It’s common knowledge among the investment community that many actively managed funds underperform the market over the long term. For example, one study found that 95.56% of all actively managed large-cap funds in the U.S. underperformed their respective benchmarks over a 20-year period (from 2002 to 2021). In 2007, Warren Buffett famously bet a million dollars that a low-cost S&P 500 index fund would outperform a group of high-cost hedge funds over a 10-year period. (Even though Buffett himself is a counterexample of someone who has beat the market.) In the end, Buffett won his bet and donated the million dollars to charity. So why can’t experts beat the market? In fact, experts can beat the market – but it’s extremely hard to do so consistently over a long period of time. The biggest challenge that successful fund managers face is the law of large numbers. When a fund does...