Is there a place for active management?

There is a place for active fund management but it's not what you think it is and it is not the way you think it works:

A passive investor does only certain things. Straying from it invites considerable risk.

An active investor must do everything a passive investor does and when he does something different it is only after bringing a great deal of intelligent effort.

Intelligent effort is characterised by having the right mental framework for decision making, skill, considerable experience, tested judgement and more then a trace of wisdom.

In most years he will do no better then the passive investor but every now an again the active effort will pay off. Over large amounts of time the additional gains add up.

"The determining trait of the enterprising investor is his willingness to devote time and care to the selection of securities that are both sound and more attractive than the average. Over many decades, an enterprising investor of this sort could expect a worthwhile reward for his extra skill and effort in the form of a better average return than that realized by the passive investor." Ben Graham in "

The Intelligent Investor", 1949.

Background:
The failure of mutual funds to beat the Indexes. Ponzy schemes that emerged during the credit crisis. The outlandish fees that were charged by Hedge funds while producing little benefit over index returns. All these issues have sewn the thread of doubt in active investment management.