Why Active Investing Fails: Trying to Beat the Markets

News travels fast, and managers who were once able to capitalize on the successes or failures of a company are now competing with computer models and, believe it or not, artificial intelligence. Competition is so great it is difficult to win consistently over a long period of time with active investing.

Markets are really efficient, that they are really hard to exploit based on all available information. Many managers have a hard time letting go of stocks. They may hold onto them longer than they should or break from procedures because they don’t want to be wrong. Letting go can be hard, but obstinate resistance can keep us from making the right choices.

High fees eat away at portfolio returns. You inevitably pay more for these active mutual funds. And you might think 1 percent isn’t much, but on a 7 percent rate of return, that 1 percent eats up 15 percent of your yield. 

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