As economist William Sharpe pointed out in his famous paper, “The Arithmetic of Active Management,” before costs active management is a zero sum game, and after costs it’s a negative sum game: “Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs. Empirical analyses that appear to refute this principle are guilty of improper measurement.” In other words, for active managers to be successful they must have victims that they can exploit. Who exactly are these victims?

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