The Midwit Trap - by Philo - MD&A
According to Know Your Meme, “midwit” is a derogatory term used to describe someone of average intelligence who mistakenly believes they are among the intellectual elite.
The idea behind the Midwit Meme is that sometimes the correct solution to a complicated problem turns out to be very simple. In this scenario, the genius and the simpleton will both end up with the right answer for very different reasons: the genius will fully understand and correctly solve the problem, while the simpleton will blunder into the right answer for the wrong reasons. (The simpleton always picks the simple answer whether it is right or wrong, an approach that will sometimes lead to the right answer by chance).
It is only the midwit who manages to get the answer wrong, by coming up with a complicated solution that appears smart and sophisticated but ultimately proves to be incorrect.
In the example above, the genius works out that simple index funds are the best solution for most people because the management fees and trading costs associated with most active investing strategies are very high, and end up being the dominant factor in determining returns for most people. The passive investor will generate average returns without incurring any meaningful costs, while active investors considered as a whole must still generate average returns and after that still must contend with high management and trading costs.
