97% of Fund Managers Don’t Generate Enough Returns to Cover the Expenses They Charge

The opening paragraph of Jason Zweig’s blog on WSJ.com, commenting on the 2013 Nobel Prize winners in economics titled: “The Nobel Prize is No Crystal Ball,” is sobering: “For investors, the main lesson from this week’s announcement of the Nobel Prize in economics should be humility about anyone’s market-forecasting—especially your own.” The three economists who won the coveted prize have spent their careers studying the financial markets. A disturbing finding by Professor Eugene Fama, one of the recipients, who teaches at the University of Chicago’s Booth School of Business, is that 97% of fund managers do not generate enough returns to cover their fees. That should give all of us pause for thought. Though there seems to be sufficient evidence that demonstrates small stocks do outperform the market historically (see quote of the day, above), a simple but important lesson emerges from the work of three remarkable men: diversify your assets and by all means do not entrust your money to one fund or the ideas of any one person.