From the Archives: The Arithmetic of Active Management (1991)

“The best way to measure a manager’s performance is to compare his or her return with that of a comparable passive alternative. The latter — often termed a ‘benchmark’ or ‘normal portfolio’ — should be a feasible alternative identified in advance of the period over which performance is measured. Only when this type of measurement is in place can an active manager (or one who hires active managers) know whether he or she is in the minority of those who have beaten viable passive alternatives.”