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Outside the Box: Here’s the big reason why your active fund stinks

Why does active fund management disappoint so often? One big reason is because most active managers refuse to hold cash when stocks get expensive.

This isn’t an earth-shattering insight, but an interview last week crystallized it for me. Bob Huebscher at Advisor Perspectives spoke with legendary mutual-fund manager Bob Rodriguez, whoretired several months ago. Rodriguez was a skillful user of cash.

“There will be a reversion to the mean,” Rodriguez stated in response to Huebscher’s question about Jeremy Grantham’s recent argument that high corporate profits and stock prices might persist. (Grantham has since addressed press reports that misunderstood his position.

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