How index funds work: why doing nothing beats most experts
Why the average fund manager trails the market: the arithmetic of active investing
In 1991, a Nobel Prize winner showed that the average fund manager must end up behind the market, and he needed no data at all. Only a few simple sums. What are they?
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Rono hears about the noticeboard and comes to see it. "My team is smarter than a list," he says. That is true. And still, his fund is behind yours.
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Start with a plain fact. Every share of every company belongs to someone. Put all the owners in two groups: the index funds, and everyone who picks, like Rono's fund.
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