THE desire to beat the stock market is as American as baseball, apple pie and Warren Buffett.
So why do many investors persist in paying for actively managed funds, when cheaper index funds are likely to deliver higher net returns over time?
Some might attribute this behavior to the so-called Lake Wobegon effect, after the town in Garrison Keillor’s radio series, “A Prairie Home Companion,” where “all the women are strong, all the men are good-looking and all the children are above average.” There is a well-documented human quirk to overestimate one’s strengths — and that of trusted advisers — in the desire to be better, smarter and richer than ordinary. The trouble is that for investors, paying more for above-average returns may undercut profits.
Commentary on indexing vs active management in today's New York Times
http://www.nytimes.com/2009/04/12/busin ... ef=mutfund