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More irrational exhuberance

Modern Portfolio Theory or #mpt, and the capital pricing asset model, or #capm base their modeling on 2 hipothesis: investors are rational and markets are efficient. And those hipothesis are probably their biggest flaws because none of them are true consistently, and the chart below is living proof of that. It shows the fees mutual funds charge investors vs the gross alpha they deliver. If investors were rational and the markets were efficient, the chart would not be a random scatter, it should be positive sloped cluster where the more alpha you generate, the more you’re allowed to charge. You could argue that other factors might be in place to justify the decision, but still, the data should have more structure. It is possible that financial advisors and investors do not have this information available to make these decisions, and that’s why poor fund selection is being made. At Fund@mental, we aim to provide the unbiased information and the tool so you can make better investment decisions. We will incorporate this chart on the platform.

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Source: unlimited funds

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