Hi Guys,
A few days ago, David Snowball posted a reference to a Chuck Jaffe article. In that article, Jaffe interviewed a market researcher who claimed that an extremely high fraction (like 90%) of fund managers do outperform simple Indices before some critical cost adjustments.
David expressed some skepticism and the need for a better understanding of the study. I await any follow-ups he will post. I too share that skepticism.
The odds of 80% to 90% of active equity fund managers outdistancing their benchmarks for any meaningful period is about as likely as inventing a perpetual motion machine or actually seeing pigs that fly.
I thought that Nobel Laureate Bill Sharpe had put that scenario to bed by doing some simple arithmetic in 1991. Here is a Link to his original article on that subject:
http://web.stanford.edu/~wfsharpe/art/active/active.htmThe Sharpe argument is so simple that it is hard to refute or to ignore.
I agree with Old Joe that a substantial number of managers possess the intelligence, the pride, and the ego to believe they can outperform benchmarks. But the marketplace is top-heavy with intelligent folks, and pride and ego will cramp performance.
That’s why, as the timeframe expands, the absolute number and the percentage of active fund managers who generate Excess Returns is a diminishing quantity.
I hope David will provide closure in the near future.
Best Regards.
Comments
Ones that don't are gone.....my closure