Active Management

While it makes intuitive sense that a mutual fund manager with a Harvard degree would be intelligent enough to identify the best stocks to own in a portfolio, a mountain of academic and empirical evidence refutes this notion. As far back as 1965, Warren Buffet himself made this observation:

"It is remarkable that such a large majority of professional investors find it so difficult to match the returns of the stock market itself. The most celebrated individual investor of our time, Warren E. Buffet, wrote in January 1965 on the puzzle of the tendency of professional investors to under perform the market. Mr. Buffet mused:

Why in the world does this happen to very intelligent managements working with (1) bright, energetic staff people, (2) virtually unlimited resources, (3) the most extensive business contacts, and (4) literally centuries of aggregate investment experience?"

Excerp from The Dividend Investor, Harvey C. Knowles 111 & Damon H. Petty, 1992

In fact, depending on the study period, as many as 85% of all Active Managers have failed to match the return of corresponding broadly diversified index. Considering that a team of blindfolded monkeys would have a 50% chance of outperforming the index by chance alone, this is an astounding failure rate.