If an investment manager is a baseball player, then their success or failure in beating (or at least meeting) an index is their batting average. The batting average is essentially determined by taking the number of relevant time intervals (days, months, etc.) in which the manager bested or met the index, and dividing it by the total number of that interval for the period in question, then multiplying by 100.
For those who don't keep up with baseball (or investment management trends), high batting average = good; low batting average = not so good.
Let's say it's October 28, 1910 and an investment manager named Tyrus Cobb wants to see their batting average since the beginning of the year (a period of 300 days). Tyrus (we'll call him "Ty" for short) met or beat the index 110 times. So, our calculation is: (110/300)x100= 36.7. With that kind of average, he should have been a baseball player.
Related or Semi-related Video
Finance: What are Active Investing and A...4 Views
Finance a la shmoop.. what are active investing and active management? Active
doing something, active as in trying to beat the market by trading stocks active [People riding a bike on stock market appears on board]
as in humans making decisions often with the help of computers trying to beat
their index or the overall market ie the S&P 500 that's what we mean by the
market active; investing.. active; management okay
passive just passive.. active is what hedge funds and mutual funds and any
kind of funds that have a strategy do they actively try to invest money such
that the performance of their portfolio does better than whatever index or
benchmark it's measured against and notice were not talking about after-tax [Man discussing active investments]
performance here because remember every time you trade in a taxable account
while the attacks men cometh but we won't go there right now..... Your benchmark
compare is versus the S&P 500 and you manage a broadly based mutual fund the
passive investing cousin in this investment is an index fund think ticker
SPY, that's the biggest S&P 500 index fund well index funds are not actively
managed they are passively managed they just sit there and get tweaked a little [Pile of money grows larger overnight]
bit each year or really each quarter to kind of mirror the S&P 500 or whatever
their index is supposed to mirror but they just kind of sit there there's no
human trying to beat the market they are the market index funds are the
market and yeah 99% of actively managed funds don't beat the market over any
extended period of year like five or ten years very few ever beat the market and
essentially none of them beat the market after taxes so then why would someone
invest in an actively managed mutual fund when they're paying taxes and
they're thinking about an index fund as a comparable well basically they're one [Mutual funds on a table and a lollipop appears]
of these so yeah don't be one of these guys
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