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Capital markets work. Our commitment to this well-substantiated fact dictates all we do. In well-functioning markets, the buyer has the same information as the seller, prices quickly reflect new information, and new information comes randomly, thus:
- No identifiable trends or bias in price patterns appear
- Returns come only from bearing risks that can’t be diversified away
- Costs matter
- On average, managers will underperform any well-constructed benchmark
Applying this philosophy to investment management means:
- Realizing market returns at minimum cost will result in superior performance
- Active trading nearly always results in higher costs and underperformance in the long run
- Most performance is explained by a strategic asset allocation
- Results must be periodically measured against established goals in a straightforward and understandable way
| Applying the Science of Capital Markets to the Investment Process |
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