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The Changing Environment for Active and Passive Investors

Today, we’d argue the disinflationary forces of the past 25 years are leveling and, if you look at any model of the cost of labor, the cost of capital, the cost of energy and the cost of food, are probably starting to go the other way. We’ve already had the best of times in terms of falling interest rates. U.S. tax policies for investors are better than they’ve ever been, and one could imagine those becoming less, rather than more, positive. What this all means is that the rocket fuel of a declining discount rate is probably behind us. I know this sounds self serving, but that means the active stock picker should have a relative advantage over the next five years – passive index investing will no longer have the wind at his back. It also means that our return expectations over those next five years should be lower.