Investors Pick the Wrong People to Manage Their Money

The public loves a long record of beating the market. But that doesn’t produce the best returns.

Link: Investors Pick the Wrong People to Manage Their Money

Quote1: “Doctors and electricians have to prove their skill and training to get certified. Money managers don’t. For almost two decades now, the average hedge fund has delivered a lackluster return.  Actively managed mutual funds generally fail to beat the market after fees, either in a given year or over time. Although most fund managers do have skill, and could generally beat the market trading on their own, the fees they charge more than cancel out their investing edge.”

Quote2: “Baquero and Verbeek find that the length of winning streaks doesn’t predict fund performance. Investors who put their money into hedge funds that have long unbroken runs of success are not getting a good deal.”

Read the article to learn about the Sharpe Ratio and winning streaks.

Definition:  The Sharpe ratio is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk (and is a deviation risk measure).  The formula is a bit messy to illustrate here, but the Wiki link is found here: Link: Sharpe ratio