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I expect that an increasing number of investors will abandon indexing and tracking managers, who are essentially closet indexers, and look for better returns as we enter 2006. This bodes well for mutual funds and private accounts that have consistently outperformed the S&P 500. As a result, I expect that the stock market will increasingly revert back to selecting stocks based on fundamental factors versus just trying to mimic the S&P 500.

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I'm not exactly sure why but when I read this it gives me a bad bad feeling. I imagine investors' eyes starting to be filled with greed - they think, hey look at all these funds outperforming the S&P. They become trusting of money managers and start to think they can retire on GOOG and AAPL. And then the markets destroy their savings.

Personally, I expect that an increasing number of investors will get screwed over. I am not a perennial bear, but I do believe the markets could be relatively choppy for 20 years or longer, particularly as more funds pop up chasing the same ideas. Add in the rise of mean reversion black boxes and other efficiency-improving technology and I can only hope that some future revolutionary technology propels market growth to the next level.