Thursday, April 23, 2009

Better to Be Lucky than Good II

This is a quick post in yesterday's Wall Street Journal.  It basically says that over the past five years active managers have again lost to their respective indexes.  This has been one of the cornerstones of our investment philosophy, that active managers do not justify their expenses.  

We are much better off owning the market and controlling investment costs. Stock picking is expensive and generally not worth the cost. For the managers who did beat their respective index, it is most likely a case of being lucky, because if the market is the aggregate of all active managers, some of them will by definition beat the average.  However, the data very clearly shows that there is no consistency of out performance by any particular active managers.