https://www.bloomberg.com/news/articles/2017-04-09/lopsided-stocks-and-the-math-explaining-active-manager-futility

 

This is a great summary of why stock pickers, active managers are doomed to underperforming the whole market (index).

The concept of skewness – that only a few stocks (AAPL, GOOG) are responsible for the majority of returns. Missing out on these stocks means the rest of your portfolio has no chance of matching the overall returns.

There’s a good analogy with poker chips in a bag from the article. Another one would be if the Lottery’s jackpot got so big that the expected winnings of each ticket was >$1. The index strategy is to buy every ticket possibility. If your strategy is just to buy a couple, your expected return is >$1, but if you don’t hit the winning ticket, your actual return is going to be terrible.