Talk:Passive management

How can the individual mutual fund investor have so much smaller capital return than the average of all equity funds? One reason is "turnover", buying and selling funds, perhaps based on historical price movements, which at the end of the day leaves the investors worse off than if he had simply held on to the first fund. "Chasing price" brings a risk of "buying high and selling low", that's the inverse of a good capital management strategy that tells you to "buy low and sell high", or simply "buy and hold".

Do you have a brain?

I'm suggesting some changes according to this:--Jerryseinfeld 08:02, 5 February 2006 (UTC)[reply]

Academic rationale

The rationale from dream-world academica is supposed to be:

The efficient markets hypothesis, which states that market prices are the best price of the company. This is a dream world scenario, it's of course possible that a company is misunderstood.

The principal-agent problem: an investor (the principal) who allocates money to a portfolio manager (the agent) must properly give incentives to the manager to run the portfolio in accordance with the investor's risk/return appetite, and must monitor the manager's performance.
- So? What's the point?

The capital asset pricing model (CAPM) and related portfolio separation theorems, which imply that, in equilibrium, all investors will hold a mixture of the market portfolio and a riskless asset. That is, under suitable conditions, a fund indexed to "the market" is the only fund investors need.
- What? Which investor are we talkinga bout, and what does he want?