amos Tversky. I spent 30 years consulting with investment firms worldwide, like a bumblebee moving from flower to flower. Every flower was talented and convinced it could win. Multiply that across the market, and those advantages cancel out. The only thing that does not cancel out is the fee you pay for it.

MarketWatch: You chaired the Yale University investment committee for decades, working with David Swensen, who was Yale's respected chief investment officer. What is the single most important lesson a young investor today can take from that experience?

Ellis: Understand how the market operates. It is filled with extraordinarily talented people whose careers depend on being right, evenly matched against each other. When you think you have an edge, you are almost always up against someone just as smart and just as determined.

Time, not talent, should drive your decisions. A horizon of 10 years or more calls for being close to 100% in stocks. A shorter horizon calls for bonds, and a very short one for money-market instruments. Do not try to time when to get in or out. Surprise is the most important characteristic of markets in the short run. In the long run, there is no surprise. A 20-year-old has decades of that long run ahead, and should be almost entirely in stocks without a second thought about short-term swings.

'Indexing is the easiest way to put the best judgment of the smartest people on Wall Street to work for you, at remarkably low cost.' — Charles Ellis

MarketWatch: What is the biggest mistake individual investors are making right now, and what should they do instead?

Ellis: The biggest mistake is letting short-term noise dominate your thinking about the long-term trend. Nobody knows everything, and you probably do not know enough to make good short-term calls. What you do know is that this is a great economy with a great future ahead of it.

Indexing is the easiest way to put the best judgment of the smartest people on Wall Street to work for you, at remarkably low cost. Think of everyone brilliant at Goldman Sachs, Morgan Stanley, Fidelity and Capital Group. With an index fund, all of them are effectively working on your behalf.

MarketWatch: Is there anything I didn't ask that you'd like to discuss?

Ellis: One thing that fascinates me is how people think about fees. Index funds cost 5 to 10 basis points. An active manager might charge 1% of assets, which sounds cheap. But look at it as a share of your expected return instead. At a normal 7% return, that 1% fee actually works out to about 15% of your returns. That is not cheap at all.

Compare that with the incremental return you are actually getting. Active managers, on average, produce a negative incremental return after fees, so that 1% ends up costing more than 100% of whatever you gained by hiring them. Nobody charges over 100% for anything. Yes, they do, for perfume and for investing. That is why, when I raise money for my old college, the first people I call are the people in the investment business. They have made more money than anybody else.