The Arithmetic of Active Management¶
Sharpe, W. F. (1991). The Arithmetic of Active Management. Financial Analysts Journal, 47(1), 7-9.
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Primes¶
- Internal Intensification
- Expansion cost is distributed and recurring: each new name adds monitoring bandwidth, due-diligence load, and a coordination tax across the research team, and at the limit portfolio sprawl dissolves the strategy into the index it was meant to beat — the boundary-erosion downstream.
This sourceEstablishes that, in aggregate, active management is a negative-sum game after costs, so broad over-diversification drives an active portfolio toward the index — the portfolio analogue of boundary erosion.
- Expansion cost is distributed and recurring: each new name adds monitoring bandwidth, due-diligence load, and a coordination tax across the research team, and at the limit portfolio sprawl dissolves the strategy into the index it was meant to beat — the boundary-erosion downstream.
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Registry ID ref:2d5dead28214 · see in the full table