“I am open to the idea that the market is getting less efficient and that this has something to do with indexing. But if so, that would reflect a complicated set of interacting factors as opposed to a simple cause-and-effect process. World War II had many causes, and maybe American isolationism and neutrality was one of them, but the main cause was the actions of Germany and Japan. In the investing context, while “indexing caused my value strategy to fail” might be a slightly more credible statement than “the dog ate my homework,” it is a lot less credible than “value investing has gone out of style with non-passive investors.”

But I would argue that on the margin there are NOT a lot of active managers operating in the smaller cap world, many who are are so large as to be actually irrelevant in smallcap because they aren’t doing smallcap. But…nothing changes. Do real work on a business model, valuation and the people running the company. Avoid being terribly early. Size right. Hold on to dear life for the long run. And just be right.

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