Active Mutual Fund Managers Don't Have Skill

While most of the video interviews with money managers on Yahoo Finance is just a bunch of garbage, this one is right on. This video discusses why using actively managed mutual funds is a waste of time.

Here's a short summary:

1. Prices are fair. This means that all availalable information about a particular stock or the market as a whole is already reflected in today's price.
2. Competition is huge. Institutions make most trading activity and they have access to the same information. So when they trade with each other it's extremely unlikely that one person or mutual fund manager can consistently outperform the market.
3. Since prices are fair, it's the amount of risk you take that determines your portfolio's return.
4. So while active mutual fund managers don't have skill in generating higher investment returns for you, they do have skill in charging you higher fees and fattening their wallets not yours.
   

Comments

[Setu Mazumdar MD]

One more thing. While active mutual fund managers don't have skill in generating higher investment returns, they do have skill in charging you higher fees and fattening their wallets instead of yours.

[DocMoney]

Another post touting efficient market theory... How did Warren Buffett, Peter Lynch, Bill Ruane, Glen Greenberg, Walter Schloss and others outperform the indices for very long periods of time? Some active investors do have skill.