<p>The puzzle always was why people invest in active funds not why active funds under-perform.  As long as there are people choosing active funds the puzzle remains.</p>
<p>Even if masses would switch from active to passive funds, it would be still puzzling why it took them decades to do so. We know that active funds under-perform for decades now.</p>

CC BY-SA 4.0
2021-11-04T00:43:50.083Z
2021-11-04T00:43:50.083Z
csilvia
<p><a href="https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/social-transmission-bias-and-investor-behavior/72313DD8E8227F179EE1ED760B10FD65" rel="nofollow noreferrer">Han,2021</a> describe <strong>active investing puzzle</strong> as:</p>
<blockquote>
<p>Notably, individual investors trade actively and have invested in
active investment funds for decades, and they thereby have on average
underperformed net of costs relative to a passive strategy such as
holding a market index, the active investing puzzle</p>
</blockquote>
<p>It is clear that <strong>active trading underperforms passive trading due to the trading costs, so we know the reason</strong> why active trading underperform passive trading, so <strong>why it is a puzzle</strong>?</p>

CC BY-SA 4.0
2021-11-02T06:44:09.110Z
The puzzle is why people continue to actively trade when an index fund would perform better
dm63
CC BY-SA 4.0
2021-11-02T06:46:52.427Z
@dm63, I agree, but in the same paper, Han,2021 also says that "**In recent years, there has also been a shift from active mutual funds toward both indexing and also to hedge funds**", in this case, it seems that the puzzle is no longer hold?. I mean, if the active trading increase, we can say it is a puzzle, but if it decrease, why we still call it a puzzle?
Phil Nguyen
CC BY-SA 4.0
2021-11-02T19:29:31.700Z
The puzzle continues so long as people continue to underperform relative to the market. Even if more people are using indexing, there's still a ton of day traders losing money on a regular basis.
RegressForward
CC BY-SA 4.0
2021-11-02T20:31:44.140Z
Thanks @RegressForward, I got it
Phil Nguyen
<nonexpert><investment><definition><trading>
Why we say "active investing puzzle" while we already know the reason?
Phil Nguyen
# Why we say "active investing puzzle" while we already know the reason?

(Asked by: username_0 on 2021-11-02)

[Han,2021](https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/social-transmission-bias-and-investor-behavior/72313DD8E8227F179EE1ED760B10FD65) describe **active investing puzzle** as:

> Notably, individual investors trade actively and have invested in
> active investment funds for decades, and they thereby have on average
> underperformed net of costs relative to a passive strategy such as
> holding a market index, the active investing puzzle

It is clear that **active trading underperforms passive trading due to the trading costs, so we know the reason** why active trading underperform passive trading, so **why it is a puzzle**?

**Tags:** nonexpert, investment, definition, trading
> **Comments:**
> **username_1**: The puzzle is why people continue to actively trade when an index fund would perform better  
> **username_0**: @dm63, I agree, but in the same paper, Han,2021 also says that "**In recent years, there has also been a shift from active mutual funds toward both indexing and also to hedge funds**", in this case, it seems that the puzzle is no longer hold?. I mean, if the active trading increase, we can say it is a puzzle, but if it decrease, why we still call it a puzzle?  
> **username_2**: The puzzle continues so long as people continue to underperform relative to the market. Even if more people are using indexing, there's still a ton of day traders losing money on a regular basis.  
> **username_0**: Thanks @RegressForward, I got it  

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## 1 answers

### Answer by username_3 on 2021-11-04. Score: 1 | Accepted answer

The puzzle always was why people invest in active funds not why active funds under-perform. As long as there are people choosing active funds the puzzle remains.

Even if masses would switch from active to passive funds, it would be still puzzling why it took them decades to do so. We know that active funds under-perform for decades now.


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