The Seduction of Above Average

I know you have heard it many times before. Net of fees, most professional stock pickers can’t beat the market. As Brian Portnoy stated in The Geometry of Wealth:
“Decades’ worth of data validate that demonstrating persistent skill is very hard. According to Standard and Poor’s, more than four-fifths of professional stock pickers have not been able to beat their market (big caps, small caps, international, etc.) over 5-year or 10-year periods.”
His reference data is SPIVA (S&P Indices Versus Active) or the “the de facto scorekeeper of the active versus passive debate.” The SPIVA reports vary over time, but they all tell roughly the same story—the majority of active managers in U.S. equity funds have underperformed their benchmarks (net of fees) over 3-year periods and longer: