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On this episode of Intelligent Money Minute, we interview Larry Siegel, the director of the CFA Institute Research foundation on the dimensions of active management. In this episode, Larry breaks down the various elements of active management. Active management adds three variables: alpha risk, active return, and the cost of active management. It’s not possible for active management as a class to outperform index funds. This is due to active managers betting against each other, which results in lost money relative to index funds over time. Not every active manager is going to lose. Some active managers will win and some will lose, but how long will those losers stay in the active management game? Probably not very long.
We’ll be interviewing Larry on upcoming Intelligent Money Minute podcast episodes, so be sure to subscribe if you haven’t already. Larry mentioned that the world’s population growth explosion looks to taper off this century, leading to more prosperous countries and individuals, which should allow us to solve some of the environmental enigmas that we currently face.
We agree with Larry that there are sometimes active managers that can outperform, but it is very difficult to find another active manager to take the “losing side” and be willing and able to stay in the game. At Intelligent Investing, we use both passive and active management, and focus on keeping our portfolio costs low. Because we are independent, we don’t need to pay any wallstreet middlemen or pay additional fees in order to keep our “big named-financial firm’s headquarters happy” which helps us remove fees and unneeded costs from our portfolios. If you are interested in becoming the next intelligent investor, please visit investedwithyou.com. We’d be honored to serve you and your family.
Larry Siegel Bio
Laurence B. Siegel is the Gary P. Brinson director of research at the CFA Institute Research Foundation and an author, consultant, and speaker on investment management and economics. Before retiring from full-time work in 2009 he was director of research at the Ford Foundation and, before that, head of research at Ibbotson Associates (since acquired by Morningstar). He attended the University of Chicago (BA 1975, MBA 1977). His book, Fewer, Richer, Greener, has been published by Wiley and is available, along with his other work, at https://www.larrysiegel.org.