Why Is It So Hard To Beat the Market?

The data is in and, for fund managers who are still trying to “beat” the market, the numbers are still not on their side. As talented as active players often are at slicing and dicing the data, and as mightily as they may try, there’s considerable evidence that passive players continue to have the last laugh. Why is that? As usual, it has a lot to do with common sense.

It begins with simple math. Canada’s particularly high fund fees (on average) tend to add up fast. The challenge is further muddied by a tendency for investors to mistake lucky winning streaks as reliable results. Finding managers who have outperformed their highly competitive peers in the past – and will continue to do so moving forward – is far closer to a gamble than a guarantee.

Bottom line, after costs, it’s incredibly difficult to out-smart highly efficient capital markets that represent the collective wisdom of all market players, of all stripes. There are additional compelling reasons this is so. For example, have you ever heard the term “closet indexer”? To find out what that is, subscribe to Common Sense Investing and stay tuned for my next post.

Original post at pwlcapital.com