#OneMinuteInvestor: Simple arithmetic

January 16, 2019
by
The Evidence-Based Investor
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#OneMinuteInvestor: Simple arithmetic

About the Video

It isn’t a theory that passive investors receive bigger net returns than active investors. It’s a mathematical fact

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There’s a simple piece of arithmetic investors need to understand.

It shouldn’t take a Nobel-Prize winning economist to point it out, but that’s what Professor William Sharpe did in a paper written in 1991.

Professor Sharpe invites us to imagine the global investing community divided into two — 

active investors on the one hand and passive investors on the other.

In aggregate, investors receive the market return.

We all have to pay to invest, but active investing costs more — usually considerably more — than passive.

And that makes a critical difference.

Before costs, the return on the average actively managed dollar, or pound or euro, will equa...

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