Really Smart Guys That Can't Beat the Market

Saw this article in the Wall Street Journal over the weekend. It talks about how academics have long dabbled in the market. Professors whose thoughts while driving to work in the morning can squash the most intelligent thought of anyone else's. But just because they are smarter than the average bear, doesn't mean that they can consistently beat the market.

Prominent academics long have dabbled on Wall Street, scoring some big successes, such as mutual-fund firm Dimensional Fund Advisors—and spectacular failures like hedge fund Long-Term Capital Management, which imploded in 1998. 

The $800 billion ETF market seems to be especially fertile ground for academics these days. Unlike mutual funds or hedge funds, the vast majority of ETFs track market indexes. That passive investment style meshes particularly well with prevailing academic views about the stock market. 

It also means star stock pickers like Peter Lynch and Bill Miller, on whom mutual fund companies rely as pitchmen, can't play much of a role. In some cases, academics have stepped into the gap. 

For example, WisdomTree Investments Inc., founded with help from Jeremy Siegel, a Wharton School professor, enjoyed great fanfare in 2006 when it launched a roster of ETFs that emphasized dividend-paying stocks, which Prof. Siegel argued were the key to beating the market in the long run. 

Yet WisdomTree LargeCap Dividend Fund has posted negative average annual returns of 8% over the past three years, compared with 6.7% declines for the SPDR ETF, which tracks the Standard & Poor's 500-stock index, and 6.3% declines for the iShares Russell 3000 Index ETF. 

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