William Sharpe presents a logical argument that passive management is superior than active management. Since the average return of both passive and active investors must equal the market return, and the costs of active management are greater than passive management, he concludes:
Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement.
Read the full article here. It was written in 1991 but is still relevant today.
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