The concept that active stock selection yields results indistinguishable from random chance is derived from the Efficient Market Hypothesis (EMH) and behavioral finance theories regarding survivorship bias and luck versus skill. It posits that past performance does not predict future returns due to mean reversion, rendering professional management unable to consistently outperform passive market indices over long periods without incurring excessive costs. This principle operates within financial economics, challenging the validity of expert stock picking by demonstrating that apparent success often stems from probabilistic selection rather than superior analytical ability.
The concept that active stock selection yields results indistinguishable from random chance is derived from the Efficient Market Hypothesis (EMH) and behavioral finance theories regarding survivorshi…