Suppose that a mutual fund or money manager satisfied rigorous analysis and demonstrated added value. Great, but additional challenges persist to expect continued superior returns. First is market conditions that enabled the manager to beat the market may no longer exist. Second, the strategies that were used to extract inefficiencies from the market to earn superior returns may be duplicated by other skillful managers eliminating the competitive edge. Third, the strategies employed may no longer be effective if the managers' assets get too big. Trading volume and liquidity will eventually become a constraint. Fourth, the manager may raise their fees (as justified by the superior record) potentially eliminating the anomalous extra return.
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