Your points are spot on. I don’t believe you can use active funds and walk away. If you use active funds you need:
a. some mechanism that will help you find those performing better than 80% (at least) of the others
b. a method that re-examines your holdings every so often. I do it monthly.

I look at short-term performance (a year, 9 months, 6 months, 3 months and rank the universe of funds that are in a similar risk category. I then select the top performers. Then, I re-run the process monthly.

This is still no guarantee that it will outperform buy and hold – I admit it.

Again, it’s a question of what you want out of your investing and what you are willing to accept from it as well.

Solid post, but I am not sure that active funds are topping most index based vehicles right now. In fact, the number over 2008 and 2009 from what I have seen has been 90% fail to top the index.

And, it isn’t the same 10% or 20% that beat the market each year so it is very difficult to find the top managers. Bill Miller is a great example. So how do you pick the right managers? This is just as difficult as picking the right stocks.

Thanks. Yes…you bring up a great point and one that did not occur to me. Lots of blogs offer personal experience and there really is a place for that. But I think readers can gain in a different way by having an objective view point – even if they disagree.

Thanks Pal.

Great Post. I think there is a more important you indirectly bring up (please tell me if I am wrong).

Comparing this post with the other 3,000 posts out there on investing from blogs like your’s and mine – highlights the difference between professionals (you!) and those that want to control their own investments (most other blogs).

Both have their place, but there is a reason you get paid by clients to invest and it has nothing to do with your’s and the financial industries’ jedi mind tricks.

Great post buddy!

Good points. I would never suggest that anyone use an active strategy with loaded funds.

To your point about the fleeting nature of market gains – again you are right. Active funds will likely get slammed more as the market pulls back. Also, as I tried to point out, probably not strongly enough, an active strategy could – and will – under perform for extended periods of time. If you look at the post on timing (linked) you’ll see an example of a strategy that goes back decades. While there were long periods of under performance, overall the strategy did an excellent job.