Now, as to the methodology, we don’t do these ourselves. These are Morningstar data. My understanding of how that data is compiled, and I take some comfort by the way, in its consistency from one group to the other—which suggests that there are not a lot of problems with the data. Although I’m the first one to state and underscore that all data has problems. When you see really consistent data like this, however, it’s an eye-opener. It may not be precise, but it’s got to be giving us an indication of what we know to be true.

One of my rules has always been, take a look at some numbers and if it flies in the face of your intuition, do the numbers over and over and over again. But if the numbers confirm your intuition―which is essentially that ETF shareholders and mutual fund shareholders generally look back at past performance and buy the funds that have done well―it is sort of performance-chasing…

We know that happens. We can’t measure it with precision.

Now when you get funds with a lot of daily cash flow in and out―I’m sure real estate REITs are a good example of that, and I’m sure the SPDR is a very, very good example of that―I don’t see how we can be precise in these returns. What you do is take monthly cash flows and compare them with the price of the fund, the average price of the fund during the month, then you figure out eventually how many investor dollars earn what returns over time. Is that way of aggregating the data precise? No, it is not.

But I’m persuaded in the absence of compelling evidence on the other side that these data are telling us something that is worth knowing. And it suggests that mutual fund trading is about as valuable as trading individual stocks, which is to say, not valuable at all, and harmful to your returns.

Wiandt: Every year we hear from active managers that “this is the year of active management.” Do you believe that there are environments that are more favorable to active management than passive management and index investing? And if so, what do those times look like?

Bogle: There is no way that active managers can possibly have an advantage no matter what the circumstances are. Just think about this: Almost 75% almost of all stocks are owned by institutional investors now, and they are basically, by and large, professional investors. They are pension fund investors. They are pension money managers, they are pension trustees I should say, pension money managers, mutual fund managers, which also manage pension funds and endowment funds. And that’s 75% of all stocks, and only 75% of all stocks. It is just not possible that they can be taking the individual investor on the other side— the remaining part of the market—to the cleaners with every trade. There is no evidence of that.

So what we find is that institutional investors and individual investors basically each capture the market return and they each capture the market—and together they each capture the total market return. That is inevitable. And that’s before cost. So when you take out costs, which are high, you end up explaining almost all the reasons that active managers cannot and do not beat the funds, beat the market itself. It is just statistically, mathematically, tautologically impossible.

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