Quote

I'm making a case against how money managers are handling customers' money. The objective of the customer is not being met if the fund managers are diversifying their assets into hundreds of businesses. If they do this, they are typically performing close to the indexes. But that's not the way wealth is created.

After costs, only the top 3% of managers produce a return that indicates they have sufficient skill to just cover their costs, which means that going forward, and despite extraordinary past returns, even the top performers are expected to be only as good as a low-cost passive index fund. The other 97% can be expected to do worse.

My view is that one should diversify broadly across different fund investments. However, it's tough for investors to try to pick the appropriate risk level that they should manage their funds at. Having a personal adviser would be helpful.

Throughout the universe of public and private funds, managers are measured quarterly against one index or another, defined by statistics, and corralled into this category or that category so that fund of funds, pensions, and other institutions can make comforting - if not necessarily prudent - asset allocation decisions.

There's accountability in the mutual fund industry. And they've been tremendous engines of wealth for people and they're going to continue to be so.

Mutual fund managers want your money in their funds. They get paid based on assets under management.

Many hedge fund managers have become billionaires; perhaps this - plus their reputations as the smartest guys in the room - is why they have captured the investing public's imagination.

Hedge fund managers charge so much more than mutual fund managers; alpha is even harder to come by. They end up selling a variety of things beyond mere outperformance.

The beauty of diversification is it's about as close as you can get to a free lunch in investing.

Mutual funds dare to be average. In fact, they dare to be lousy. They have long since ceased striving for anything resembling perfection when it comes to managing your money.