The quest to outperform.

Active or Passive Management?

"Investors, as a group, can do no better than the market, because collectively they are the market. Most investors trail the market because they are burdened by commissions and fund expenses."

-- Jonathan Clements, the Wall Street Journal, June 17, 1997

"Fees paid for active management are not a good deal for investors, and they are beginning to realize it."

--Michael Kostoff, executive director, The Advisory Board, a Washington-based market research firm. InvestmentNews, February 8, 1999

Is it a search for the Holy Grail?

The debate over whether financial markets are innately efficient rages on. Most academics argue that they are, making active portfolio management a loser's game where the odds of winning are so low it doesn't make sense to play. Active portfolio managers can't accept such an argument because it would put them out of business. Noted economist Paul Samuelson sums it up this way: "A respect for evidence compels me to the hypothesis that most portfolio managers should go out of business. Even if this advice to `drop dead' is good advice, it obviously will not be eagerly followed."

While the efficient-markets theory makes an interesting debate and provi...

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