Investors Rely on Lady Luck

The most significant problem for active investors is their reliance on factors other than empirical evidence in selecting investments. They speculate heavily and depend on Lady Luck, rather than on the science of investing. In addition, they often chase the recent success of a manager, stock, time, or investment style. The great majority of investors are unaware of the tremendous amount of academic brain power that has been applied to investing. This lack of awareness makes investors more susceptible to the lure of active management, so they engage in risks they do not understand and cannot quantify.

Step 2Lady Luck