Mauboussin: Winning the Easy Game - Skill and the Ability to Extract Value

Check out Michael Mauboussin's latest writing at Credit Suisse. He talks about skill in investment management and the trade-off between active and passive management.

  • "Investors are moving from actively-managed funds to index funds and exchange-traded funds at a rapid rate.
  • We can measure the cost of being informed and the benefit of excess return to see if they are in rough balance.
  • Gross profit, the risk-adjusted return of the fund before fees minus the benchmark return times assets under management, better reflects skill than simple measures of return do."

Mauboussin: Winning the Easy Game - Skill and the Ability to Extract Value

Well, this gross profit yield has been in decline recently. Active managers are having a hard time justifying their fees.