There are a number of explanations for why many individual investors ignore the overwhelming body of academic evidence and continue to play the loser’s game that is active management.
Briefly, three of those reasons are:
- An education system that has failed the public. Unless an investor obtains an MBA in finance, it’s unlikely that person has taken even a single course about capital markets theory. Instead, investors rely on “knowledge” from the very people—Wall Street and the financial media—who have a vested interest in active management.
- Despite the importance of this issue, the public seems generally unwilling to invest the time and effort to overcome the failings of the education system.
- The need or desire to be “above average,” an occurrence we might call the “Lake Wobegon effect.”
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