What about beating the various benchmarks - S&P, Dow, NASDAQ, Russell, etc. - over a relatively consistent time frame? Say 10 years or so.
that's pretty much what Bernstein tested. he looked at all the funds with 10.5 years of results from 1987 onward (the study was done in 1997). he found over 450 funds in the Principia database, which he compared to their benchmarks in Aggressive Growth, Growth, G&I, Equity Income, Small, and International. only one of those funds exhibited "skill" in a statistically significant manner.
ironically, seven of the funds exhibited a statistically significant LACK of skill.
as Bernstein summarizes: "Out of over 400 diversified funds studied during the 1987-97 period, by definition half showed above average performance, but in almost all cases it seemed likely that this was due to random variation, and not skill. In only one case was there unequivocal statistical evidence of skill. When the same tests were applied to major league batters, abundant evidence of skill was found.
"By way of comparison, consider the best performing mutual fund for any given year. Such funds tend to do somewhat better than average the next year, but no better than average in following years. In contrast, in every case the National League batting champions demonstrated strong statistical evidence of skill in the 11 year period following their batting crowns. Put another way, batting performance persists, mutual fund performance does not."
efficientfrontier.com
if you really look at the studies, there is no evidence that investor skill has any persistence. this creates a dilemma for the would-be active investor: am i just an overconfident buffoon? as i said before, my problem is not that i don't believe Bernstein; it's that i think the markets are overvalued so the indexes themselves are a bad investment. so i am kind of a reluctant active investor. |
