Odds of Success for Active Managers
Richard A. Ferri discusses the various headwinds the investor faces if they choose the path of selecting actively managed mutual funds. In his book, "The Power of Passive Investing," Ferri lists the primary obstacles to achieving success. Success is defined as performing better than an index oriented portfolio.
1. The probability of selecting a winning actively managed mutual fund is low.
2. The average percentage gain above an index does not compensate for the risk of being wrong.
3. The addition of including several actively managed mutual funds in a portfolio further reduce the probability of success.
4. The longer one holds the actively managed portfolio, the odds of success drop even more.