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This article is supposed to have kick-started the passive investing movement which continues even today. It is a study that is famous among the investors and many of them including the names of world’s renowned value investor Howard Marks has recommended this as must read. This study revolves around and uncover several myths about active and passive investing. Howard Marks quoted that this shaped his thinking about investing.

Charles D. Ellis has done a lot of work on the subject of active and passive investing and proved several of his finding scientifically. Charles served as an investing consultant to large institutional investors, governments and wealthy families. He has authored over 17 books and hundreds of articles for various magazines.

The Loser’s Game

Through his work and several examples in The Loser’s Game, Charles Ellis elaborately breaks down the difference between a Winner’s Game and a Loser’s Game.

A losers’ game simply means that an investor can beat the financial market. “In a Loser’s Game, the One Who Loses Less Is the Victor”.

He defines a winner’s game in which the ‘player’ vies to win points by showing extraordinary efforts that can only come from practice and experience. Citing an unconventional but remarkable example from observations of Dr. Simon Ramo, he says that in the ‘two’ games of tennis, i.e. one played by professionals and one played by amateurs, the professional players’ game is one with long and splendid rallies in which points can only be earned through a perfect maneuver by one player such that the ball becomes out of reach for the other professional. In this type, the point has been won by the better player rather than lost by the other player.

In contrast, in amateur tennis, points are mostly lost by players rather than won by their competitors – one who makes the least mistakes or errors would ultimately win the match because the amateurs are incapable of fine play to win it.

“Data by Dr. Ramo shows that in professional tennis (a winner’s game), 80% of the points are won, but in amateur tennis (the loser’s game), 80% of the points are lost

Other examples of ‘the loser’s game’ he cites are all from unconventional origins – military strategy and compromise, gambling in casinos, campaigning for elected office and prize fighting in later stages of the match – in all these cases, you don’t have to try to win, you just have to make less mistakes than the competitor. Avoid mistakes and you’ll win – this was the crux of the article which shook the core of the investment strategies and thinking.

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