Originally Posted by mathjak107
lets throw out a new statistic and im guessing at this. we could probly eliminate 75% of all activly managed funds from our selection pool and just use the remaining 25% and i bet we would do great.
Here's a variation on your idea: What if, for the moment, we just talk about large cap stocks. Lets take your idea even farther--don't stop at the worst 75%, instead, weed out the worst 82% of active managers . One convenient way you could have gotten performace better than 82% of the large-cap active managers for the ten years ended 31 Dec 2004 was to just buy the S&P 500 index. Wow.
This is typical. In the same period, index funds outperformed active funds in all nine of the Morningstar domestic style boxes. Sure, a small or very small percentage of active funds beat the indexes, but it's often not even the 25% criteria you said you'd be satisfied with in your post ( see below). So, why not save the ER and just buy the index?
("Romper Room" Graphic below reproduced from the article at the link)
Percent of active funds outperformed by index funds (1994 - 2004)
value blend growth
Large 66% 82% 84%
Mid 89% 79% 95%
Small 68% 53% 63%
I understand the allure of believing in the hot stock picker--I really do. But the data don't support the idea that they are out there and that they can be picked in advance.