Investing Myths: Alpha and Beta

[ConstantineX]

This is really excellent. I read similar ideas on Brad de Long's blog. However, he suggest that middling hedge fund managers are overcompensated. Read: "Not at the top, further down the food chain, however... it is a mystery how the hedge funds staffed by very smart and hard-working people who nevertheless do not seem to have much of a risk-adjusted edge over the market indices nevertheless collect fees of 2% of assets and 20% of returns each year..." and "For a generation, investors in Fidelity funds received net annual returns of S&P - 2.5% + noise, as high fees plus the price pressure that Fidelity generated against itself by herding with the Wall Street crowd took their toll. By contrast, investors in Vanguard received net annual returns of S&P - 0.6%. The gap compounds: Over 35 years Vanguard investors double their relative wealth. This gap drove John Bogle insane. But it did persist." What's wrong with Bogle's analysis? I'm not really well versed in the financial language so bear with me.