After costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar for any time period.
“Avoid jargon” because most people misuse it. Force yourself to spell out what you mean in simple plain English. It will help your thinking and communication.
“What about the organizational design?” Figure out what is causing the problem, and then think about how to avoid the problem. A lot of papers identified a bad decision, and then suggested reversing it. But they neglected to address the issue of why the bad decision was made, and how to make sure the same mistakes wouldn’t be made in the future.
“Don’t define the problem as the lack of your solution.” For example, if the problem is “the lack of centralized purchasing,” then you are locked into a solution of “centralized purchasing.” Instead, define the problem as “high acquisition cost” and then examine “centralized purchasing” vs. “decentralized purchasing” (or some other alternative) as two solutions to the problem.
“What is the trade-off?” Every solution has costs as well as benefits. If you list only the benefits, it makes your analysis seem like an ex post rationalization of a foregone decision, rather than a careful weighing of the benefits and costs. If you spent some time thinking through the tradeoffs, show it. If not, then you should.
“Which language is this?” I write this when I get gobbledygook written in the passive voice with big words that don’t mean anything. Instead write simple declarative sentences that clarify rather than obfuscate. Form is not a substitute for content.
I, Pencil is a 1958 classic economics polemic by Leonard Read explaining about how nobody knows how even the most basic items in a consumer society are made and more importantly, they don’t need to know.
The relevance of I, Pencil to environmental activists on Global Disinvestment Day is they pretend to know enough about the vast number of products made by the many companies within the average share portfolio to be out of work out whether these companies are investing in fossil fuels so they can sell their shares in them.
I, Pencil made the point that people simply don’t know how the most basic products are made, much less who made them, and with what. Even if they did know, this information would become rapidly out of date. The marvel of the market is the remarkably small amount of information that people need to go about their business. Prices summarise much of what people need to know.
The whole point of the separation of ownership and control in modern corporations such as those listed on share markets is shareholders simply have no chance of monitoring the day to day affairs of companies in which they invest.
Many shareholders have too small a stake to gain from monitoring managerial effort, employee performance, capital budgets, the control of costs and investment policies (Manne 1965; Fama 1980; Fama and Jensen 1983a, 1983b; Williamson 1985; Jensen and Meckling 1976). This lack of interest by small and diversified investors does not undo the status of the firm as a competitive investment.
Day-to-day management and risk bearing are split into separate tasks with various governance structures developed to ensure that the professional management teams serve the interests of the owners who invested in the company, along with their many other investments that compete for their attention. Large firms are run by managers hired by diversified owners because this outcome is the most profitable form of organisation to raise capital and then find the managerial talent to put this pool of capital to its most profitable uses (Fama and Jensen 1983a, 1983b, 1985; Demsetz and Lehn 1985; Alchian and Woodward 1987, 1988).
Firms who are not alert enough to develop cost effective solutions to incentive conflicts and misalignments will not grow to displace rival forms of corporate organisation and methods of raising equity capital and loans, allocating legal liability, diversifying risk, organising production, replacing less able management teams, and monitoring and rewarding employees (Fama and Jensen 1983a, 1983b; Fama 1980; Alchian 1950).
Indeed, our friends on the Left do go on about the power of boards of directors to set their own exorbitant salaries because shareholders lack of control them because they know so little about what they do.
That is, according to our friends on the Green Left, shareholders are not supposed to know enough about company performance and operations to work out if the salaries of top executives are justified. Top executive pay is always published in annual reports of companies.
Activist shareholders concerned about fossil fuel use nonetheless will be able to work out what the companies in their share portfolios are investing in and whether these investments are in fossil fuels. Details of these investments are much less public than the pay of top executives.
This continuous monitoring of corporate investment policies and associated buying and selling of shares will make investing in small parcels of shares in smaller companies listed on the share market rather expensive. Diversified share portfolios in index linked funds can have hundreds of companies in them. Some of these companies receive next to no media coverage that will simplify the cost to activist shareholders of monitoring their investments in fossil fuels.
Why Evolution is True is a blog written by Jerry Coyne, centered on evolution and biology but also dealing with diverse topics like politics, culture, and cats.
In Hume’s spirit, I will attempt to serve as an ambassador from my world of economics, and help in “finding topics of conversation fit for the entertainment of rational creatures.”
“We do not believe any group of men adequate enough or wise enough to operate without scrutiny or without criticism. We know that the only way to avoid error is to detect it, that the only way to detect it is to be free to inquire. We know that in secrecy error undetected will flourish and subvert”. - J Robert Oppenheimer.
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Utopia, you are standing in it! 
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