Numerous articles in the press have chronicled how few active managers have achieved positive alpha, performance beyond their respective benchmark. So the theory goes, because only about 20% can achieve it the better answer is to not seek alpha at all, but to invest in passive investments that mirror an index.

However before we blindly accept their proposition I considered it and below is my response.

I am very interested in your feedback both pro and con and I think all advisors need to stand up and say there is more to the story than what we read in the business news or online.

http://gbgorr.wordpress.com/20…..-of-alpha/

Mike H. said:

An index is just one possible passive portfolio in a universe of infinte possible portfolios. I agree that the cap-weighted S&P TSX index probably isn't a reasonable portfolio for investors to hold; but that doesn't preclude a person from passive investment. 

It was just one of any number of indexes we could have pointed to at the time. Buying any broad index would have resulted in severe paper losses during that time period. The whole point is if we buy passive  at the wrong time we have no option other than to watch or sell at significant losses. An active manager has more tools.