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Originally Posted by BYU71
Basically there are some active managers who kick passive managing butt and have done so over long periods of time. Note, I said "some". Not all, not even most. Most managers actually underperform the average, which is true in about anything. I am sure you have heard about the 80-20 rule.
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Yes you can find managers that have outperformed for long periods of time. I have never argued against that general idea. In fact Jay really wasn't making that argument either but I agree his original post suggested that he was in fact making that argument. 20% is too large but that hardly is an important part of your point.
Quote:
Originally Posted by BYU71
I will give you the high ground on theoretical arguments. I don't deal in that world and have no interest in it. That is the world of economists, who quite frankly also fall into the 80-20 rule also.
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I assume economists are in the 80% but I am not sure I know how that rule applies to economists. Or maybe you mean only 20% of economists make any sense. That might actually be true.
Quote:
Originally Posted by BYU71
If I find a manager who has consistently outperformed over the past 10 years, as for me, I will take my chances with that person over some theory. Like I have said over and over in this thread, it doesn't bother me if someone chooses to do otherwise.
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I don't think that's a bad strategy. Empirically on average a strategy for choosing funds with that heurisitic does fine (although not really better than other simple heuristics). Also such a heuristic can be perfectly consistent with portfolio theory. So in that sense your heuristic is probably a good one. It gives you a fund that probably in the end gives you a portfolio that is close to optimal in a portfolio theory sense but you are able to get to a near optimal portfolio without much hassle.
The implications of portfolio theory are hard to escape: once you tell me your care about the return and standard deviation of your portfolio, its really just math. Economics is flawed often enough, but math isn't.