Active management rarely outperforms the market from "summary" of John Bogle on Investing by John C. Bogle
The prevailing myth is that active managers have the skill to outperform the market consistently. However, the reality is quite different. When we examine the evidence, we find that the vast majority of active managers underperform the market over the long term. This is not a matter of opinion, but rather a fact supported by decades of data. Numerous studies have shown that actively managed funds tend to have higher fees and expenses compared to passively managed index funds. These costs eat into returns and make it even more challenging for active managers to outperform the market. While some active managers may have short-term success, very few are able to sustain that success over the long term. The efficient market hypothesis suggests that stock prices reflect all available information and are therefore difficult to predict consistently. This means that even the most skilled active managers face an uphill battle in trying to outperform the market. The unpredictability of market movements further adds to the challenges faced by active managers. Investors are often lured by the promise of high returns from active management, but the evidence suggests that these expectations are rarely met. Over time, the odds of picking a winning active manager are slim, and the costs associated with active management can significantly erode returns. In contrast, index funds offer a low-cost, diversified approach that allows investors to capture market returns without the need to rely on the elusive skill of active managers.- The data clearly shows that active management rarely outperforms the market over the long term. While there may be exceptions, the odds are stacked against active managers due to higher costs, market efficiency, and the unpredictable nature of stock prices. For most investors, a passive approach through index funds is a more reliable way to achieve their long-term investment goals.
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