One of the most useful things for investors and fiduciaries to remember is “the average is the average.” You should approach each investment decision knowing that—over whatever time interval you choose—half of the securities that compose the market (properly weighted by the market value of each security) will earn above-average returns, and half will earn below-average returns. It is important to remember that when investors—amateur and professional—actively buy and sell the securities that make up their portfolios, they incur costs. They incur commission and market impact costs each time they buy and sell securities. Professional managers charge fees. These costs push the average return of all actively managed portfolios, as a group, below that of the market averages.
The average return of professionally managed portfolios will be well below the average return of an index of the securities that compose the professionally managed portfolios. Going forward, it is important to differentiate between the average returns of various market indexes (such as the S&P 500) and the average returns that are derived from portfolios that actively buy and sell the securities that compose the index. The distinction is that there are fees associated with actively managed portfolios; there are no fees associated with market indexes.
It is useful to remember that the investment industry is built on disagreement. With equal access to the same material facts, sellers and buyers hire representatives to meet—electronically or in person—to trade securities. Sellers pay commissions for satisfaction of no longer owning the security; buyers pay commissions to fulfill their desire regarding to own exactly the same security. It is also useful to remember that we are not talking about a few people meeting under the buttonwood tree of old.