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There's a lot of folklore about how active funds consistently under perform passive funds, but that's only in aggregate. If you aggregate a few active funds th
by jamez1 11y ago
There's a lot of folklore about how active funds consistently under perform passive funds, but that's only in aggregate.
If you aggregate a few active funds they will be a good proxy for the index, which after fees, will have less returns than buying the index.
There is dependence in active fund returns, a good fund will consistently be a good fund, and a bad fund will consistently be a bad. You also have selection bias, because the best funds do not tell the public they exist, while the worst prey on public money to exist.
From the public's point of view, of course active funds are all bad. From those in active fund management we gain nothing from correcting them.
Journalists don't care for the truth and we don't care for their falsehoods.
- JamesBarney 11y agoIf this was said of companies people could say "Don't buy an index. That's just an average of good companies and bad companies. Instead just buy good companies they will consistently outperform the index." The problem is in the details. Identifying good companies is very very hard. Identifying good funds is much much harder. By the time there is a large amount of evidence that a fund is a good fund it is either A. closed to new funds or B. Drowning in so much cash that there is no hope of delivering it's historical returns.(its much easier to return 12% on 10 million than 10 billion)