The distribution of returns in the stock market is very uneven. There is significant positive skew. Just handful of well performing stocks at any moment account make significant gains in market.
> The risk of substantial index underperformance always dominates the chance of substantial index outperformance, with the difference being greater the smaller the size of the selected sub-portfolios. It is far more likely that a randomly selected (small) subset of the 500 stocks will underperform than overperform, because average index performance depends on the inclusion of the extreme winners that often are missed in sub-portfolios.
Index funds pick these winners every time. Active funds start as underdogs even in the stock picking game.
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[ 3.0 ms ] story [ 11.6 ms ] threadThe Cliff's Notes are these:
* 82% of all U.S. funds trailed their respective benchmarks over 15 years.
* 66% of large-cap actively managed funds trailed benchmarks.
* 89.4% of mid-cap actively managed funds trailed benchmarks.
* 85.5% of small-cap actively managed funds trailed benchmarks.
Why Indexing Works, Heaton , Polson and Witte, 2015. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2673262
The distribution of returns in the stock market is very uneven. There is significant positive skew. Just handful of well performing stocks at any moment account make significant gains in market.
> The risk of substantial index underperformance always dominates the chance of substantial index outperformance, with the difference being greater the smaller the size of the selected sub-portfolios. It is far more likely that a randomly selected (small) subset of the 500 stocks will underperform than overperform, because average index performance depends on the inclusion of the extreme winners that often are missed in sub-portfolios.
Index funds pick these winners every time. Active funds start as underdogs even in the stock picking game.