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And I'm saying that over time an annual .6% underperformance is significant. Did anyone at any time EVER insinuate that there was a static return on the S&P 500? No, that would be stupid, and easily refuted with actual historical returns.

Obviously there is nothing that says the S&P returns 11% per year. Obviously there is no data that says that x number of mutual funds under or overperform the S&P each year, guaranteed. There is either an average underperformance or there is not. No one seems to be able to agree whether this is the case, and yet you seem to want us to believe you have all the facts and thus yours is the only valid opinion in the matter.

Which study does one listen to? Which one do you believe? Wermers? Fama's?

When Gruber discusses a 65bp annual underperformance by the average mutual fund, why should one not take those 65bps and see what they would correlate to using a model portfolio? Of COURSE it is generalized, but he is talking about AVERAGE annual returns, so it is not abusive to use that data and extrapolate it. And if a 65 bp average annual underperformance is meaningful enough for Grubers to bother to publish a report about it, then it has relevence, even if the guys in math lab discount it as being indistinguishable from zero.

Why didn't Gruber just say "well the difference is not statistically meaningful, on average"? Wow, that's some report. Stop the freaking presses. The coin flip guys have just been taken out back and shot!

Because an annual 65 bp IS meaningful in the real world, even if it is not statistically so, which is why the results changed using VFINX when they dropped their fees from 46bps to 19. If it's not distinguishable from zero, then WHY DID IT MATTER?

And finally, let's look at the final quote in Wermers' study: "Finally, all of our results ignore the higher tax burden of actively managed (especially high turnover)funds. Of great current interest is whether managers of actively managed funds add value net of taxes."

From a probability standpoint that tax considerations do not assist actively managed funds, I think I'm standing on much firmer ground than you are allowing.

In the end, the single most important thing to investors is that net return number. Not one year return, but compounded. Not just whether fund managers were good stock pickers, but what the bottom line was, net of taxes, fees, loads and expenses. So while this academic exercise is entertaining, it in no way provides any evidence at all that net of all of these things that there is a positive effect for actively managed funds, whether high turnover or not. Bogle has always used tax efficiency as part of the benfit of index funds, so it bears little practical purpose to say that he is wrong if you ignore the tax consequences of active trading.

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