Active management is a tough gig. But knowing what does not work at least gets investors a step closer to finding their own secret sauce. Here are a few suspicious approaches some active managers pursue. Rather than adding alpha, these are more like illustrations of how not to beat the market.
Net flows into passively managed funds have surged in recent years, leaving active managers to pick up the crumbs. And earlier this year, none other than Warren Buffett warned of the high costs of active management and gave a qualified endorsement of indexing.
“For years and years — decades, really — the standard of comparing costs in mutual funds has been to take their total expense ratio, . . . but there are an awful lot of costs involved in mutual funds that aren’t in the expense ratio,” John C. Bogle said, when discussing his latest research.
Two radically different money management firms agree on the common components that drove their successes.
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