Wednesday, September 9, 2009

Packaged Luck

On CNBC yesterday, Dan Solin said the following about Wall Street:

"Active management has investors chasing returns that all the studies show, just don't work," said Solin. 

"What Wall Street does is package luck and sell it as skill. The real data shows that passive management, actually in the last 20 years has achieved a greater return than active management."

In the segment, Dan Solin references a study by three professors (Barras, Scaillett, Wermers) to back up his claim that Wall Street is in business to "package luck and sell it as skill."  The study's conclusions seem rather consistent with what John Bogle has been saying for a very long time.

From the study's abstract:

"...we find a significant proportion of skilled (positive alpha) funds prior to 1996, but almost none by 2006."

Their findings suggest it's rather tough for actively managed funds to truly outperform in the long run.


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