Talk:Passive management

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Smaller returns

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.

Most acadmica acknowledge that the stock market exhibit a weak-form of EMH and that the strong form of EMH is unrealistic. Paul.Paquette

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 investors are we talking about, and what do they want?

I've seen some very interesting DATA on performance of DFA index funds along with Std Dev of those portfolios on IFA.com. Recommend referencing some of that data on your site. It seems that index fund proponents reflect data and active mgt proponent reflect opinion.

Reconcile with index funds

I have tried to clean this up a bit, but much of the rationale is redundant with that of index funds and is still more of an enumeration than explanation. I think we should combine them and keep only information about passive investing in general here. Subsolar 04:33, 16 February 2007 (UTC)[reply]